Big Bank Exits Add Importance to Financial Planner Referrals for Reverse Mortgages

The exit of major banking institutions like Wells Fargo and Bank of America from the reverse mortgage market in the past decade has made the importance of forging referral partnerships with financial planners all the more important to the proliferation of new reverse mortgage business, since proximity to a variety of clients can be key to the origination of reverse mortgages for new clients.

At the same time as reverse mortgage loan officers aim to expand their repertoire of advertising methodologies, the use of an advertorial can be powerful but also comes with some caveats that any reverse mortgage loan officer should keep in mind prior to engaging in such advertising campaigns. This is according to a panel of reverse mortgage product category experts featured at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting this month.

While the exit of the large American banking institutions has reduced the visibility of the reverse mortgage product in a number of demonstrable ways, financial planners represent a key business segment that can help to make up some of the ground that was lost by the exit of those institutions from the business. At the same time, reverse mortgage professionals would be well suited to exercise a degree of discretion in the kinds of advertising and informational campaigns they participate in so that giving advice for which an originator is not qualified for can be avoided.

Why financial planners are an important referral source for reverse mortgages

There are certain reverse mortgage professionals who continue to question the relevance and ability of a financial planner to assist in connecting an originator with a potential Home Equity Conversion Mortgage (HECM) borrower, but the importance of this industry to connect with such professionals is important because of prominent exits the reverse mortgage business has endured over the past decade.

This is according to Shelley Giordano, head of enterprise integration at Mutual of Omaha Mortgage and co-founder of the Academy for Home Equity in Financial Planning at the University of Illinois Urbana-Champaign.

“So, why are we interested in financial advisors in the first place? A couple of things. Number one, they actually have clients,” Giordano says. “Our industry has never, ever recovered from not being able to sit shoulder-to-shoulder at bank branches and share clients. So financial advisors, they’re in contact with people. We are still exceedingly isolated, particularly this last year, in getting to the end user of a reverse mortgage.”

In the past, the proximity that a reverse mortgage originator had with a financial planner at a major banking institution provided the planner easy access to better understand any misconceptions or factual inaccuracies they maintained about a reverse mortgage product. Now, that simply isn’t the case, Giordano says.

“Over the years if a financial advisor didn’t understand the research out there about a reverse mortgage, they oftentimes would talk the client out of doing a reverse mortgage after we had engaged with the client, and with the goofiest objections — just flimsy objections — without discussing what the value of having this other asset could be over the course of a retirement,” Giordano explains.

This is why this group maintains an important potential place in allowing the industry to reach its goal of expanding the base of borrowers it serves, she says.

“Financial advisors are important to us, and for a variety of reasons,” Giordano says. “We just have to keep at it. Long ago, at a NRMLA meeting in New Orleans, we brought in Michael Kitces, a very highly regarded financial expert. He had been pleading with the audience, ‘one company can’t do this, we all need to come together and pull in the same direction.’ And I’m so delighted. I see every day, the companies developing their reverse mortgage loan officers to understand what the challenges are in retirement and how housing wealth can fit in and really help. So that’s been great, but we still have a lot of work to do.”

Avoid ‘crossing the streams’ between origination and financial advice

When engaging with a potential client about one financial topic like whether or not a reverse mortgage should be taken out, that same client may naturally move to another financial topic and ask the originator their thoughts without understanding the differences between discussing a loan product, and offering financial advice. Originators will be well-suited to observe the “wall” that exists between such topics at all times, according to James Milano, a partner at law firm Weiner Brodsky Kider (WBK) which serves as outside counsel for NRMLA.

“What we’re seeing a lot in the reverse mortgage loan officer space is something I call ‘advertorials,’” Milano says. “They’re articles written by people, published in financial planner magazines. They’re talking about retirement and considering [the employment of] home equity, and I would tell you as reverse mortgage professionals: don’t cross the line the other way.”

In a previous portion of a presentation at the event, Milano discussed the complex legalities of a reverse mortgage business employing financial planner professionals. Originators should avoid entering the territory in the opposite direction, Milano explains.

“If you’re a reverse mortgage loan officer, don’t hold yourself out as a financial planner,” he says. “These articles are great. I’ve read them. They’re very informative. Use disclosures to tell people that you are a reverse mortgage loan officer, not a financial planner, that you’re sharing ideas, and that you actually [originate loans] for a living, but you’re not a financial planner, you’re not giving financial advice.”

Giordano closed the presentation by putting a finer point on the matter.

“Don’t give financial advice,” she says to the audience of reverse mortgage loan officers. “You are not a financial advisor. There are all kinds of rules out there against people giving financial and investment advice. Don’t get caught in that.”

This also applies to an originator offering tax advice, which opens up a whole other web of laws and regulations governing the information that people are supposed to receive from accountants and other tax professionals.

“We just had a case where there was a financial advisor who set up a Roth conversion for a doctor who is retiring, but it was a financial advisor, and they were using the HECM to pay the tax, but it was the financial advisor’s idea,” Giordano explains. “[It was] not advice that we were giving to the client. And then again, just never tie any other product to a reverse mortgage origination. I think if you just follow those general rules, you’ll stay out of trouble. But, we don’t want to scare you: get out there and talk to these folks and see what’s on their mind, and what they’re thinking about the housing asset and retirement.”

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