While the relationship between financial planner professionals and the reverse mortgage industry is evolving in a positive direction, there are still a number of things that the reverse industry can and should observe when aiming to facilitate connections with those planners as potential referral partners. This is according to a trio of financial experts discussing the topic in a webinar hosted this week by RMD.

The webinar, “The Future of Retirement: Financial Planners and Home Equity in the Era of COVID-19,” featured a wide-ranging discussion relating specifically to the relationship that the financial planning profession has with the reverse mortgage industry to discuss how home equity can be effectively used in a comprehensive retirement plan, how those dynamics have changed due to the COVID-19 pandemic, and what some best practices are for those looking to establish referral partnerships.

How the pandemic has changed the reverse mortgage/financial planning relationship

The relationship between financial planning and reverse mortgages was already progressing in a positive direction, but recent developments including a greater amount of academic literature about the use of home equity along with the new financial realities that the pandemic is forcing onto seniors have certainly helped to change the current landscape. This is according to Don Graves, president and founder of the Housing Wealth Institute, an Author, and Instructor of Retirement Income at The American College of Financial Services.

“With the advent of more and more financial advisors, institutions and thought leaders saying that reverse mortgages have a place [in the retirement conversation], we’ve seen an uptick. The additional advent of COVID-19 [for many] is just now highlighting some of the things that many have already been talking about before,” Graves says. “Now, the messaging and the modeling is out there in such a way that I think we’re seeing a great uptick in interest.”

Not only is there an uptick in interest, but a different type of consumer altogether is coming into play for the reverse mortgage product category, as more affluent seniors are beginning to employ their home equity strategically, Graves says.

“We’re spanning the spectrum of people who are looking at their biggest asset, one of the biggest concentrations of wealth and saying, ‘I need to think about that,’” Graves explains. “So there’s advocacy along a lot of lines, but there’s a tremendous uptick in the application and use of reverse mortgages.”

The financial strain being experienced on the investment side of the equation is also contributing to more planners taking a look at the employment of home equity in a comprehensive retirement plan according to Evelyn Zohlen, a Certified Financial Planner, founder of Inspired Financial, and the 2020 chair of the Financial Planning Association (FPA).

Volatility in the market at levels investors have not seen in some time, coupled with diminished returns from traditionally “safe” investments like bonds due to the low interest rate environment have contributed to sources of stress among senior investors, she explains.

“So you’ve got this double whammy on the investment side of things where markets are volatile,  and at the same time, that safe place that [investors thought they had] with bonds leads those investors to not getting the income they had really hoped, or perhaps even needed,” she says. “So, there’s some anxiety around investors’ resources, in terms of being able to do what they had planned to do right now.”

How this presents reverse mortgages as a solution

Because of both of these elements, and some changes that are happening specifically in the advisor space itself, the ability for advisors to explore options that are more atypical under a traditional conception of financial advising itself is becoming more common according to Dr. Craig Lemoine, director of the financial planning program at the University of Illinois Urbana-Champaign and executive director of the Academy for Home Equity in Financial Planning.

As the pool of Registered Investment Advisors (RIAs) has grown a lot recently, other areas of financial advice have either stagnated or gotten smaller, Lemoine says. With the growth exhibited in the RIA area comes a general growth in the kinds of advice and products those advisors will recommend to clients, he explains. 

“You’ve seen this growth in the RIA Area, and I think what that leads to is a little more independence of thought, a little more ability to be a fiduciary and recommend the best option for a consumer,” Lemoine explains. “It’s easier to do in that space to have that level of independence. And I say all that to position my answer, which is that you’ve seen more advisors recommend reverse mortgages, I think in part, because you’ve seen a growth in that RIA avenue.”

That growth has seen more advisors have the ability to recommend reverse mortgages, and some recent academic research conducted by the Academy indicates that issues of compliance can factor greatly into the decision of an advisor to recommend a product like a reverse mortgage, Lemoine says.

“Clearly, if you’re not allowed to [recommend a reverse mortgage], most advisors and reps stay away from it, and those that do have the compliance opening, make the recommendations,” he explains. “So, what we’re starting to see is more of a landscape that leads to more recommendations when a reverse mortgage is [determined to be] the right thing.”

Pandemic-fueled recession, generational wealth

Last week, the U.S. economy experienced the largest contraction ever recorded since the beginning of the data just after the Second World War. The stock market, however, has continued to maintain relatively steady performance, but the pandemic and the financial situations of retirees will play into what ultimately ends up happening, Lemoine says.

“Markets still haven’t gotten the message. We’ve seen stock markets continue go up, but we’ve seen interest and coupon payments drop. I think that hurts people needing income,” he says. But in another area, we’re sitting on the cusp of one of the largest generational wealth transfers America has ever seen.” 

Different estimates Lemoine has seen range anywhere from $15 trillion to $60 trillion of wealth could pass within the next 15-20 years between generations, Lemoine says, which could have a major impact on the reverse mortgage space.

“I think you’re seeing this with the reverse mortgage space. Seniors will ask if their home is a bequest asset or not, and I think all those factors are playing into seeing more advisors look in the space,” Lemoine says. “If your home’s not a bequest asset, and you don’t have a pension and you need income, then here’s the solution.”