I was commissioned by AAG, a prominent firm in the reverse mortgage industry (you may have seen their commercials starring Senator Fred Thompson), to build marketing materials specifically for the financial planning community.
On the surface, the project seemed simple because all of the elements were easy to understand. But I soon learned that in general, financial planners are extremely anti-reverse mortgage.
The basic idea of the FHA secured reverse mortgage product seemed straight forward: reverse mortgages allow seniors (62 yr+) to easily access the equity in their home with much less strict requirements than if they tried to access the funds through traditional refinances and HELOCs.
Okay, simple enough.
Then came the myriad of reasons as to why a senior would want a reverse mortgage. Top of the list: to increase cash flow, to make an unforeseen purchase, they want the extra money to improve the quality of their life...etc etc etc.
Okay, simple enough.
Even detailed research already existed in highly credible publications regarding how financial planners should recommend their clients use reverse mortgages:
Sweet, so industry professionals agree that there is a place for reverse mortgages in retirement planning.
With all that already being in place, plus being hired by a recognizable brand in AAG, I figured that all I had to do was build captivating marketing materials that outlined the benefits for clients, have a few conversations to help educate the planners so they would recognize when to recommend the product, purchase some well positioned advertising, and bingo-bango, watch the business roll in, right?
I could not have been more WRONG!!!!
I had a difficult time getting financial planners to even listen to the concept, let alone introduce the product to their books of business. I was even told by whole firms that they ignore reverse mortgages all together as a product, as if the product had no place in the financial community at all.
A reverse mortgage is just a tool. It's not a blanket product; it should only be used in the right scenarios, and when those scenarios are apparent, it's a great option. But it's being ignored and avoided like a disease. So I kept pushing and I came up with a few reasons as to why the product is being shunned by the group that should probably know the most about it:
- Education - Because it's being ignored, there are a lot of misconceptions about the product and how it can be used. Planners don't know about great benefits such as the non-cancelable, growing, tax-free line of credit option their clients can choose.
- Trust - Planners spend a lot of time and effort building a book of business based on their personal reputation. I don't think they trust most people in the reverse mortgage industry because of the low barrier of entry to become a loan officer.
- Incentive - It's against compliance for reverse mortgage companies to pay financial planners for referrals. So learning about the product in order to recommend it to their clients offers no immediate benefit to the planner. Most planners care more about the benefit of their clients than making a quick buck, but I still think this hurts reverse mortgages because there is no general incentive for the planner to learn or care about the product.
- Fees - Because of the lack of education regarding the product, most planners I talked to thought it was an expensive option, but they had never actually seen the numbers or weighed the cost of the product against their clients needs.
- Counter Intuitive - Planners spend a majority of their time battling the idea of debt and championing their client's accumulation of assets. Leveraging debt as a resource against an asset, no matter how beneficial given the situation, seems counter intuitive and therefore "wrong" in the eyes of planners that don't know about the product well enough to use it creatively to benefit their clients.
- Image - I think this one is tricky, and it's more of a feeling because no one really talks about it. But it's a possibility that because reverse mortgages have traditionally been viewed as "cash now" products, planners and their clientele (primarily high net worth individuals) avoid the product because of image. They could feel that if they have to use the product, it's because something went wrong. Either the money was mismanaged or the clients are embarrassed about being put in a situation where they need the product...so instead of learning about it, they ignore it. I heard the phrase, "My clients wouldn't need a reverse mortgage," A LOT. Like I said, no one specifically mentioned the idea of image being a problem, it's just my opinion.
Either way, it seems to me that the product is being thought about (if at all) re-actively instead of proactively.
There are tons of benefits that reverse mortgages offer senior clients, and those benefits are not limited to just cash flow challenged individuals.
For example, the line of credit option can act as a low cost insurance policy if the client's retirement portfolio under-performs at any time.
The unused portion of the line of credit grows over time (independent of the home’s value) at the same effective interest rate that would accrue to an outstanding loan balance. If the client never chooses to use it, they never have to pay it back...but it's always available. Theoretically, a client can end up with a line of credit that is worth more than their home and choose to use it at any time, in any way they see fit.
I've developed both B2C and B2B versions of marketing materials that cover how reverse mortgages fit into an overall financial plan that I can email to anyone interested in learning
more.
But...
Are my theories accurate? What else am I missing? Why are financial planners so ANTI-reverse mortgage?
-Rikki Torres
619-917-4193
[email protected]