A perfect match.
Although preoccupied in 2015 by strategies and costs to ensure letter-of-the-law compliance with the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule (TRID), mortgage originators next year may want to explore some "spirit-of-the-law" strategies for how they serve consumers. U The role of the Consumer Financial Protection Bureau (CFPB) is explicit--its name offers clarity on the spirit of its rulemaking. In addition to being TRID-compliant, mortgage lenders can demonstrate their intent to protect the consumer by focusing on referral partnerships with professionals who openly share that objective. [paragraph] Specifically, by cultivating relationships with financial planners and other financial advisers who bear a fiduciary responsibility to their clients, loan originators can contribute meaningful guidance to consumers' long-term financial decisions. At the same time, mortgage lenders and financial advisers can be well suited as business development partners due to their complementary skill sets and perspectives. [paragraph] Collaboration between mortgage professionals and financial advisers is by no means a new idea, but the pairing takes on new significance in the current context. At the same time our industry is adapting to constant Know Before You Owe regulatory tinkering, emerging demographics are reshaping the marketplace. The impact of baby boomers reaching retirement age over the next 15 years promises to strengthen ties between financial advisers and mortgage loan officers, creating opportunities that favor their shared consumer.
Over the course of his 40-year career, lifelong mortgage professional and former Mortgage Bankers Association (MBA) chairman (2006-2007) John Robbins, CMB, has been a true believer in the value of loan officers building referral relationships with financial planners.
"Of course everyone has referral relationships with builders, and obviously Realtors[R], but don't forget about financial planners as referral partners," Robbins says. "[T]his is a group that needs to be on your shortlist--and for good reason. Financial planners, specifically in the wealth-management or wealth-advisory capacity, typically represent borrowers who have above-average income and are purchasing homes with higher sale prices and property value. In many cases, these may be easier borrowers to get qualified because of the nature of their income and their assets."
Based on his experience, Robbins recommends that loan officers anchor their relationship strategies with financial planners by earning trust and proving value.
"Know that when you call on folks in financial planning, it's a matter of earning their trust by following through with great customer service. When you do that, you generally have earned their loyalty and they'll refer multiple customers to you," Robbins says.
"I'd characterize the loan officer who succeeds with financial planners as a more sophisticated loan officer who has really done their homework to understand the nature and character of a more affluent and well-informed borrower, and in doing so understands the basics of how to read a financial statement," he says.
According to Robbins, this sophisticated loan officer also understands the underwriting required on high-balance loans and has the know-how to relate in conversation with a higher-income borrower.
A two-way street
Nor is the interest in stronger relationships between financial planners and mortgage loan officers one-sided, according to the certification entity for Washington, D.C.--based Certified Financial Planners Board of Standards Inc. (CFP Board) (www.cfp.net).
"Mortgage bankers can make presentations to financial planning firms in the community, or to [Denver-based] Financial Planning Association [FPA] chapters about the trends in mortgages, types and availability of products," says CFP Board Consumer Advocate and Certified Financial Planner[R] (CFP) Eleanor Blayney.
"They can keep financial planners in the loop about underwriting for specific clients, about options to buy down interest rates with points. In particular, our profession needs good and solid advice about the availability and supervision of reverse mortgages, problems and opportunities with these types of loans. In other words, mortgage bankers should seek to educate financial planners about mortgage terms, state of market, etc.," she says.
Loan officers can pursue a financial adviser business referral strategy in any number of ways. For example, John Walters, licensed reverse-mortgage professional and Certified Senior Advisor[R] (CSA) with Cornerstone Reverse Mortgage LLC, Ocean City, New Jersey, fell into his strategy as a result of conversations with his own accountant.
"Whether a mortgage loan officer is originating traditional mortgages or reverse mortgages, the referral partners that we develop are vital to our success," Walters says. "The No. 1 thing that impacted my financial planner strategy was discussing with my personal accountant of 35 years what a reverse mortgage is and the various strategies that can be used as part of an overall financial plan."
He adds, "In talking with him on various occasions and brainstorming the various ways the program can be used, he ultimately moved forward once he understood the line-of-credit option and how it grows over time. This opened a door for me in the sense that I knew I needed to take the conversation to another level and replicate it with financial planners, accountants and CPAs [certified public accountants]."
