Introduction:
This was a Phenomenal interview. In less than 17 minutes my guest Mike McGlothlin unpacked the changing nature of Retirement Income Planning and how the Reverse Mortgage has become an integral part of planning for retirement.
Mike McGlothlin is the executive Vice President of Ash Brokerage. His team works with registered representatives, bank representatives, and independent agents to make improvements in retirement income outcomes for Americans. Ash’s growth of retirement products has grown 50% faster than industry sales over the past four years. Ash Brokerage is the largest independent brokerage general agency in the United States.
Discussion Highlights:
- 4 Major Retirement Income Planning Changes Starring Advisors in the Face (2:08)
- Why the Sales Teams of the Largest Brokerage General Agency Were Intrigued by Reverse Mortgages (4:27)
- The 3 Most Surprising Things Mike Discovered about Reverse Mortgages (5:26)
- How Mike Reduced Retirement Income Planning Failure Rate from 26% to 2% (6:19)
- Why Long Term Care Is a Cash Flow Conversation (7:04)
- Why the Cornerstone of Financial Planning Is the Review Process (10:03)
- How Reverse Mortgages Set Advisors Apart From Their Competitors – A Case Study (13:19)
- Why Compliance Officers Have Told Advisors to Refrain From Talking About Reverse Mortgages, and Why the Research Contradicts This Position (14:48)
PODCAST
TRANSCRIPT
{Podcast} Why One of the Nation’s Largest Brokerage General Agency is Big on Reverse Mortgages
Don Graves Interview with Mike McGlothlin
https://www.podomatic.com/podcasts/askdongraves/episodes/2017-08-28T09_47_00-07_00
Don Graves: Good afternoon, this is Don Graves and welcome to this week’s podcast. My guest today is Mike McGlothlin. He is the Executive Vice President of Ash Brokerage. Ash is the largest independent brokerage general agency in the United States. Mike and his team work with registered representatives, bank representatives and independent agents to make improvement to retirement income outcomes for all Americans. Mike thank you for being on the podcast today.
Mike McGlothlin: Thank you for having me.
Don: Mike you have been writing a lot on your blog and your videos have just been fantastic and I know a lot of people enjoyed them. Recently you wrote about some things that you and I have a common interest about and I’d like to explore some of those in a minute but first tell me, currently what is your role in the world of Financial Advising?
Mike: Well as a wholesale operation and the largest brokerage general Agency, we have raised 1.2 billion dollars in annuity sales, individual annuities and in the last year we helped over 11,500 families retire with a much more secure retirement in mind. Our responsibility also includes structured settlements for injured plaintiffs and in also one of the growing markets of guaranteed income which is our pension risk transfer business, but regardless whether you are looking at a group basis or an individual basis, what we are trying to do is improve the confidence and improve the probability of success for retirement income planning which I really believe, HECMs play significant role in our process not only now but our going forward basis for the next several decades.
Don: you mentioned a name that’s come into most people vocabulary very recently probably within the last decade and that’s retirement income planning as opposed to retirement planning. When you’re thinking about that in terms of Retirement income planning, what has changed in your opinion that’s of concern to you?
Mike: Well I think there are four major things that are right in front of the financial planners face.
- First of all, our savings rate has dwindled in the US, today, it’s around five to five and half percent, in previous generation, it’s been higher 20%. So, we are going to have to do more income with less assets than ever before.
- Second thing is that we continue to have an incredible misuse of Social Security and any social program. Today even with all the education out there, only 2% of men push Social Security to age 70 and only 4% of women do the same thing.
- Third is we continue to see a dramatic shift from defined benefit to defined contribution plan. Most participants are ill prepared to take assets and turn them into income. And then finally,
- Longevity continues to be an issue. Today in America we are actually living two and half years longer for every decade since 1900, so that creates a lot of health issues later in life and costs that frankly most Americans are not prepared to handle. Those are some of the things that I think that the financial planning community hasn’t been able to really get their arms around.
Don: So, the savings rate is low for those who are retiring the baby boomers, Social security optimization and very few people are taking advantage of that, moving from defined benefits to defined contribution, turning asset into income and longevity are the things you see that are troubling.
