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A Recent Survey Reveals Financial Advisors Often Ignore HECMs

reverse mortgage newsIf there is one analogy I wish I could tell every financial professional it would be this: If you were a doctor and knew your patient would die in 10 years and didn’t tell them about a treatment that would prolong their life or possibly cure them would that be malpractice? I hope the answer would be a resounding yes!

The good news is that more financial professionals are beginning to see the need to bring up reverse mortgages when discussing their client’s financial longevity in retirement. When it comes to financial professionals and HECMs suspecting and knowing are not the same. The American Institute of CPA’s says that more than half of their CPA financial planners state that running out of money is the top retirement concern for their clients. The survey points out annuities, social security and other accounts as possible sources of stable cash flow in retirement but unfortunately fails to even mention reverse mortgages. Ironically 25% of survey respondents say…

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  1. It is surprising how misunderstood the results of the survey really were. All participants in the survey had to be CPAs who have a significant practice in financial planning. That means no CFPs or other financial advisors who are not also CPAs were included in this rather limited sample of just 548 CPAs.

    The number of CPAs licensed by the state of California alone exceeds the total of all CFPs nationally by about 40%!! The survey was written by CPAs for CPAs. Its language has specific meaning and needs to be understood in that light.

    Per RMD here is the reaction of Ms. Paterson to just one part of survey results: “And while the survey takes note of annuities and Social Security as sources of stable income in retirement, no mention of reverse mortgages underscores a need ….” So what is that need? Ms. Paterson goes on to say later in the article: “Reverse mortgage professionals need to be approaching financial planners, CPAs and educating them….”

    Yet from an accounting, financial, and economic point of view, reverse mortgages are NOT a source of any kind of income whatsoever. Unlike annuities or Social Security benefits, when a dollar is paid to a reverse mortgage borrower from the proceeds of the reverse mortgage, the balance due on the related reverse mortgage goes up by a dollar. When a dollar is paid from an annuity, the beneficiary has no increase in debt and the same is generally true with Social Security benefits. Income is earned or imputed while debt is borrowed and must be repaid.

    So when CPAs are asked about sources of stable “income” (not cash inflow), reverse mortgages would ordinarily not be mentioned at all. Perhaps we need to learn what reverse mortgages are in terms used in accounting, finance, and economics before going off and trying to educate CPAs about them. What are there, 8,000 NMLS licensees originating reverse mortgages in this industry? There is no question CPAs do not properly understand reverse mortgages but let us make sure we understand how to discuss them in terms that those we are trying to instruct/educate understand.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  2. Shannon,

    Thank you for discussing the survey.

    I wish when first looking into the industry a little over a decade ago, I had met you. In late spring 2004 I was trying to understand HECMs to help the widow of a deceased close friend. In speaking with dozens of originators, I was lectured on how HECM proceeds were income to the borrower. It was as if no one knew the difference between cash inflow and income and few knew how to listen.

    While you discuss source of stable cash flow and Ms. Paterson sources of stable income, my concern is not who is right but rather whatever phrase is used, the reaction is consistent with the term used. Yours was.

    Because of the sheer size of the CPA industry and its unparalleled influence on 1) other financial advisors, and 2) higher income/higher asset seniors seniors, we need those with the industry’s highest credential demonstrating (not educating) how reverse mortgages can be used to improve and extend cash flow further into retirement through the articles already in publication. To do that, training and education are required.

    When an annuity salesperson came to our CPA firm, they knew the difference between income and cash flow. They knew what Internal Revenue Code Sections and Regulations applied. They were prepared to make the hard discussion with guys and women who were not pushovers. It is not the same with this industry except in rare cases.

    • (The opinions expressed in the comment immediately above are not necessarily those of RMS or its affiliates.)

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