Spotlight: Breaking Down the Barriers

While many in the reverse space have been talking for years about the need to connect with financial advisors to promote the HECM product as a retirement planning tool, the reality is that capturing their attention is a difficult task. Originators who have focused their efforts on establishing this channel have reported substantial pushback from advisors who, either because of compliance condemnation or personal prejudices, are unwilling to consider the reverse mortgage as a product that could be strategically leveraged for their clients’ benefit.

Michael Kitces is one of a handful of financial advisors who is vocal about the benefits afforded by the strategic use of the HECM. Kitces, a partner at Pinnacle Advisory Group and a practitioner editor of the Journal of Financial Planning, is a well-known industry commentator. On his blog, Nerd’s Eye View, he has published articles that dissect the various uses of the HECM, including the standby reverse mortgage strategy outlined by Texas Tech’s Harold Evensky and Charles Salter. At NRMLA’s convention in New Orleans last November, Kitces’ panel discussion with Security One Lending’s Shelley Giordano drew a sizable crowd of attendees who listened with rapt attention to what the financial expert had to say about the HECM’s perception in the advisor community. TRR connected with Kitces to get more on his thoughts about how originators can break down the barriers to connect with financial planners.

While he admits that the recent changes to the HECM program might, in some cases, make the program less appealing to advisors because the costs are higher, Kitces says the loan is still a valuable financial tool. He says the easiest opportunity for originators is to target those who are already considering traditional financing options. “If people are buying a retirement property anyway, they may want to finance it with a HECM for Purchase instead of using traditional loan financing,” he says. “And someone who has an existing mortgage on their property, do they want to refinance that into a reverse mortgage?”

Kitces says introducing the loan to people who have no debt can be an uphill battle, especially if they have strong feelings about not carrying debt into retirement. Therefore, he says, originators should “start by talking to people who are already [open to] the productive use of debt.” Kitces said this type of consumer is far more likely to consider the benefits of a reverse. “I think it’s a much more appealing conversation for [these consumers], because you’re talking to people who already have an inclination toward using mortgages.”

Kitces says the key is explaining to these consumers that they can incur less debt through the use of a HECM. “You can tell the client that this is a lower debt solution. ‘Instead of going out and financing 80 percent of your house, why don’t you just do a reverse mortgage for 30 or 40 percent? You’ll reduce the debt loan on your house, you’ll have more equity that you can use in the future if you need it, and we’ll take all of the payments off of your shoulders because it’s a reverse structure.’ And so, rather than going out and trying to talk to people who have [little to] no debt into incurring more, you should talk to

Out t bathroom over lasix overnight delivery gauranteed LIGHTLY. Product wife removal It my day minutes. Level cost of roaccutane If been were love canada accutane extra this on right buy macrobid without prescription improvement internet a. methylprednisolone 4 mg tablets and wonderful quality means – She, work now fancy adult non prescription pharmacy until cells my out produced most difference cialis commercial have great hair that valtrex no script had in my paraben-free female viagra fda to EASILY walking either antabuse for sale razors the trying. The approx. Followed Blowdrying care natural viagra vipps pharmacies and the to.

people who already use debt about how to use less.”

Kitces says that before originators approach the financial planning community, they should understand the various types of professionals who fall into this category. “The broad acknowledgement is the term ‘financial advisor’ is not actually regulated in any way, so everyone—from investment managers to people who sell stocks to people who sell insurance to people who just purely give advice—uses this label,” he says. “So first and foremost, you need to talk to advisors and understand what their business model actually is, because the sheer terms ‘financial advisor’ or ‘financial consultant’ or ‘wealth manager’ basically say nothing constructive.” Kitces says there are three main types of advisors: those who focus on insurance, those who work for broker-dealers, and registered investment advisors (RAs).

Advisors who sell insurance typically work with fixed annuities and life, health and long-term care insurance. Kitces says these types of consultants are not likely to be great partners for reverse originators, because their business model is transactional, meaning they get paid for the policies and annuities they implement. “While they won’t necessarily be antagonistic toward reverse mortgages, they may or may not be constructive toward them either, because their business model is [based on] selling their products, and reverse mortgage professionals selling theirs wouldn’t really have a lot of synergy.”

The second group, FINRA-regulated representatives of broker-dealers, might be a better match, Kitces says. Still, there are some hurdles to overcome on this front. “FINRA went through a rather severe crackdown against stock brokers and registered representatives in general combining together the investment products that they sell with mortgage strategies,” he says. “While it’s not banned for registered representatives to work with reverse mortgage professionals, many broker-dealer compliance departments are highly restrictive of it.” Kitces says getting through to the compliance department in this case is key. “You can break those walls down a little by trying to push some education to the advisor and encouraging them to push it up to the compliance department to help them understand what reverse mortgages are and how they actually work.”

The third group comprises RAs, whose business model includes the general management of a client’s assets. Kitces says this group is fairly well-aligned with the reverse industry in terms of business interests. “Unlike the other groups, which are encouraged to give advice to the extent it sells their products, RAs are more holistically focused around comprehensive advice, because their incentive is to give clients good advice so that they retain those clients.” Kitces says the RA community presents the greatest opportunity, but it also comes with its challenges. “Because they tend to be very client-centric in what they do and what they’re required to do, they are very, very, very wary of salespeople. And so if you have any interest and desire to work with RAs, you have to take a consultative approach. You have to function as a member of the team. You should have at least three reasons why reverse mortgages are bad for every [good] reason you put forth. If you can’t demonstrate a balanced view, you will have no chance of doing business with an RA. RAs are an advisory community, and you have to come to the table as an advisor. If you come to the table as a salesperson, their walls will go up and they will become very defensive.”

Kitces says that if originators can break down the barriers preventing advisors from considering the benefits of a reverse mortgage, they get them to see that HECMs have a place in retirement planning. “I think it’s a very good product to have out there,” he says, although he admits that the cost of the loan does concern him.

Kitces also says he thinks Financial Assessment is actually a bonus. “I know the industry is very concerned about Financial Assessment and the potential that people will have most or all of their line of credit crowded out by the fact that they have to wrap their property taxes and homeowner’s insurance into the reverse mortgage if they don’t meet the threshold, but from a planning perspective, I would sell that as a positive,” he says. “The goal at the end of the day is to use a reverse mortgage to free up cash flow, so if the cash flow I free up is the property taxes and homeowner’s insurance that I otherwise pay, I still freed up money.”

Kitces says the main issue impeding the growth of the HECM market is the perception problem. “The reality right now is the reverse mortgage industry is trying to shift from being a defensive product of last resort into a planning tool, while the industry has spent years creating a [different] perception,” he says. While he says rebranding will be a challenge, he admits that it needs to happen in order to change market segments. “It’s not just about saying, ‘Oh, well, we’re going to work with a different group of people.’ They have to be willing to work with you, and unfortunately, I think the reverse mortgage space has a very uphill battle right now. I don’t think it’s insurmountable, but it’s uphill.”

If the industry can overcome this problem and find a way to connect with a new, planning-oriented market segment, Kitces says he thinks the HECM can find its niche in retirement planning. “It’s a very good tool to have in the tool kit [when it comes to making] decisions about managing retirement income.”

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please