A financial product
For other loan officers, it might make sense to earn a professional designation that has meaning and value to many financial planners. The Alpharetta, Georgia-based CMPS Institute was created in 2005 as the first mortgage planning designation or certification in the industry. In the 10 years since its founding, CMPS Institute says it has graduated close to 8,000 individuals with the designation of Certified Mortgage Planning Specialist[R] (CMPS).
According to CMPS Institute Chairman and Chief Executive Officer Gibran Nicholas, CMPS is a financial designation loan originators can earn through training on the financial aspects of a mortgage.
"Although loan originators are clearly selling a financial product, a large number--possibly most--of loan originators don't know much about finance," he says. "CMPS education teaches them finance in five modules: taxes, financial markets, cash-flow planning, real estate investment and ethics. The ethics module covers inserting financial knowledge into loan officers' daily habits so as to grow their business in a way that's also compliant with industry regulations."
According to Nicholas, one of the primary benefits of being CMPS-certified is becoming accredited to teach continuing education (CE) courses to financial planners. Once a mortgage professional has completed the 15-hour CMPS certification and passes the exam, the CMPS Institute issues the designation Certified Mortgage Planning Specialist. Then CMPS Institute provides designees eight different presentations for use in teaching financial planners the material.
Financial planners value it for two reasons, he says. First, they need the CE credits a CMPS can provide. Second, the CMPS content is unique from other CE material.
A financial planner is an expert in mutual funds, stocks, bonds and insurance, but he or she doesn't really get trained on mortgages, housing and real estate, Nicholas explains.
This training collaboration with the CMPS Institute offers financial planners multiple benefits. They learn, for example, that certain mortgage options can preserve assets for their clients. Financial planners are paid based on assets under management, so when a client pays cash for a $500,000 house, that's $500,000 the financial planner could be managing but is no longer able to manage because the client liquidated his investment account and is purchasing the house for cash.
On the other hand, the CMPS knows that if the client were to put 20 percent down and take a $400,000 mortgage in that scenario, his or her payment would be less than the client would earn in an investment account. Both the client and the financial planner benefit because now they have an additional $400,000 to manage that they didn't have before, or they are preserving that asset under management.
Another benefit for financial planners is being able to provide clients a broader financial perspective. Sometimes clients need advice on their largest asset, which is the house, or their debt, which is their cash-flow scenario. Financial planners are generally not trained to advise clients in these, according to Nicholas. By teaming up with a mortgage professional, financial planners can offer a higher level of customer service and generate a competitive advantage.
"Knowledge of the mortgage as an element of financial planning gives loan officers a competitive edge," Nicholas says.
Understanding the financial planners' perspective
Although there is reciprocity at work in all of lenders' referral relationships, reciprocity means different things to different types of relationships. Realtors, for example, are paid by the transaction. So referring transactions or paying them a fee using the legal version of marketing services agreements (MSAs) is where the mortgage industry creates value for the real estate community.
Nicholas says financial planners have a completely different value proposition and the reciprocity may not be in the form of referrals from the mortgage professional.
More than anything else, they need the ability to preserve the asset they already have under management--especially as their clients age and instead of accumulating more assets, begin drawing down on their assets. That has the effect of reducing the client's security as well as the financial planner's income.
Even in light of the symbiotic possibilities between loan originators and financial planners, there sometimes remain cultural and personality barriers to overcome.
"Barriers start with mindset," Nicholas says. "Most loan originators are focused on the transaction--either on the loan details or getting that loan closed, or they are focused on closing this deal and moving on to the next deal--whereas, financial planners tend to be more relationship-oriented in their focus."
The first change in mindset has to do with the way loan officers manage their time or how detailed their focus is on the actual transaction, because the financial planner is interested in efficiency. They are most comfortable working with someone who has a team and runs their business like a business.
The second shift is that originators tend to be very short-sighted in terms of getting a specific deal closed. Loan originators not only need to learn to speak the financial language of financial planners, but also to emulate their relational perspective, such as factoring in the lifetime value of a client or staying in touch with a client even when there's no immediate transaction in play.
"The loan officer/financial planner partnership is probably the single most underutilized business development opportunity in the United States," says Nicholas.
