The financial planning community is often sought after by reverse mortgage professionals as a referral source, as planners can help provide necessary clarity to their clients who are seeking the preservation of financial assets and continuing stability. This is especially true for those who may be living on a fixed income, and is coupled with the general lack of awareness of — or even outright hostility towards — reverse mortgages that many people maintain.
Education is key, as is a frank assessment of a person’s finances, which is why Robert Klein, founder and president of Retirement Income Center in Newport Beach, Calif., sees reverse mortgages as a vehicle toward financial security for certain clients. Having penned some columns recently about the ways in which reverse mortgages can be employed in a comprehensive financial plan, Klein sat down for a new episode of The RMD Podcast to discuss how and why reverse mortgages make sense for financial planners to explore for certain clients.
Klein’s own discovery of reverse mortgages as a tool
Klein’s career as a financial advisor goes back to the 1980s, when he was working as a Certified Public Accountant (CPA) in a CPA firm. While working as a CPA he became more interested in financial planning because of that field’s specific client focus, which led him to work for a large financial planning firm that was innovative in the realm of providing holistic retirement planning services.
However, with the passage of the landmark Tax Reform Act of 1986 signed into law by President Ronald Reagan, Klein jumped back into the CPA realm to update himself on all the new realities that legislation brought to the American tax system. He continued in the CPA realm until breaking off to start his own CPA firm in 1989, which ultimately led to his founding of a holistic financial planning firm.
When it comes to his discovery of reverse mortgages as a potential financial planning tool for seniors, Klein describes the work of a prominent reverse mortgage industry educator as key to his development as a planner that encourages his clients to examine reverse mortgage possibilities.
“As a financial advisor attending conferences, I heard about reverse mortgages. As part of the educational process and as time went on, I realized I needed to learn more about them. I just had a feeling they were an important part of retirement income planning,” Klein tells RMD in the new podcast episode. “And then, sure enough, I attended a seminar sponsored by Ed Slott. I’m a member of the Ed Slott Elite IRA Advisor Group, and he had as a presenter Don Graves from the [HECM Advisors Group]. Don Graves is an expert in education when it comes to reverse mortgages and he was speaking [about] basic things concerning how important it is for financial advisors to be involved in the [reverse mortgage] industry.”
Klein was swayed by Graves’ description of the housing asset being a major component of many clients’ net worths, and it was through those presentations that Klein found himself enamored with the topic of reverse mortgages and gained a desire to learn as much about them as he could for potential employment in his financial advising practice.
“Luckily, Don offers a certificate program in housing wealth, and I immediately took that and learned a tremendous amount about reverse mortgages as a result of that,” Klein said. “And I followed that up with reading, Don has two books about reverse mortgages: one for financial advisors, another one for consumers. So, that really ignited my excitement with [the topic].”
It wasn’t long afterward that Klein began writing articles for financial publications about the potential benefit that reverse mortgages could present to some clients, including one for Retirement Daily about how reverse mortgages have become a stronger product after enduring years of program changes handed down by the Federal Housing Administration. RMD covered that article when it was first published.
“[That initial article] was really intended to be an introduction to reverse mortgages,” Klein explained. “And by writing that article, that just reinforced everything I was learning about it, and really got me excited about the whole subject.”
Misgivings of financial planner colleagues about reverse mortgages
While Klein himself took the time and effort to educate himself about reverse mortgages, he recognizes just as much as anyone that many other fellow financial planner professionals maintain a series of misgivings — some of which are practical, others that stem from a negative bias — about the potential relief that such a tool can provide for clients in the right situation.
“It comes down to — in a lot of cases — lack of education,” he says. “That’s the basic thing about whether it’s fixed income annuities or reverse mortgages. I look at it [as stemming from the fact that advisors] only have so much time in the day, and people like to focus on certain things. However, having said that, a lot of the things that we focus on are client-driven, and so to the extent that clients are coming into your office and they’re talking about this more and more now, it behooves financial advisors to get up to speed on it and expand their horizons.”
The process of incorporating more financial planners into reverse mortgage conversations also comes from the way that they can be compensated for giving advice related to the products, an issue that doesn’t affect Klein as much due to his firm offering a more holistic retirement planning solution than other, more general advisors who may have senior clients.
“It’s difficult, because there’s really no set financial model for this,” he says. “As a financial advisor, I can’t be compensated by a reverse mortgage company for offering and selling a reverse mortgage to my client. I can’t receive any kind of compensation. So, the compensation that I receive related to reverse mortgages is in connection with my whole holistic service that I provide to clients, which includes reverse mortgages as one of the things that I do.”
Still, on an anecdotal level he notes from financial planning colleagues that those who similarly take the time to learn about how a reverse mortgage can affect the financial lives of clients come away with a very different perspective than those who hold onto their misconceptions or misgivings as the final word on the matter.
“I’ve found from talking to other financial advisors who do annuities or reverse mortgages, that the ones who have gotten educated on it and have incorporated it into their practice, they have a totally different attitude towards it than those that don’t,” he says. “A lot of the attitudes I find, once again, whether it’s annuities or reverse mortgages, come from misconceptions. A lot of them are ones that consumers have, but as financial advisors we have to be really careful. Our clients are looking for solutions, and to the extent that clients own homes when they turn 62, that’s when you qualify for a HECM. It behooves you [as a financial advisor] to be up to speed on that, [and potentially] to have a discussion about it.”
Listen to the full conversation with Robert Klein on the latest episode of The RMD Podcast, coming soon.
