How to Navigate Professional, Legal Legacy of Financial Planners and Reverse Mortgages

While demonstrable progress has been made by reverse mortgage professionals in forging stronger bonds with financial planners, the process is still often an ongoing one for a host of reasons. These can include some lingering reputational challenges that the reverse mortgage product faces, misperceptions among planners about the regulations governing what kinds of financial products they can talk about or even simple, personal misgivings an individual planner may have about discussing home equity with one of their clients.

One of the keys to progressing this relationship may lie in making an effort to understand why financial planners feel the way they do about reverse mortgages, and the abundance of sources and perspectives they have access to that informs their thoughts about the product category. The letter of the law may also play a role in determining why some planners are cautious about reverse mortgage business collaborations, and understanding this can be key to finding a referral partner. This is according to James Milano, a partner at law firm Weiner Brodsky Kider (WBK) which serves as outside counsel for the National Reverse Mortgage Lenders Association (NRMLA).

While none of the matters spoken of count as anything resembling legal advice, a basic overview of how the relationship has changed over the years may be helpful for reverse mortgage professionals to better understand the dynamics, Milano said.

The evolving views of financial planners about reverse mortgages

Many reverse mortgage professionals are far from timid when expressing their frustrations with financial planners, particularly if they have tried to establish a relationship with a planner professional and come up frustratingly short, Milano says. Still, that should not discount the fact that progress has been made with those “on the other side of the aisle,” he adds.

“I think that, historically, that’s been the view in the reverse mortgage industry: that the financial planning community has a negative view of reverse mortgages,” Milano said at the NRMLA Virtual Summer Conference this month. “But, things are changing and evolving. Shelley [Giordano] referenced some of the changing literature on the financial planner side, where minds are opening up. I really think the biggest frustration in our industry is that it seems to be taking so long.”

That amount of time may prove disconcerting for many reverse mortgage practitioners, but that frustration should not derail the aims of the industry to continue working to get accurate information out to the planner community to continue facilitating as much dialogue about reverse mortgages out to that audience as possible, he says.

“[The best thing to do] is to continue to get these ideas out there in the marketplace, and to continue to network and discuss this,” MIlano says. “There’s no quick, easy fix. But on that point, I did want to pivot, because there’s been discussion for many years regarding financial planners in the reverse mortgage industry. And probably going back 10 years or more, the discussion really was where I think it is today, and that was focused on educating financial planners about the use of reverse mortgages in retirement, and that’s what’s being discussed. Minds have opened up about using home equity in retirement.”

The mechanism of incorporating financial planners into reverse mortgage business

In previous years, many discussions within the reverse mortgage industry were more squarely focused on integrating financial planners as influencers of reverse mortgage business through formal arrangements like marketing services agreements or lead sales arrangements. Professionals also often inquire about ways reverse mortgage offerings can be successfully integrated into a financial plan or service, as well as even the hiring of financial planners or long-term care agents as permanent, part-time employees.

This is when the complexity increases significantly from a regulatory perspective, Milano says. While the hiring of a financial planner by a reverse mortgage professional is not flatly prohibited, a whole new series of regulations which must be adhered to comes into focus, Milano says.

“When you move from educating to compensating, that triggers all sorts of mortgage regulatory requirements,” Milano explains. “[In terms of] marketing services agreements or lead sales arrangements, [if they’re] properly structured under the Federal Real Estate Settlement Procedures Act (RESPA), there is a way that you can do that [which] gives you reasonable and strong arguments that it’s not in violation. But RESPA prohibits impermissible referrals of mortgage business.”

Such arrangements may be viable under the scope of regulation, but also brings a number of requirements that must be observed under penalty of enforcement action by regulatory bodies like the Consumer Financial Protection Bureau (CFPB). Such aims haven’t been a major focus of reverse mortgage professionals for some time, Milano adds, and in some cases may have seemed like more trouble than they were worth to the planners themselves, he adds.

“Part of that may have been making the financial planning community and compliance officers a little bit nervous in the HECM world,” Milano explains.

What the law says about reverse mortgage pros hiring financial planners

In terms of the ability for a reverse mortgage professional to actually hire a financial planner as a part-time employee, it is technically possible but requires a lot of specific elements to be in place if that planner is going to have an employment relationship with a reverse mortgage practitioner, Milano says.

“[Some reverse mortgage professionals] wanted to hire financial planners or long-term care agents as permanent part-time employees because those financial planners […] have a whole network of people that would be good candidates for reverse mortgages,” Milano says. “And some of these [clients] may not have been able to obtain long-term care because they were too old, or tragically had long-term care and it either got canceled — which was the case in the 1990s — or the premiums became too expensive, and they really could use a reverse mortgage, to use some of the home equity proceeds to continue their long-term care policy for their long-term planning purposes.”

Nevertheless, Milano says the approach of having a financial planner as a permanent part-time employee makes him a little apprehensive, particularly because of certain actions taken by regulatory entities in previous years.

“On the mortgage side, it’s possible to have [planners as] permanent part-time employees,” he says. “It has to be real, it cannot be a sham. And for me, the crux of this would be [in asking] are they subject to your oversight? Do they have to show up at sales meetings? Do they work out of a licensed office, if working out of a licensed office is required? There’s a lot there.”

While this is not an idea that is highly prevalent in the reverse mortgage space today, it is still one worth discussing because of the regulatory framework surrounding it, Milano says.

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