Commentary: How reverse professionals can work with financial advisors

A former financial advisor and reverse professional shares thoughts on how the industry can approach a referral partnership

Anyone stepping foot in the reverse mortgage arena quickly realizes that there’s a lack of understanding about the product. That, in turn, is followed by the realization that financial advisors are often best positioned to identify reverse mortgage needs.

Financial advisors are the proverbial golden goose whose egg the industry has yet to crack. While the solution may lie with having the right people engage senior level industry executives or policymakers, what can loan officers — who don’t have the option to talk to top brass at investment companies — do to optimize their chances of getting an advisor’s ear?

Here are three ways to get started with building an advisor relationship based on mutual trust.

Be aware of long-term care options

It’s important to have a solid understanding of the long-term care (LTC) options available on the market. This is the most natural situation advisors will consider mentioning as an option, so you need to know what you’re talking about to be taken seriously. Learn real-life LTC underwriting and care stories, know the activities of daily living (including the precursor health conditions related to them), and understand the full spectrum of solutions in the market that the advisor may recommend.

Jason Parker, a financial planner-turned-reverse mortgage professional.
Jason Parker

It’s also fine to ask for help from an experienced retirement planning advisor to better understand what they’ve seen and how their conversations go.  

There are essentially two ways to cover long-term care expenses: by self-insuring or by buying insurance, and there are a few things to know with each option.

For insured options, know the differences and risks between standalone and hybrid LTC policies. For those considering the standalone insurance option, guaranteed lifetime cash flow, future rate increases, and coverage limits need to be considered — and that’s if they can qualify with the strict health underwriting.

Hybrid policies generally require a large lump sum to be set aside, which combines life insurance leverage guarantees with special living benefits. Hybrid policies can be more palatable to clients because of the guarantees, but are also less flexible for spending on other things, as there can be strict limitations on liquidity.

Those considering self-insuring tend to be more risk-averse with retirement spending because they have an unknown, unprotected risk hanging over their retirement.  They also may be more likely to view their home as their LTC policy.

It’s the reverse mortgage professional’s job to understand that dynamic, the client’s ideal aging situation and how home equity plays into the broader plan before recommending it.

Don’t pitch a reverse mortgage as an investment

It’s important to understand how to position the reverse mortgage, but not necessarily as a great investment decision. Rather, as the efficient option to draw down assets.

A change in mindset of accumulation vs. decumulation is a large part of the behavioral coaching that advisors should do with retiring clients so they “get it.” While academics have modeled scenarios over the last decade in which you can increase net worth using a reverse mortgage, it takes nearly-perfect market conditions for that to happen.

And, simply put, it’s not likely an advisor will ever stake their reputation on that coming true. It isn’t necessarily a good investment decision — not any more than taking an IRA withdrawal is. 

Remember, it’s about converting accumulated wealth to a liquid asset as a way to minimize disruption to a client’s life. That’s not to say someone can’t make money with the leverage, but that would be icing on an already delicious cake.

Finally, a primary talking point of advisors to investors is emphasizing the power of compound interest working for them. So, from a purely investment standpoint, a reverse mortgage may seem antithetical. In turn, you should get in front of the interest accrual conversation early and intelligently. Be able to explain how the non-recourse nature, no prepayment limitations, and appreciation of the home are all designed to mitigate that. 

Avoid ‘gaslighting’

Reverse mortgages are often positioned as a one-of-a-kind retirement tool with unique benefits that no other retirement product can provide. While those characteristics are true in ways, many reverse mortgage professionals start the conversation by describing generic features that sound like the other products or strategies that advisors are bombarded with daily by professionals in the life insurance, annuity, or alternative investment industries.

When you do this, advisors simply shut down the talk. That’s when the “gaslighting” starts, and some may feel inclined to call out their fiduciary duty as a basis to listen. While that may have good intentions, it is not necessarily true. 

Is every advisor who doesn’t understand or recommend reverse mortgages in breach of their fiduciary duty? Well, no.

Before getting to the solutions step, identify and frame the scope of planning. A planning engagement can be comprehensive or can focus on a single topic. The financial advisor’s fiduciary duty to the client does not include being an expert on every topic. It does, however, include a need to be transparent with the client about their expertise and potential conflicts of interest.

However, advisors should not tell clients to avoid certain options based on their own bias, so approach the conversation positively and with an education mindset to help the advisor avoid any potential bias they may personally feel about the product. Let them decide for themselves.

The often-touted benefits of a reverse mortgage are true: It’s a non-recourse loan, the proceeds are income-tax-free, the borrower retains ownership, and it can provide leverage without compromising cash flow. To get better reception, a reverse mortgage professional should show the benefits with scenarios rather than pitch features upfront.  

Until the CFP Board and other industry leadership entities see the reverse mortgage product as a core retirement planning tool, it falls into a niche side bucket or individual consumer-related decision that many advisors don’t feel a need to be experts on. In turn, the reverse mortgage stays on first base rather than being the home run it should be.

This column does not necessarily reflect the opinion of Reverse Mortgage Daily and its owners.

To contact the author of this story: Jason Parker at [email protected]

To contact the editor responsible for this story: Chris Clow at [email protected]

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