Doesn't an organization have the right to say or show what it stands for? And what it doesn't?
This is the message that I received from an NSSTA member on one side of the explosive factoring issue re-ignited by a blast email that NSSTA sent to its members this week. In that email the NSSTA Board of Directors expanded on a letter it sent 6 years ago, following a change in its bylaws and hinted at teeth in its enforcement.
The NSSTA publishes a Code of Ethics, the current version of which it has held out to the public, since 1997, as something its members are expected to subscribe to.
NSSTA's hand was forced to "force the issue" because:
It is increasingly becoming well known, that a meaningful number of structured settlement brokers and settlement planners, including some of its members, refer business to factoring companies for compensation, much of it believed to be undisclosed to sellers, or even more importantly, judges whose job it is under a state's structured settlement protection act, to determine if the transaction is in that seller's best interest.
This author further believes that some structured settlement brokers and settlement planners may be putting themselves in the position of fiduciary in structured settlement factoring transactions by holding themselves out as a broker to a selling structured settlement annuitant, creating a fiduciary obligation, and then breaching their fiduciary obligation by failing to disclose the commission to the seller and negotiating a better commission for themselves. Due to the lack of regulation of such practice, it is possible for the structured settlement broker (or any other financial advisor acting in this capacity outside of NSSTA) to literally name their own price. And where commissions are not disclosed to the seller up front, or in the general disclosure documents that are required for structured settlement factoring transactions under the structured settlement protection act, the seller is at a massive disadvantage.
In my opinion some states structured settlement protection acts need to be amended to require full disclosure of the amount of commissions, including all parties to whom such commissions or referral fees are paid.. The issue of payment of commissions should not be an issue for any factoring company or factoring broker who offers and pays such commissions unless they are purposely concealing the fees and using the payment of such fees or commissions as a competitive weapon against similar individuals or entities, and don't want their competitors to know what they are offering and paying.
There have been a number of reports of structured settlement brokers initiating offers to sell details of structured settlement annuitants and their contracts to factoring companies or factoring brokers., which exposes the life insurance companies issuing structured settlement annuities and impugns the integrity of the industry. Were this found to be widespread, for the NSSTA whose mission is to promote structured settlements, this would be an unmitigated public relations disaster. Those are doing it, and they know who they are, and I know more than one person who knows who they are, are riding on thin ice in more ways than one. Even the least conservative of their peers that I have spoken with find this practice to be despicable.
Another reform measure I propose, is that "wet ink" structured settlement factoring transactions need to be curtailed. This would require the cooperation of both the primary and secondary market. A structured settlement factoring transaction that is initiated within 30-60 days of the settlement being consummated often means that the case has over structured. That is a fancy way of saying that the annuitant's liquidity needs have not been adequately addresssed at the time the structured settlement was created. Why should the structured settlement broker and his general agency keep all of $60,000 commision on a $1.5 million structure when just weeks later his or her client is taking a 30% capital hit on the cost of payments sold, in order to obtain the liquidity they should have had from the beginning? I would like to see life insuurance companies issuing structured annuities to start charging back commissions, or a portion thereof, where they receive notice of Petition to Transfer within a certain defined time frame. There's a 30 day free look on life insurance policies, why not consider something relevant here? Any objection by brokers on this would simply support my point. Of course from a practical standpoint there are complexities. The chargeback should go to the payee. How that works from a tax standpoint and the terms on which is applies would need to be worked out.
I would also like to see the factoring industry, through National Association of Settlement Purchasers ( NASP), cooperate by the creation of published industry standards to assure that such transactions are not abused, perhaps at reduced discount rates. I know you're just providing a service, but let's see how you can provide it, improve the image, and above all do the right thing.
To be consistent across all membership categories, I would also like to see any structured annuity issuer applying for membership to NSSTA, or currently a member of NSSTA, as part of the consideration for membership or continued membership in NSSTA, to conduct an internal audit to determine if it or any of its subsidiaries is purchasing securitizations of any factoring company that buys structured settlement payment rights. In light of example 5 of the recent NSSTA email this seems to be fair.
I don't think I need to go on pointing out what business practices of individuals or companies have been exposed and/or are in danger of being exposed in this post. NSSTA has spoken, through its Board of Directors, which it deserves emphasizing, is now elected by a plurality of NSSTA members as opposed to the previous representative vote of general agency heads or designated voting members that was in place from NSSTA's founding until recently. The NSSTA annual meeting is coming up in April. If you have any issues you may want to attend that meeting.
I expect the factoring issue, particularly the transfer of structured settlement payment rights between the secondary and tertiary market to investors to be a hot topic in the months to come. As I said in the previous post, the lack of statutory protection to such investors fleshed out in the ELNY proceedings raises concerns about the use of such vehicles for catastrophic injury victims. It is an innovative approach that has hit an unfortunate bump in the road, in my opinion because of what ELNY has exposed. It should be emphasized that typical professional E&O insurance for either structured settlements or traditional insrance agents and financial advisors DOES NOT cover insolvencies!
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