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Financial Planning > College Planning > Student Loan Debt

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The recent spate of interest rate cuts by the Federal Reserve has reenergized the mortgage market, and you’re likely fielding more questions from clients these days about refinancings, home equity loans, or new mortgages. While independent advisors are adept at helping clients track down financing or fill out loan applications, most lack the resources and tools needed to originate a loan, forcing them to refer clients to a loan officer at a bank or to a mortgage broker, and ultimately losing out on additional revenue.

In these times of hypercompetition in the financial services industry, it’s more important than ever for advisors to offer a broad spectrum of services to retain clients, including help with mortgages. And advisors are getting help in tackling the task of originating loans from an unlikely source–an accountant.

Steve Connolly, a CPA, helped launch a company called Vertical Lend a couple of years ago so small- to medium-size independent financial professionals could add mortgages to their stable of services. “I saw that financial services people were always being asked to help clients find financing, put the documents together, and fill out the [loan] applications. But when it came to the client actually getting a loan, they had to go to a complete stranger–a loan officer,” Connolly says.

Melville, New York-based Vertical Lend, launched in 1999, is an outgrowth of Mortgage Warehouse, a retail mortgage broker and banker. Connolly, VP and cofounder of Vertical Lend, joined Mortgage Warehouse in late 1998 and collaborated with the mortgage company’s founder, David Peskin, on the Vertical Lend concept. “When David’s loan officers met with a client about a loan, the client always had to go back to their financial professional for tax returns and supporting documents and advice,” Connolly says. “So we thought, ‘What if we took that stranger out of the picture, the salesperson, and created a situation where the financial professional could originate the loan for the client.’” And Vertical Lend was born.

Connolly says Vertical Lend was also conceived to help independent professionals such as financial advisors, CPAs, and insurance and tax professionals deal with the competitive playing field created by the Gramm-Leach-Bliley Act and revisions made to the Uniform Accountancy Act. We’re all well versed on the former. As for the latter, the act was revised in 1999 to allow accountants to accept commissions or contingent fees on services like financial planning and insurance. “These four segments of the financial services industry are all coming together. A lot of [these professionals] are feeling very threatened by all of these changes,” Connolly says. “They are asking, ‘How can I compete with these huge banks that can offer everything? How can I afford the technology?’”

Vertical Lend is the answer to the small- to medium-size professionals’ prayers in the lending area because they can access the company’s stable of 50 lenders as well as its technology and product expertise, Connolly says. Vertical Lend initially offered only residential loans, but has expanded into business lines of credit, auto, SBA (small business), and commercial loans.

The idea here is simple. You keep your clients in your own shop, where they can work with someone they know and trust. So you end up satisfying another client need while keeping her away from competition–all while earning additional compensation by originating a loan. Vertical Lend “opens up a lot of opportunity for these [professionals] because they are not increasing their overhead or technology costs, and they are providing their clients with the same service that the banks are.”

Jerry Style, a CPA and CFP with Freedom Financial Services in Bohemia, New York, says Vertical Lend is helping him keep his competitors at bay. “I try to be a place where my clients can come for a number of their financial needs, not only their taxes, but investing, and now with Vertical Lend, their mortgage needs,” Style says. “There really has to be a holistic look at a person’s finances before you can make a good decision.”

Vertical Lend’s services are free–at least for now. “We don’t charge anything,” Connolly says. To use Vertical Lend services, you become a Vertical Lend employee via a W2 form and are licensed and trained by the mortgage company. Training starts with a 45-minute introductory telephone course that familiarizes advisors with Vertical Lend’s Web site, Advisors also receive introductory training from a designated loan specialist, and get ongoing education on terminology and products, Connolly says. “We are not looking to make [financial professionals] a loan expert,” he says. “Their responsibility is to initiate the loan transaction, understand client needs, and see what the consequences [of a loan] will be on their taxes, assets, and debts.”

Here’s how an advisor would use Vertical Lend to secure a loan or a refinancing for a client. Say you’re an advisor with a client who is looking to refinance a home loan. You log on to Vertical Lend’s password-protected Web site and click on the residential mortgage section. Once there, you fill out a one-page “express application” to get the loan started. When the application is completed, you click submit to send it directly to a Vertical Lend loan specialist.