Now we are talking about the Home Equity Conversion mortgage and many people know it by its older name (twenty nine and half years ago) the Reverse Mortgage. Mike how did you become interested in the HECMS as the retirement income planning resource?
Mike: We were involved with your friend Curtis Cloke doing some seminars and actually we were introduced to HECMS through Curtis and I believe he brought along yourself to a couple of those meetings, and that’s where we first got introduced. All of my sales teams were intrigued with the aspect of adding HECMS into the retirement income strategy and so we’ve been trying to get more education to our advisors and to our broker dealers, our partner firms and look at ways that we can really help develop the education on the use of HECMS properly with the use of annuities and the proper allocation of equities and bonds can really increase the probabilities of success especially later on in life at age 90-95 and age 100 and beyond.
Don: Which more and more people are going to be living in those out years.
As you began to learn about the home equity conversion mortgage, two questions. What surprised you the most as you began to learn about it and having learned about it how do you see housing wealth playing a significant role in the retirement income planning and the outcomes?
Mike: first of all, I think there are three things that really surprised me as I got more familiar with HECMS,
- First of all is their flexibility and how you can use them effectively. I think the line of credit with HECMS and the growth of that line of credit irrespective of the home value really surprised me and presented a lot of different opportunities. Then as I researched just the sheer amount of housing wealth that is untapped here in the United States really surprised me. In fact I believe that for every dollar of assets under management there is a value of dollar tied up in housing wealth which is huge amount of Americans net-worth tied to housing wealth that is going unused and more importantly we’ve really failed to have a discussion with our retirees about actual housing itself.So, in terms of where does the HECM come into play, we think that there are couple things:
- first of all I like recommending HECM’s as a source for non-correlated asset. When we’ve done some testing with past returns and we’ve used a HECM to secure income in years following the down market and allowing the portfolios to rebound, we found that we reduced the failure rate in over 2000 simulations from 26% failure at age 95 down to a 2% failure rate at age 95. That’s a significant change in the probability of success from many Americans that have a significant amount of wealth tied to their homes.
- The second thing that I really like is it’s a great long term care funding back up, we have to change the conversation in America that long term care is not Insurance conversation, it’s a cash-flow conversation and that when you have a long term care event, you have to not only sustain your standard of living for the healthy spouse but also have to pay for care at that time. Certainly, from a taxation stand-point HECMS are great opportunity to access a pot of wealth, completely irrespective to the value of the home and we think that’s a great alternative, especially if you cannot qualify for long term care insurance.
Don: Mike you said that in your research and software analytics when you looked at using the HECM as the non-correlated asset to provide income following the negative return instead of taking it from the portfolio taking from HECM, you saw the failure go from 26% to 2%. How did your colleagues and those within Ash Brokerage that you spoke to react to that, because that is statistically significant ?
Mike: Yeah, I think that was a major surprise as we got more familiar with HECMS and thought okay, how do we use this? In reality, we’ve always looked at cash value life insurance as that non-correlated asset so from a brokerage general agency we’ve seen that with non-correlated assets but what significant is that you’re introducing another source of capital, so you’re not mitigating your death benefit because you’ve taken a loan out of your cash value, you are not taking money out of your fixed annuity, that would be another non-correlated asset which creates a taxable consequence for you. So, the HECM alleviates a lot of problems and becomes tax efficient, it’s low cost especially in today’s interest rate market, it still has flexibility if you need to take that out for one year or two years given an extended bear market, so it provides a perfect alternative and a pot of money to access when you need it the most and at the time when you need it the most. So, it’s a very viable tool using non-correlated assets.
Don: Mike having said that; how would you approach the HECM subject with your client or how would you instruct your team to tell the advisors to broach the subject. One of the questions that comes up is “how do I even introduce the subject to my client at an annual view or initial consultation, what do you say?
Mike: I really believed that the cornerstone of financial planning occurs in a discovery process and that discovery process should also be happening in the review process. We need to be better as an industry about asking our clients, changes in goals and objectives because they change from year to year, our expectation of retirement income changes as we get promotion, as our spending habits change and a variety of different factors that comes into our perception.
