Quick Answer
Financial advisors recommend against reverse mortgages for three distinct reasons — legitimate concerns about cost and suitability, outdated knowledge of a program that changed substantially in 2015, and in some cases an undisclosed conflict of interest where drawing home equity instead of portfolio assets reduces the advisor's assets under management and therefore their fee.
- Some objections are legitimate: high fees, short tenure, and unsuitable situations.
- Some reflect outdated knowledge of the pre-2015 program.
- Some involve an AUM conflict advisors rarely disclose.
- Academic research has shifted substantially in favor of strategic use since 2012.
- Ask your advisor which of the three is driving their recommendation.
- A fee-only advisor billing on AUM has a structural reason to prefer portfolio withdrawals.
Key Facts
| Topic | Key Fact |
|---|---|
| Legitimate objection | High closing costs relative to short expected tenure |
| Knowledge gap | Pre-2015 program had no financial assessment or NBS protection |
| AUM conflict | Home equity draws reduce assets under management and advisory fees |
| Key research | Sacks and Sacks, Journal of Financial Planning (2012) |
| Additional research | Wade Pfau, The American College of Financial Services |
| Fee structure at issue | 1% AUM on $500,000 equals $5,000 annually |
| Disclosure practice | AUM conflict is rarely volunteered |
| Reasonable question | Ask directly which concern is driving the recommendation |
Detailed Explanation
The first category of objection is legitimate and deserves respect. An advisor who says the closing costs will not be recovered given a client's expected tenure is making a correct argument. An advisor who says a client with minimal equity would net too little to justify the transaction is correct. An advisor who knows their client's psychology cannot tolerate a growing balance is making a judgment about suitability that no spreadsheet captures. These objections should be taken at face value.
The second category reflects a knowledge gap that is understandable but consequential. Many advisors formed their view of reverse mortgages before 2015, when the program genuinely was more dangerous — no financial assessment meant borrowers who could not afford property taxes were approved, and non-borrowing spouses lacked protection. An advisor whose mental model dates from that era is applying an accurate assessment of a program that no longer exists in that form. The reforms were substantial and specific.
The third category is the uncomfortable one. An advisor compensated on assets under management earns less when a client draws $100,000 from home equity instead of the portfolio. At a 1% fee, $100,000 remaining in the portfolio generates $1,000 annually in perpetuity. Over a twenty-year retirement, the cumulative difference is meaningful. This does not mean advisors are acting in bad faith — most are not consciously weighing their fee against the recommendation — but the incentive exists and it is rarely disclosed. A client is entitled to ask about it directly.
The research picture has shifted substantially and advisors who have not revisited the literature may not know it. Sacks and Sacks published in the Journal of Financial Planning in 2012 showing that coordinating reverse mortgage draws with market conditions produced materially better terminal portfolio outcomes than treating home equity as a last resort. Wade Pfau at The American College extended this work. The academic consensus is no longer that reverse mortgages are a desperation product — it is that strategic use improves outcomes for a meaningful subset of retirees.
Jay Zayer, CRMP — 18 Years Experience
I work with advisors constantly and most of them are thoughtful people doing right by their clients. When an advisor pushes back on a reverse mortgage, my first question is which concern is driving it — cost, suitability, or something about the program they learned years ago. Usually it is one of the first two and we have a real conversation. Occasionally it is the third, and I raise it gently, because most advisors have genuinely not thought about the AUM incentive. The ones who engage with it honestly are the ones I keep working with.
Who This Is Right For
This may be a good fit if:
- Clients whose advisor has recommended against a reverse mortgage and who want to understand what may be driving it
- Advisors reexamining a position they formed before the 2015 reforms
This may NOT be the right fit if:
- There is no situation where understanding the range of advisor objections would be inappropriate
Common Misconception
Myth: Financial advisors who oppose reverse mortgages are always acting in the client's best interest.
Fact: Objections fall into three categories: legitimate suitability concerns, outdated knowledge of the pre-2015 program, and an undisclosed conflict where home equity draws reduce assets under management. The first deserves respect; the second is correctable; the third is worth asking about directly.
Source: Sacks and Sacks, Journal of Financial Planning (2012); Wade Pfau, The American College
Authoritative Sources
- Sacks and Sacks, Journal of Financial Planning (2012)
- Wade Pfau, The American College of Financial Services — theamericancollege.edu
- HUD Mortgagee Letters 2014-07, 2014-21, 2015-15 — hud.gov
People Also Ask
Does my advisor have a conflict of interest about reverse mortgages?
If they charge a percentage of assets under management, drawing home equity instead of portfolio assets reduces their fee. This is rarely disclosed and worth asking about directly.
Has the research on reverse mortgages changed?
Substantially. Sacks and Sacks (Journal of Financial Planning, 2012) and subsequent work by Wade Pfau found that coordinating reverse mortgage draws with market conditions improves retirement outcomes materially compared to treating home equity as a last resort.
Should I ignore my advisor's objection?
No. Ask which of the three concerns is driving it. If it is cost or suitability, they may well be right. If it is outdated program knowledge or an AUM conflict, that is worth discussing openly.