Each financial professional is assigned a loan specialist who provides back-office support and acts as a business partner when performing loan originations. The loan specialist retrieves the application, runs a credit check, examines debt ratios, and then shops the loan for the best rate. Let’s say the specialist comes back to you with an offer of 7% and zero points. You then present that offer to the client; if she gives you the green light, the loan specialist would ship you all the necessary documents. You then go over the documents with your client and include the necessary background info, such as pay stubs, when you send the package back to the loan specialist. The package then goes to a loan processor who “basically works directly with the borrower. At this point, the loan specialist and financial advisor are out of the picture,” Connolly says. “That’s when [Vertical Lend] first gets involved with the client. We try to stay out of that relationship” between the advisor and the client.

Vertical Lend currently works with 1,100 financial professionals nationwide. The mix of professionals was evenly split among the four professional groups until a few months ago when the balance tilted more toward CPAs because Vertical Lend aligned with Tax and Accounting Software Corp. So which group is the best at snagging clients? Insurance agents usually submit more applications, Connolly says, but their closing ratio is the lowest. Accountants submit fewer applications, but have the highest closing ratio. And financial planners fall in the middle. Connolly says he considers advisors to be “part accountant and part salesman. They tend to have an average number of applications with an average number of closings.”

How much extra revenue can you generate by setting up loans? On residential credits, advisors who accept commissions can earn from 0.5% to 1.25%. Connolly says advisors often ask, ” ‘How is this loan going to be competitive if you are paying me that much?’” His answer is that by securing loans through a financial advisor, Vertical Lend doesn’t have to pay a salesman or hefty advertising costs that are usually incurred in attracting a client. Plus the client does not pay broker fees. Connolly says the average financial professional using Vertical Lend’s program collects about $1,500 per loan.

James Preston, a CPA and PFS in the resort and retirement community of Cutchogue, New York, pulled in $30,000 to $35,000 during his two-year relationship with Vertical Lend. “I didn’t do very much [in mortgages] the first year. But since rates have been down [this year], it’s been very popular,” he says. Vertical Lend has helped his practice “to be more of a full-service shop.” Preston says his tax clients are always inquiring about more services, and that questions about mortgages usually crop up in advisor-client discussions. “Two out of the three customers who are refinancing loans weren’t aware that they could do it [through Vertical Lend],” he says. And other clients have “talked to me about the loan they were going to get and then found there were more options through Vertical Lend.”

Jim Charbonneau, a planner with The Investment Center in Seneca, South Carolina (who’s in the process of securing a CFP license), will earn an extra $25,000, or 4% of his total revenue, through Vertical Lend this year. He says while that figure is a “pretty small piece of the puzzle,” the mortgage services help him compete in an area that’s saturated with bigwigs like A.G. Edwards, Merrill Lynch, Edward Jones, First Union, and Bank of America, not to mention other planners. “We are not doing [mortgage services] to drive a major portion of our revenues,” Charbonneau says. “This is more of a concierge service. I love hotels where I can walk up to the concierge and ask, ‘Where’s a good golf course?’ or, ‘How can I get tickets to a good show?’ I look at this the same way. If a client asks, ‘Can you get me savings on my home loan?’ I can say, ‘Sure.’”

Style, with Freedom Financial Services, says his firm refinanced 25 loans through Vertical Lend and garnered an extra $40,000 in revenue within the last 12 months. He says Vertical Lend recently helped one of his clients that was carrying a lot of debt refinance his first and second mortgages at a lower interest rate. “Vertical Lend was able to find him a 30-year mortgage at 7%, which my client is absolutely thrilled about because he’s refinancing a mortgage that’s at 8.5%.”

How do you get paid for arranging loans if you are a fee-only advisor who shuns commissions? Vertical Lend’s fee-only financial professionals follow the same practice as accountants, charging clients by the hour for their work. “If the loan doesn’t close, they still make money. If it does close,they take the compensation that [Vertical Lend] pays them and give it back to their client.”

Now that the refinancing binge is in full swing, it might be a good time for you to consider adding mortgages to your service lineup. Your competitors certainly are.


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