In NASP Annual Meeting- 3, pedantic Patrick Hindert, aping Alicamousa the lion tamer, finally gets to the point. Here are some select observations by NSSTA member Hindert about the responses from the spectacle, which included former Society of Settlement Planners president Jack Meligan of Settlement Professionals Inc., NSSTA member Mike Upchurch of Delta Settlement Solutions and Matt Bracy of factoring company Settlement Capital. Neither Bracy nor Meligan are members of NSSTA.
Not only do plaintiff attorneys dislike "cash now" advertisements, they are also less likely to recommend structured settlements if they believe their clients will eventually sell their payment rights. They recognize and disapprove of the temptations created by such advertising. Meligan and Upchurch both predicted continued negativity toward the secondary market from the primary market so long as factoring companies continue such advertising.
The potential liquidity provided by settlement transfers, however, improves the structured settlement annuity product. Lives change. Unexpected events occur. Even the best personal injury settlement plans need to be reviewed post-settlement and sometimes adjusted. Settlement transfers, which must be reviewed and approved by state judges, are appropriate in some cases.
- Transfers are appropriate in some cases.
- Liquidity that comes at an exorbitant effective discount rate is no bargain.
- A factoring transaction in the first two years of a structured settlement is, from a loss of invested capital standpoint, on par with recent stock market losses for a product that is supposed to carry little to no risk.
- Either the factoring companies come up with competitive discount rates OR the annuity issuers should explore providing the liquidity themselves to their own customers at a very modest discount. The latter would require little to no marketing expense and offer real competition to the factoring companies. Moreover annuitants would not be harassed by factoring company representatives.
Settlement planners have a choice whether or not to seek compensation for post-settlement transfer advice to existing structured settlement recipients. The decision may depend upon whether the settlement planner was the agent of record for the original structured settlement annuity purchase. In most states, compensation options for settlement planners include fees for serving as "independent financial advisors" in settlement transfer cases.
- Such fees have been proven to take money out of the mouths of tort victims. The amount of time spent providing such advice is minimal.
- The notion that not being the agent of record on the original structure justifies a fee simply means that not all plaintiffs and tort victims are treated equally by such settlement planners who engage in such practices. Does YOUR settlement planner engage in such practices?
- In the state of Michigan the factoring industry successfully lobbied to have the "independent financial advice" requirement eliminated on the basis that it adds to the cost of the transfer.
- The identity of anyone taking such fees or kick backs should be required to be disclosed up front and be itemized in the financial disclosures submitted as part of the court approval process.
Another attorney criticized the primary market generally for its continuing (and in many cases undeserved) vilification of the secondary market. Still another stated that only the criticisms and bad results get publicized - while the thousands of successful settlement transfers and satisfied secondary market customers are ignored.
This author has been blogging about the business practices about the factoring industry since November 2005 ad specifically about the "cash now fraud" for more than a year and a half. The practice has been endemic and some of the worst offenders have been the largest members of NASP.
Whatever good the factoring industry purportedly does is drowned by the negative energy of the exorbitant effective discount rates of some and the unscrupulous advertising and solicitation practices of others. For example, when former Peachtree Vice President Deborah Benaim boasted of all that Peachtree was purportedly doing for Katrina victims who could overlook the company's reputation for non competitive discount rates?
How can NASP be considered a credible organization when there is such inertia to professional licensure and following the truth in advertising standard?
Matt Bracy of Settlement Capital said that as one result of the tight capital markets, he predicted higher discount rates for settlement transfers in the immediate future.
More liquidity should be built into settlement plans at the outset so that the need for such transactions is minimized.
"Both Meligan and Upchurch re-emphasized the importance, from the primary market perspective for:
- Secondary market companies to stop non-professional ("cash now") advertising. Note: one factoring company executive stated privately that he plans to review his company's advertising based upon comments by Meligan and Upchurch.
- Plaintiff attorneys and injury victims to be represented by settlement planners including representation for secondary market issues and options".
- Plaintiff attorneys and tort victims need to be represented by competent financial professionals who are familiar with the subject matter. Despite being a settlement planner this author believes such individuals do not have to exclusively be settlement planners. They may also be Certified Financial Planners, Chartered Financial Consultants, accountants, lawyers.
- The notion that factoring is part of settlement planning is a 2005 era fallacy put forth by certain members of the Society of Settlement Planners and an "honorary member" who pays kick backs to some of them. The fact remains that factoring IS simply a liquidity option available to tort victims holding structured settlement payment rights. Placing as much emphasis on it (ostensibly to sell a bigger annuity to someone who does not want one or does not want as much of one) as Hindert and others imply, is malpractice, in my opinion. Planning to factor is simply a losing finanical strategy.
- Why hasn't NASP taken a leadership role in stamping out fraudulent "cash now" advertising? On March 12, 2008 in his report of the Society of Settlement Planners 2008 Education Meeting, Hindert reported
- "The SSP secondary market discussion offered multiple informative perspectives on this controversial topic. It also included questions by SSP members to (Earl) Nesbitt for NASP members focused upon:
- Alleged predatory advertising by factoring companies;
- Alleged improper use of the term "structured settlement" by factoring companies;
- Nesbitt promised to communicate SSP's concerns to NASP members". Now 7 months later, how has Earl Nesbitt followed up on his promise?