Part of the purpose of this blog is to cut through the clutter and separate fact from fluff. The weekly Advertising Wall of Shame section of Structured Settlements 4Real and is designed to highlight abuses in advertising which could serve to confuse or mislead potential consumers of structured settlements. In discussing structured attorney fees, the consumer group includes the trial lawyers and plaintiff attorneys themselves. By highlighting abuse, we hope to be a catalyst to clean up such abuse and encourage better behavior for the betterment of the structured settlement and settlement planning industry as well as all consumers and stakeholders.
Regrettably this week's entry involves structured settlement firm, Forge Consulting, LLC, of Buffalo, NY, which posts a claim on its web site that is incredibly confusing and just doesn't make sense. Structured attorney fees have grown in popularity over the years. Forge calls on the public (attorneys) to "take advantage of our structured attorney fee strategies, which reduce taxes and preserve wealth". Then it goes on to state " depending on the time of the deferral, the sole benefit results in an equivocated, guaranteed rate of return at approximately 15%"Download Forge Consulting LLC - Attorney fee 15pct. If you then click on the link to Forge Consulting, LLC's attorney fee brochure, the brochure cover** simply states Structured Attorney Fees. A Guaranteed 10-15% Equivalent Return "Download Google structured attorney fees .Download Forge brochure Structured_Attorney_Fees
Let's take a few moments to examine the mathematics. For tax years post-2004 the highest marginal Federal income tax rate for individuals is 35%. To be at this marginal rate you would need to have taxable income of $319,100 as a single taxpayer or married taxpayer filing jointly. Taxable income is the amount of income subject to income taxes. It is found by subtracting the appropriate deductions (such as IRA contributions, mortgage interest, alimony payments, non-reimbursed business expenses, certain capital losses, etc.) from adjusted gross income. To earn a taxable equivalent rate of return of 10%, in a tax-free world, one would have to earn 6.5%. To earn a taxable equivalent 15% one would have to earn 9.75%. One could argue that perhaps Forge meant a higher tax bracket to incorporate state taxes in addition to Federal taxes. However, in a hypothetical 50% tax bracket, in a tax-free world, the taxable equivalent return of 10% would require an attorney to earn 5% or at 15% he/she would need to earn 7.5%. Moreover, state taxes are generally tax deductible so, to be accurate, you wouldn't just add the state percentage to the Federal percentage.
In addition, ifan attorney were to achieve his or her objectives by structuring attorney fees, the result would not be tax-free income under current tax law. Nor would it have been from 2003, when it is believed that Forge Consulting, LLC was established, or in any of the intervening years. The most the attorney can hope for is to achieve tax deferral, essentially earning a return on money that would otherwise be paid to the IRS in the year of the settlement (from which attorney fees were earned), if the fees were paid in cash. Conceptually structuring attorney fees is not a bad thing, but one must recognize, if the intended result of structuring attorney fees is achieved, that taxes are eventually due when the deferred payments are paid. Thus it is doubtful that the claims about , "an equivocated, guaranteed rate of return at approximately 15%" Download Forge Consulting LLC - Attorney fee 15pct. or "Structured Attorney Fees. A Guaranteed 10-15% Equivalent Return" (which Forge Consulting, LLC makes on its web site and in the brochure which it posts on its web site) are true in January 2006. Ironically the misplaced use of the word "equivocated", in Forge Consulting, LLC's advertising for structured attorney fees, adds an interesting twist to this storyline.
The Principle of It All
Ironically a typo in the Forge attorney fee brochure substitutes the word principle for principal. Of course, there is interest in principles but interest on principal. On principle, Forge Consulting, LLC is therefore called upon to supply evidence to (1) back up its claims to the lofty "guaranteed returns" on structured attorney fees, or (2) remove any advertising that could confuse a potential customer.
On January 6, 2006, the Central Registration Depository ("CRD") report for two of Forge Consulting, LLC's Buffalo executives, on the website of the National Association of Securities Dealers ("NASD"), described Forge Consulting as "an investment related structured settlement firm". On DMOZ.COM, the open directory project on the Internet, from which many search engines derive the descriptions for their search results, Forge Consulting, LLC is described as (providing) "services for structured settlement annuities, trusts and managed accounts. Under the Uniform Securities Act, investment adviser advertising may not, among other things, contain any untrue statement of material fact, or be false or misleading, in any way. State Insurance Regulators generally have similar prohibitions.
In addition, the Federal Trade Commission posts Frequently Asked Questions: A Guide to Small Businesses as a guide to advertising rules under the Federal Trade Commission Act. Among other things:
- advertising must be truthful and non-deceptive;
- advertisers must have evidence to back up their claims; and
- advertisements cannot be unfair.
Post Script 2009: Whether the result of our efforts or their own conscience, Forge Consulting no longer makes the aforementioned preposterous advertising claims about structured attorney fees. The preserved copy of the brochure in the above link is evidence of its existence for anyone in doubt about the story.