Investing borrowed money is not in and of itself an ethics violation. The facts and circumstances determine whether a reasonable strategic choice has been made or if we are talking about predatory sales. Among those facts and circumstances are the representations made.
Using a reverse mortgage to preserve an investment portfolio may make good sense, but if the reverse mortgage is not presented as higher cost debt or the lack of required servicing payments are used to present a reverse mortgage as free or cheaper than other debt, a line may be crossed.
I’m not saying reverse mortgage products are all bad or are always bad to use. They have improved, and I think they can be used effectively more often because of those improvements. Our friends in the academic community are helping us identify some of the possibilities.
Nonetheless, the products are a complex form of debt that need to be managed and come with a cost. It will take smart strategic use to benefit clients. The lack of payments won’t overcome an inappropriate context.
Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager and Worth magazines. He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.