The Remaining Work to Connect Financial Advisors and Reverse Mortgages

The distance between reverse mortgage originators and financial advisors is often a long one, with many advisors generally having unfavorable perspectives on reverse mortgage products in terms of their viability as a specialized tool for their clients. While recent indications have demonstrated that this is starting to change, that kind of evolution is not yet close to being finished.

However, that does not mean that the road between originators and advisors is without strategies to shorten it, according to Curtis Cloke, CEO and founder of THRIVE Income Distribution System, content expert on retirement planning and adjunct with the American College of Financial Services.

“I think the timeframe between where we are and where we’ve been to where we’re going [on that path] is much shorter than the one we’ve been on,” Cloke told RMD in an interview. “A lot of progress has been made.”

Uniform best practices

The quickest route could be in deciding on a uniform standard by which these kinds of products and tools can be discussed, putting compliance controllers like broker-dealers and investment advisor firms on the same page with regulatory support in order to best determine how reverse mortgage discussions can be ethically and competently had from a fiduciary standpoint, Cloke says.

“[That way we can be] very competent about the marching orders that are necessary for advisors to be approved to be able to play in this space, speak to this issue, and give advice for a fee,” Cloke says. “So, working with those decision-makers in compliance and leveraging those who’ve gone ahead and being the early adopters of those who’ve said this is good and something that needs to be done.”

This would likely lead broker-dealers and investment advisor firms to ask why they should potentially take on more risk without necessarily guaranteeing additional revenue, but in that situation it just comes back to one of the primary purposes that reverse mortgage products exist, Cloke says.

“Well, what if we get to a day where somebody runs out of money before they ran out of life, and there was a solution that their fiduciary didn’t bring up because of a bias, or that they couldn’t bring up because they weren’t allowed to under compliance? Now, they get sued for the lack of the advice.”

Reverse mortgages and fiduciary responsibility

While he doesn’t believe that would necessarily happen, Cloke did point out a scenario that played out similarly over another issue that ultimately became an important issue that senior clients had to eventually incorporate as part of their plans: long-term care. The scenario surrounding that issue can potentially be related to the one facing reverse mortgage products now, in that not mentioning long-term care issues at all can now be a problem for those giving financial advice to older clients.

“A long time ago when advisors weren’t talking about long-term care, they weren’t getting sued for the lack of discussing long-term care because, guess what? Finally, one day, it happened,” Cloke explains. “And then there became a fact-pattern where there was more than one case. I suspect that one day, as people become more educated […] then we could actually be liable for not giving all the advice that we could, or should.”

Once the core compliance authorities and the Financial Industry Regulatory Authority (FINRA) approves best practice policies for discussing reverse mortgages with financial advice clients on billable time, the distance between financial advisors and reverse mortgage practitioners will shorten, Cloke says.

Current compliance posture

“If you go to FINRA’s website, they’re very clear to say that the best person to give advice on reverse mortgages is your financial advisor,” Cloke says. “It says to pick a financial advisor that has no relationship with the reverse mortgage company, and to make sure they give you more than one option. Go shop three different organizations, and get educated on what the options are out there, and don’t promote one of them.”

In terms of his observations about FINRA’s official website and statements about reverse mortgage products, Cloke is correct. In a 2014 educational article about reverse mortgage products, FINRA advises potential borrowers who are seeking both government-insured and non-FHA reverse mortgages that, “it is a good idea to get advice from a trusted financial adviser who has no interest in either the mortgage or any investment you plan to make with the proceeds.”

While that may not be what reverse mortgage originators want to hear, it’s what is prudent for the advice side of the business, Cloke says.

“For an advisor to say they have no axe to grind or dog in the fight, it’s all about the client,” he says. “Here’s what the numbers show from a mathematical and science perspective given the resources that you have to move forward, and then offer some companies they find reputable. Tell the client to go check them out, and do their homework.”

The path forward

After compliance controllers are eventually brought onboard with the idea of discussing reverse mortgages with financial advice clients, the next step is to facilitate education to the larger financial world, and Cloke says that there are things he’s seeing that offers him optimism in this space. A retirement conference held by Investment News Magazine annually in Chicago has been getting financial advisors in attendance on recommendation from their broker-dealers, putting them in contact with some of the reverse mortgage industry’s most prominent educators.

“What they’ve gotten the last two or three years that they’ve gone is a lot of sessions from experts like Wade Pfau and Michael Kitces and others on this particular topic,” Cloke explains. “It’s then made them go back to their home base of broker-dealers and investment advisor firms and say to them, ‘you’re sending us to this conference and we’re hearing about things that you won’t let us talk about.’”

Other well-educated speakers on these topics have been appearing more regularly at the Financial Planning Association (FPA) conference, which further adds to Cloke’s overall optimism about shortening this path.

“It’s actually making sure that these mainstream conferences – not just for advisors, but for broker-dealers’ and investment advisor firms’ leadership – actually penetrate these with quality high education and academics that know what they’re talking about, and are revered as academically correct and fiduciarily upright, and influencing the conversations at these association conferences,” Cloke says.

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