I think we have to get into our vernacular to ask about their housing situations and the way to get into that I think is to have a discussion about where are you going to live during retirement, a very frank and basic conversation about how are you going to live out your final years and where and how do you envision that. That would naturally lead to how are we going to use that home equity if you were selling your home, but most importantly how can we use that home equity to get you into the proper type of living standard whether that is a HECM for purchase to get to a single level home or maybe it’s to use a HECM for long term care funding as an emergency when you need to be elevated to assisted leaving or a skilled care within a facility, so I think it’s a asking question and it starts out with asking a question about where do you want to live in your final years and what does that looks like. I just don’t think we have that part of a longevity conversation frequently enough.
Don: Well I think it’s going to grow. When you think of advisors, those that you inter relate with and those that you know because you spend a lot of time with them, what competitive advantage do you believe their knowledge of HECM provides them against other advisors who may not have that knowledge?
Mike: So I really believe that this is that blue ocean type of philosophy. In the financial services world, we are always competing against returns, we are competing against cost, certainly with the Department of Labor fiduciary rule cost is clearly in the spotlight. The performance is always an issue you know we always go to cocktail parties and say talk about returns and you always have a client who heard about xyz mutual fund and did 15% last year and all of a sudden transferring their entire 401K to xyz fund. So, it de-commoditizes the financial planning process and when you do that, you get in to more of a blue ocean as opposed to where all the blood is and a red ocean and you are bringing some values and I don’t care whether that it’s HECM or a QLAC or other things that maybe aren’t as popular in terms of been sold right now but just adding that value would be significant. I will share with you an example that we had with our producer on QLAC but the same thing could be said if we brought a HECM to the table as well. He was the only one that brought that strategy to a client that was looking to invest 3 million dollars. The person was interviewed in five different firms and all were competing on price and asset performance, but the client chose to place their 3 million dollars with this particular person because they brought a new idea. They didn’t purchase the QLAC, but they actually chose that professional because he bought something new to the table. So, I would encourage a lot of advisors to think about offering it, it may not be the right situation but you don’t know until you have the discussion but just simply bringing that to the table might win business down the road.
Don: Thank you Mike, that is fantastic. I want to land the plane on this final conservation, it’s one that you and I have been having for the past 2 or 3 years. In some companies, compliance officers or compliance department have told their advisors to refrain from any conversation from having any conversation about the HECM, how do you reconcile this position given the research that we are seeing even your own research of the benefit of integrating home equity into retirement income planning. How do you reconcile that position?
Mike:
- So education is key and as you and I have talked previously, it’s a slow needle to move however, we are seeing broker dealers be open to the discussion especially after all the discussions relative to the Department of Labor’s fiduciary rule. Continuing that education is critical and that leads to my second point .
- We really have to rely on the math and science, when the math and science proves that the HECM increases the probability of retirement success, I think that we are obligated to the client to act in their best interest and move forward with that. I think we also have to think about looking at the alternatives. Part of the Department of Labor says looking at all the alternatives. We have to ask our clients “is not having an estate value to our home really a viable alternative versus having mom and dad live with us and supply care” You know that’s the reality of the situation. It’s it’s a choice of maybe running out of money and then the family having to support mom and dad versus having a HECM that might be charging interest
- Finally I think at the end of the day, if you are referring people to a CPA or to an attorney or to a mortgage broker or anything like that, those have to be treated equally. This basically comes down to: first of all it’s a mortgage and you’re referring your client to another person and you are not sharing revenue in that referral.
Don: Mike, I am hoping that in 2017 and 2018 you and I will continue to do the heavy lifting. The tide is certainly changing, and having conversations like this with people knowledgeable like yourself will certainly help to lift this dialogue because it’s very very important.
Ok folks this is Don Graves with Mike McGlothlin, Executive Vice President of Ash Brokerage and we’ve been talking about Retirement Income planning and integrating housing wealth for a successful and new types of retiring outcomes. Mike thanks so much for being with me today.
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
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