Not saying anything is often times doing harm to clients

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Does the doctor really know what’s best?

What if you went to the doctor and they didn’t know about a life-saving treatment that had been used for 20 plus years and you left becoming worse? That’s similar to the situation many retirees find themselves in when meeting with financial planners who either don’t know about, or misunderstand reverse mortgages. It is a potential solution that should always be considered and presented for the client (patient) to choose.

We look at the changing perspective of financial professionals and the need for our industry to spearhead an effort to educate the financial community at large about the uses and functions of a reverse mortgage.

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2 comments

James E. Veale, CPA, MBT September 13, 2011 at 4:38 pm

The financial planning community is a very small segment of the much greater financial advising community. Many self-proclaimed financial planners may or may not be. This is the reason why the CFP has become so meaningful over the last 26 years. CFPs have met minimum formal financial education requirements and have passed a fairly difficult exam. The process they use is interviewing, gathering data, analyzing the data, communicating the results of their analysis to their clients, forming a plan, implementing the plan, and then overseeing the plan. One of the areas they review is the risk tolerance of their clients.

It was obvious that the CFP who is quoted by RMD and Shannon has clients more his own age than that of seniors in retirement. Normally one can estimate the average of the clients of CFPs by the color of their hair. The more the white and gray color of the hair of the CFP, the older one would expect the average age of their clients to be. So based on the appearance of the CFP supplying the quotation, the answer is not unexpected. Unless this CFP is biased against HECMs, all he needs is a good, positive introduction to reverse mortgages using some relevant examples of how it has helped or can help more affluent seniors in managing cash, debt, rentals, businesses, and other interests. CFPs can be good sources of business but they usually advise more affluent clients than our historic customer base.

The quotations attributed to Mr. Walker are very disturbing and bring to light once again the need to avoid becoming entangled with certain financial advisors. Even though Mr. Walker is referred to as a financial planner and few laws prevent anyone from claiming that title or offering such services, it does not appear he has any critically recognized financial planning credentials. People like Mr. Walker are normally categorized as financial advisors. Since I have never met Mr. Walker and know little about him, the rest of this comment is about his alleged statements not Mr. Walker, himself.

Whenever an originator comes across statements like those attributed to Mr. Walker, warning lights should go on. Nowhere in the quotations are issues like income taxes on the taxable portion of annuities discussed. Nothing is addressed about lower earnings due to risk mitigating options related to annuities. Where is there a discussion about the difference in the accrued costs of a HECM which has all proceeds taken at funding versus those for a tenure payout? Further there is no explanation as to why the suggested strategy is a better business practice than a tenure payout. There is no strategy presented about the tax deduction of the interest accruing on the HECM. In principle the suggested strategy is nothing more than leverage investing. The problem here is the home not the investment will be at risk.

While I have yet to meet anyone who can provide a clear overall economic rational for why annuities are better for HECM borrowers than tenure payouts, other than portability, I have met several who can clearly demonstrate how they profit from that strategy. Entangling one’s origination activities with those whose business outlook is the same as the quotations attributed to Mr. Walker could prove to be a very high profile risk. The reason why such outlooks sound too good to be true is because like almost everything else in life which sounds too good to be true, it generally is. Reverse mortgages should never sound too good to be true when presented properly; they are just much better than most other options.

Reply
James E. Veale, CPA, MBT September 13, 2011 at 4:49 pm

Mr. Barham,

I have met some financial advisors who talk about the need for simple interest but few creditable financial planners. All commercial mortgages compound interest unless all payments are credited timely and payments equal or exceed accrued interest.

Reply

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