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How One Advisor Lost a Client Over a Very Simple Housing Wealth Question

How to Potentially Lose a Client

Earlier this year, an advisor friend called me to say that his client had just cussed him out over a reverse mortgage situation. Here’s what happened.

Joe and Mary Johnson (age 65) had been clients of David Wilson, CFP for the last 15 years. He managed their money, sold them annuities for fixed income and got them life insurance with a long-term care rider.

The Johnson’s had recently had their annual review with David and he had expressed his concern that their current spending level could put them in danger of prematurely depleting their investments. Although they had Social Security, a small pension and the annuities, they would need to consider making some changes.

No long after that meeting, Mary read an article in Forbes outlining 6 strategies for carrying a mortgage into retirement. Surprisingly, they all included using a reverse mortgage in some capacity:

  1. Use a HECM to refinance the mortgage balance and use the remaining line of credit last to cover retirement spending if the investment portfolio is depleted. Make voluntary payments equal to those of the traditional mortgage in years after portfolio gains to reduce the loan balance and shift more of the principal limit into the line of credit for potential subsequent use.
  2. Use a HECM to refinance the mortgage balance and use the remaining line of credit last to cover retirement spending if the portfolio is depleted. 
  3. Pay off the mortgage at retirement with financial assets; open a HECM as a last resort—only if portfolio assets are depleted later in retirement.
  4. Keep the mortgage into retirement, making the required ongoing payments until the mortgage has been fully paid off; open a HECM as a last resort—only if portfolio assets are depleted later in retirement.
  5. Keep the mortgage into retirement, making the required ongoing payments until the mortgage has been fully paid off; open the HECM line of credit after the mortgage is paid off and use it last.
  6. Pay off the mortgage at retirement with financial assets; open the HECM line of credit and use it last

The Johnson’s Research

She decided to do a bit of research on her own and found a simple, online program from Bankrate.com that calculated how long their savings could last if they changed nothing. The calculator gave a ballpark figure of 22 years.

Mary also wanted to see what would happen if they used a reverse mortgage to eliminate their existing mortgage payment, thus, reducing the amount they needed to draw from savings. The results were draw-dropping. Instead of running out of money in 22 years, the program showed them having around $225,000 at year 30!

Joe and Mary scheduled an appointment with David to share the results they had found and to ask his opinion on this reverse mortgage strategy. Unfortunately, David had to tell them that because of his compliance department, he would not be able to comment on the strategy.

They replied, “You can’t even give your opinion!?”

He said he couldn’t.

They persisted, “You’re our advisor. You’re managing our money. You’ve sold us annuities and developed our plan…..you have nothing to say?”

That’s when they cussed him out!

The experience shocked David and led him to relay the story to his broker dealer, who eventually did change their position. Essential to their reversal was the fact that many other broker dealers are also reversing their stance–seeing the reverse mortgage as a unique financial planning tool instead of just another product.

What Would You Say?

I’m curious, what will you say when your clients specifically ask you about a reverse mortgage strategy? Will you have updated information? Will you know a trusted resource to turn to (or to send your clients to)?

If you are reading this article, then I suspect my team and our national partners are already your trusted resource for all things Housing Wealth, and we are excited to provide the up to date education you’re looking for.

Stay Educated and Updated with These Resources

Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®

Categories: Advisors, Financial, Financial Planning

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