Making it work
Career mortgage lender Sharon Falvey, director of sales operations for Austin, Texas-based Open Mortgage LLC, started and spent the lion's share of her career originating the Home Equity Conversion Mortgage (HECM), the only government-insured reverse mortgage. In large part due to her expertise in cultivating referral relationships, in 2015 her role there expanded to encompass forward and reverse products.
"Whether you're a forward or reverse lender, you know that 10,000 baby boomers are turning 65 every day," says Falvey.
"The reality is that while most financial planners have spent their careers helping seniors during the asset accumulation phase, now, due to prolonged life expectancy and the recent financial crisis, the retirement horizon has expanded at the same time accumulated assets have declined."
Therefore, she explains, financial advisers need tools and resources to assist in the distribution phase of baby boomers' retirement plans.
"With so many folks retiring, financial planners are really struggling for tools to help them better understand how to stretch financial dollars--so whether you're a forward producer or a reverse producer, collaboration is critical for the consumer," Falvey says.
Because the house represents so much of seniors' assets, it needs to be seen as part of the overall retirement strategy and used as a third bucket of retirement income. In other words, putting a plan in place that incorporates housing wealth is one of the best tools, other than postponing Social Security dollars, to maximize benefits for expanding the retirement income horizon, according to Falvey.
Mortgage lenders need to begin by recognizing that financial planners have a fiduciary responsibility to their clients, and their perspective therefore is governed by that legal responsibility.
"My advice is, don't go in to a financial planner with the pitchy kind of an attitude," Falvey says. "Go in as a solution to what their clients are facing and what some of their challenges are in helping their clients. It's a matter of penetrating and overcoming the mindset of presenting yourself as just another salesperson and replacing it with an advisory attitude."
Falvey also advises loan officers to study and understand what financial adviser licenses mean, what they sell and what their responsibilities are. She recommends calling on those who have the fiduciary responsibility to the client, because with that fiduciary responsibility comes the need to look at all of the client's assets to create a viable retirement plan. That's where a loan officer can add value.
An evangelist for the strategy
Craig Strent, chief executive officer of Rockville, Maryland-based Apex Home Loans, began originating loans more than 20 years ago. He is among the 1 percent of mortgage bankers nationwide to have earned both the Certified Residential Mortgage Specialist (CRMS) and the CMPS designations.
Having modeled his business on a financial planning partnership strategy, Strent evangelizes the approach.
"Be clear on the fundamentals of working with financial advisers," Strent advises. "And keep these points in mind: First, what do financial advisers do? They only manage assets. Second, what do mortgage loan officers do? They manage liabilities. And typically what is a client's top liability? The mortgage. So would it not make sense for advisers who put themselves out there as being full-service to manage both sides of the balance sheet? How can they ignore their client's largest liability? All of which is to say, financial planners need you as part of the team."
He adds, "Not only that, but they are great business partners. My personal observation about financial planners is that they respect what you do and are loyal; they run their businesses like businesses; and, unlike Realtor or builder referral sources, they're not being harassed by other loan officers."
Strent recommends that loan officers embrace this step-by-step plan toward their financial planner referral partner strategy:
* Learn the language--interview advisers and read industry articles/blogs.
* Obtain a professional designation that focuses on advisers.
* Identify warm referrals from borrowers and your professional network.
* Set up in person meetings armed with case studies.
* Follow up with consistency.
* Be available to consult.
* Teach classes to them that provide CFP credits.
"Above all, get comfortable understanding what advisers do and how they are compensated," he says.
"They are paid to create and preserve assets, and mortgage professionals can help them with both. A designation will give you both the information and tools you need along with credibility. Then show up prepared, professional and with specific examples of how you have helped clients create and preserve assets," Strent adds.
The financial adviser relationship differs from other referral partners in three important ways, according to Nicholas. "Remember, people pay for and follow their adviser's advice, and typically financial advisers don't give out three names--they give out one. Why not make it yours? Further, unlike other referral partners you may work with, financial advisers don't work weekends."
Seeking business referral partnerships with financial advisers is not a new idea, but it may be an idea whose time has come.
Kerri Milam is president of Depth Public Relations in Decatur, Georgia. She can be reached at firstname.lastname@example.org.