Credit counseling and advice: are we burying our heads in the sand?
What we asked the advisers
The Academy for Home Equity in Financial Planning at the University of Illinois at Urbana-Champaign interviewed finance professionals about their relationship with customer credit in 2020. More than 500 financial services professionals from diverse backgrounds surveyed participated in a survey on personal and real estate credit, including 143 CFP professionals.
When asked about personal credit and credit card recommendations, just over 30% of survey respondents said they provided credit card management recommendations to customers. Even less, 12%, had provided clients with recommendations regarding personal loans (non-student and unsecured).
The survey then asked respondents what type of mortgage advice they gave. Included options:
- Use a mortgage to purchase a home.
- Refinance home debt using a residential mortgage.
- Use a reverse mortgage for income or retirement sustainability.
Following recommendations on real estate debt, participants were asked about their regulatory environments:
- My firm prohibits me from giving advice on home equity loans, mortgages or reverse mortgages.
- I’m not sure if my practice allows me to advise on mortgages, home equity loans or reverse mortgages.
- My practice allows me to make mortgage and home equity loan recommendations to my clients, but not reverse mortgage recommendations.
- I can provide advice on home equity loans, mortgages and reverse mortgages to clients.
The resulting responses highlight the intersection of professionals, the regulatory landscape and reality.
About 35% of survey participants were barred or unsure of their ability to make home loan recommendations. Still, 63% of that group made mortgage, reverse mortgage, or mortgage refinance recommendations to clients anyway.
This inconsistency in advice in dealing with financial services is worrying. How can our profession meet the needs of clients without guiding debt decisions in a world where credit is easy to obtain and to overuse?
Then, the survey tested the credit recommendation by business. While professionals affiliated with RIA tend to make credit recommendations more often, professionals affiliated with brokers are not far behind.
The survey results show that there are gaps in credit guidance, which are particularly serious for professionals who tend to be associated with a holistic approach to planning. Consumers cannot be sure that they will receive the comprehensive advice they expect when engaging with a financial services professional.
Credit decisions throughout years of employment have a lasting impact on eventual retirement security. The profession is encouraged to adopt more robust policy, planning platforms, model language, continuing education and training to align client expectations with actual advice.
Craig Lemoine, Ph.D, CFP, is Associate Professor of Financial Planning at the University of Illinois at Urbana-Champaign. Shelley Giordano is the Founder and Past President of the Academy for Home Equity in Financial Planning. Jamie Hopkins, Esq., LLM, CFP, ChFC, CLU, RICP, is the Managing Partner of Wealth Management Solutions at Carson Group and Professor of Finance at Heider College of Business at Creighton University.