An interview with Don Graves

interview with Don Graves


ePath 100K RM leads

Exclusive Interview with Don Graves (part one)

Don Graves has not only built a successful reverse mortgage business in Philadelphia, but he is also perhaps one of the most encouraging and inspiring individuals I have had the pleasure to call a friend in our industry. We will be discussing his approach to marketing, networking with financial pressures, and maintaining perspective as a HECM professional…

5 comments

Bill Krone June 24, 2019 at 5:44 am

Shannon – always enjoy hearing Don Graves speak – always on the mark – he is a good teacher – thanks for having him talk about a program that I love it really helps our seniors to overcome short falls in long term planning. Bill Krone

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It’s what you’re saying- not how you say it. | HECMWorld.com June 24, 2019 at 4:05 pm

[…] An interview with Don Graves […]

Reply
James E. Veale, CPA, MBT June 25, 2019 at 1:09 am

Coming from a background where its fiduciary standards are generally considered the highest to both clients and the public of any other profession, the presentation must be viewed carefully. Although RIAs have all but lost their fiduciary duty to their clients, no changes other than stricter standards have been proposed for CPAs. Until the SEC adopts its best interests standard or some other replacement, RIAs have a lower standard of duty than they have had in decades. Even under the best interests proposal, it is highly unlikely that RIAs will have any requirement to consider housing wealth in providing advice.

In the last few years we heard about a new DOL fiduciary regulation. The HECM industry got carried away describing how all financial advisers would soon be required under that rule to incorporate housing wealth into their advice to clients. Over time this less than rational view of the proposed regulation began to fade as more rational minds prevailed. The fact is DOL has never had regulatory authority over personal residences or any related debt. Eventually the proposed DOL regulation was withdrawn without any new proposal replacing it.

By law, regulation, and rule of common law, CPAs have a fiduciary duty to a limited degree to consider housing wealth when performing personal services to their clients. CFPs may have such a duty under contractual agreement. So while Don’s approach in the video is appropriate when it comes to financial planners and financial advisers who are not CPAs or CFPs it is generally less appropriate as to CPAs and CFPs, although it is not prohibited.

So let us look at what Don presents and what they are likely mean to CPAs, in particular. Don presented the following five basic points about the use of HECM proceeds”

1). Increase cash flow,
2). Reduce risk,
3). Preserve assets,
4). Improve liquidity, and
5). Add new dollars back into retirement savings.

Adding new dollars back into retirement savings is a simple twist of phrase for a specific type of leveraged investing. It does not matter what the collateral is. When total investments increase dollar for dollar by the amount of additional borrowings, that by definition is leverage investing even though it applies in other situations. What Don is encouraging is not looking at the debt side of the transaction in 5). Calling it leveraged financing would call out the less desirable part of the transaction. Yet leverage financing is what the transaction results in.

Aren’t 1). and 4). essentially the same thing? Yet there is nothing wrong putting them into separate points even though it seems redundant.

As to 3)., preserving assets is much harder to demonstrate. Since a reverse mortgage is a debt, it preserves the home in tact at the cost of debt. It does not protect any other asset. Here is why.

Most of us have heard of the tactic of getting a reverse mortgage to dampen the risk of the sequence of returns as proposed by Barry and Steve Sacks. Yet couldn’t any low interest rate line of credit do the same, especially, if the reverse mortgage borrower will be paying down the monies borrowed as the investment portfolio returns overall profits? The strategy proposed by the Sacks brothers is one normally associated with the use of excess cash reserves. Because of the work in employing it, few older seniors are inclined to accept this level of responsibility.

But what about the reduction of risk in point 2).? The main proof(?) used in the industry is the Sacks strategy. However, when 1). the ongoing combined accrued rates of cost on carrying the reverse mortgage exceed the rate of return, net of income taxes, on his/her investment portfolio and 2). the unpaid balance on the reverse mortgage is substantial, is the risk on the sequence of returns decreased? Not exactly. The potential problem with the strategy is its assumptions.

What some of today’s recommended HECM financial strategies fail to take into account is the risk tolerance of borrowers and the fact that in most cases even today, the principal use of HECM proceeds is to pay off mortgages. As one of my friends asks, how many of us have ever originated a HECM to a referral from a financial adviser or financial planner so that the client can reduce the risk of the sequence of returns on their portfolios.

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The Positive Realist June 29, 2019 at 3:22 pm

If anyone can provide the instance where a financial planner saw the wisdom in dampening the threat of the risk of the sequence of returns on a personal portfolio and advised a client to get a HECM but only a HECM for that sole purpose, whether or not the client closed the HECM, please contact Shannon directly about it. Such stories could bolster the use of HECMs immensely as to financial planners and financial advisers.

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Michael Banner June 25, 2019 at 5:45 am

Listening To Don Graves speak about reverse mortgages is like listening to a symphony orchestra, just all the right notes and tones.

He is such a great representative to the Reverse Mortgage industry!

(And I liked the Superman reference Don!)

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