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All Under One Roof

Advisors who add a real estate license to their portfolio of skills may stand a better chance of keeping clients happy at home

A couple of years ago, San Francisco-based financial advisor King Lip noticed that his clients wanted to talk about one thing — real estate. Their interest was sparked by the hot market in the Bay area, and they were hoping he could help them with their questions about selling their homes or getting money out of them and where they might invest the money.

But Lip, who is a chartered financial analyst (CFA) and portfolio manager at Bingham Osborn & Scarborough, didn't have any answers, at least not right away. Then he got his real estate license — and that made all the difference in the world. For example, he helped an elderly client, who was draining his investment portfolio by paying a nurse to care for his Alzheimer's-stricken wife, set up a reverse mortgage on their house to free up more money.

“I was able to help my clients easily since I had real estate knowledge,” Lip says. “I felt very fulfilled that I was able to solve their complicated and emotional problem.”

Of course, being savvy about real estate is practically a requirement of living and working in the San Francisco area. It's one of the most expensive, as well as one of the hottest, housing markets in the country. Still, advisors elsewhere are learning to focus on real estate, too, because housing has been strong throughout much of the country and remains the primary source of wealth for most Americans. While over two-thirds of households own a home, according to a study conducted by Harvard University's Joint Center for Housing Studies, only about half owned stocks or mutual funds. Titled Housing Wealth and Retirement Savings: Enhancing Financial Security for Older Americans, the study also found that 60 percent of homeowners had more equity built up in their homes than in the stock market.

Another reason for advisors to get their license is the role real estate will likely play in the lives of baby boomers as they wind down their careers. “Now, more than ever before in history, real estate has become a tool for retirement,” says Seth Pearson, a certified financial planner and founder of Cape Cod, Mass.-based Pearson Financial Services, who also has a real estate brokerage license. “Addressing real estate is an absolute necessity if you're going to be able to advise people in tax planning and investing.”

Most boomers have seen their homes appreciate significantly over the past few years. From 2000 to 2005, average U.S. home prices increased 53.5 percent, according to the House Price Index, a quarterly report issued by the Office of Federal Housing Enterprise Oversight that analyzes housing price-appreciation trends.

With so much equity built up in their homes, many baby boomers are selling their houses as their children grow up and move out in favor of small condos downtown or a cozy cottage in a resort town.

Pearson recently was involved in a situation where one of his clients was facing retirement and wanted to dispose of his $7 million home. He advised his client to divvy the proceeds from the sale into a 1031 exchange property, a private annuity and a charitable remainder trust. Pearson could always handle the annuity, but he needed a real estate license to arrange for a 1031 exchange, which is useful because it allowed his client to defer some capital-gains tax from the sale of the house.

“Typically, when people sell and buy real estate, they leave their traditional advisors and go to a real estate broker who is not up to date on all the tax planning,” Pearson notes. “When they are making big financial decisions, they really need someone who knows about investing and real estate.”

In-House Advisors

Clients whose advisors hold licenses will have less of a reason to stray. In fact, advisors may have an advantage over real estate agents if the proceeds from a sale are not going to be used to buy another property. That's because clients will likely want to invest at least some of the money and “registered reps know the securities portion,” says Doug Duncan, a registered rep and real estate broker with Comprehensive Financial Consultants, a Bloomington, Ind.-based financial-services firm.

The process for getting a real estate brokerage license depends on where you live. Every state has different requirements, although they all offer at least two license levels for real estate agents: salesperson and broker. A real estate broker is someone who is authorized by the state to perform certain activities, like sales on behalf of another person for a fee. A salesperson, on the other hand, is someone licensed to perform those activities, but only under a broker's supervision.

In general, brokers and salespeople have different educational requirements and take different exams (although some states have no educational requirements whatsoever and require only that you pass the state exam).

With a real estate brokerage license, a registered rep can: list a property for sale; find buyers for a property that is for sale; negotiate the sale or purchase of a property; negotiate a lease on behalf of a tenant or a landlord; and represent someone in the exchange of properties.

Many registered reps like Lip and Pearson prefer not to get directly involved in real estate transactions, even though they are allowed to do so. Others, like Robert Johanson, a CPA and certified financial planner with Westlake Village, Calif.-based MBS Financial Services, help facilitate deals.

Recently, Johanson's real estate license came in handy when he was advising a divorcée who could no longer afford to keep her home and the horse farm it sat on. He helped her list the property, find another home and obtained the mortgage loan for her, receiving a commission on both the real estate sales and the mortgage (to receive a commission from a mortgage transaction in California, one must have a real estate brokerage license).

“This is another way to diversify our revenue stream,” Johanson says. “We can participate in deals without jeopardizing our relationships, and sometimes get our clients better deals.” Moreover, he points out that if he can get involved in the real estate transaction, he is compensated through the closing costs and his clients don't have to incur any additional expense for his financial advice.

Johanson reaps the benefits of his real estate brokerage license daily. “Having the license definitely boosts your credibility and your ability to serve clients better,” he says. “Clients view you as a more valuable resource.”

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