Reverse mortgage loan originators are always on the lookout for a potentially fruitful referral source for business, and a common refrain that has emerged from many originators, lenders, brokers and industry advocates revolves around financial planners as a potentially optimal reverse mortgage referral source. Some originators may not necessarily see things that way, though, because of some prohibitions that prevent certain planners from speaking to reverse mortgage professionals.

Others may look away from financial planners because they have seen misconceptions about reverse mortgages exchanged by such professionals as fact about the reverse mortgage product category, making the task of opening a dialogue seem like an unachievable goal. The truth is, though, that financial planners are often an ideal referral source for a reverse mortgage professional because they often serve clients in the same demographic as qualified reverse mortgage borrowers, and many planners could become more receptive when introduced to the idea that a reverse mortgage can help mitigate a risk of loss in a client’s portfolio.

This is according to Shelley Giordano, director of enterprise integration at Mutual of Omaha Mortgage and founder of the Academy for Home Equity in Financial Planning at the University of Illinois Urbana-Champaign. For those loan officers who may remain unconvinced about the potential that a financial planner can have about serving as a referral partner, Giordano aimed to illuminate the subject this week at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting.

The importance of emphasizing protection

Financial planners are understandably bound by extensive regulations which aim to keep them operating ethically in order to properly manage the assets of their clients. Because of that, planners are often suspicious of any financial product purveyor who seeks to get a client to invest in something else with existing assets as opposed to protecting and preserving what they already have.

This is why it’s very important to emphasize a distinction between using a reverse mortgage to protect existing assets as opposed to investing a loan’s proceeds into something else, Giordano explains.

“When you go to see a financial advisor, it’s important that they understand that you’re not in there advocating that they take money from a reverse mortgage and purchase securities,” she says. “You don’t ever want to be mistaken for being in there advocating — when you’re talking to a financial advisor — that they take money out of a reverse mortgage and purchase investments.”

As an illustrative example, thinking about how those kinds of priorities interact with the forward mortgage space can be key to understanding this, Giordano explains.

“If you take out a traditional mortgage and you buy an investment, the investment could lose money and then you may not have enough money to make your principal and interest payment, and you could be foreclosed on,” Giordano says. “I mean, it’s very, very dangerous. So what we as an industry have advocated — because of the research that has been done by people like Wade Pfau and Barry Sacks and others — is that by using your reverse mortgage, you can protect the invested funds or the existing securities that the client has.”

This emphasis on protecting invested funds is especially important and potentially appealing to a financial advisor who is seeking an efficient path forward to preserve a client’s assets, Giordano explains. A reverse mortgage line of credit when established can continue to grow without being affected by external factors such as the stock market or a fluctuation in home prices, she says.

“And that line of credit can stand in and help provide cash flow during a market downturn,” she says. “And then, the client can just wait for the securities to return. Because once you spend them, they’re gone forever. So, protect them. We’re not talking about purchasing securities, we’re talking about protecting existing securities.”

What to understand about planners’ reluctance

Stories of reverse mortgage loan officers having any prospective conversation with a financial planner abruptly stop is a very common tale among originators, and Giordano hears it constantly, she says. Understanding why that is the case could be potentially beneficial for reverse mortgage professionals to understand where certain financial advisors are coming from, and she learned a lot about those perspectives at an event she attended in Washington, D.C.

“I thought it might be useful for [reverse mortgage professionals] to walk a mile in the shoes of a compliance officer at a financial services firm,” she explains, “This came home to roost for me a couple of years ago, when the Academy sent me to the National Society of Compliance Professionals here in Washington.”

Walking around at that event, Giordano noticed how many of the showcased sponsors operated in the realm of surveillance. Keynote speakers included members of the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and even the Federal Bureau of Investigation (FBI). That’s when Giordano realized that the core issue is not an inherent dislike of reverse mortgages, she said.

“They don’t even think about [reverse mortgages], because they’ve got so much to worry about with their own folks and their own responsibilities,” she said. “A compliance officer deals with risk areas such as data security, privacy, confidentiality, industry-specific regulations, bribery, and corruption, conflicts of interest, fraud, money laundering, business continuity and insider trading, just to name a few.”

The SEC has the authority to bring an enforcement proceeding against someone who may be associated with a broker dealer, if a person under that broker dealer’s supervision violates provisions of federal securities law, Giordano says.

“So if you think about it, if the firm is not able to be compensated as a direct revenue line from a reverse mortgage, why in the heck would they even consider bringing in a reverse mortgage, and having financial advisors take ‘grandma’s money’ and put it into into some kind of security that’s going to lose value?,” she asked rhetorically. “That’s not the answer, but it at least gives us a little bit of insight into why this has been such a slog for us.”

Understanding the totality of realities that people in other industries face when it comes to their interactions with other businesses is key to having a full understanding of the total landscape according to James Milano, a partner at Washington, D.C. law firm Weiner Brodsky Kider which serves as outside counsel for NRMLA.

“I think it’s helpful to do what we just did, and go over what I’ve been calling ‘the other side of the aisle,’” Milano said. “We should be sensitive to other professionals, their regimes and regulatory bodies, self-regulatory bodies, and otherwise, and have an understanding of what they’re up against.”