by Structured Settlement Watchdog®
A number of structured settlement general agencies have cut commission sharing deals with wire houses as a business strategy. They know who they are and so do we. One can presume that the idea is to be the focal point of questions from thousands of stock brokers and wealth managers and hope for some of the crumbs that fall off the "assets under management" table.
Wire house deals are low margin deals for the structured settlement general agency which must also bear a dramatically increased risk of supervision of those who may not be properly trained in the nuances of the structured settlement product, settlement planning issues and litigation recovery management for tort victims. Unlike the training of a group of casualty company claims adjusters or lawyers at a law firm (where a referral is generated and trained specialist professionals "do their thing"), in these circumstances the specialist may not even get a look in other than to run a quote.
Is it possible that tort victims, their families, and their attorneys will mistakenly believe they are being properly advised on structured settlements by "experts" who have sparse knowledge and little incentive to recommend or place the product? If these stakeholders do not know they are being improperly advised, they will simply turn down the structured settlement alternative without the benefit of having a registered settlement planner or other qualified and experienced settlement professional properly discuss the alternative.
There is a growing belief among trained settlement professionals that such "crumb trail" business strategies are bad for the structured settlement industry. In this multi part series we will give you examples of how some of these programs appear to be run and the potential exposures to the industry reputation.
On April 22, 2009 a Vice President-Investments at Robert W. Baird & Co. ("Baird"), with a law degree that he used his signature block, represented in writing to a plaintiff attorney that he/it had the capability to provide structured settlement contracts through Baird's insurance services division. Download Baird VP letter 4-22-2009. The material that accompanied the letter included a structured settlement quote using Navisys "Quote in the Box" software provided by Prudential insurance Company of America only to its appointed structured settlement brokers. The quote came from Little Meyers & Associates, Ltd. of Cincinnati, Ohio. Download Little Meyers Prudential quote supplied to Baird Client in 4-2009**, (although a legal representative of Little Meyers told this author on July 16, 2009 that Little Meyers had no relationship with Baird and "had no idea" how one of their quotes got into the hands of a Vice President of Robert W. Baird- I am due a writing to that effect) . The structured settlement annuity issuer, The Prudential Insurance Company of America, was incorrectly named as Prudential Life in the Baird Vice-President's letter. There is more than one insurance company in the world with Prudential in its name. Prudential plc, with its home office in the UK is not related to Prudential Financial, with its home office in Newark, NJ. This is one of the reasons that some state insurance departments require the complete legal name of the insurer and the home office city and state of the insurer listed in all advertising.
False and Misleading Statements in Baird Comparison of a Managed Portfolio to Structured Settlements
In the material accompanying the April 22, 2009 letter from the Baird Vice-President, several false and misleading statements were made in a document entitled " Advantages and Disadvantages of Managed Portfolio versus Structured Settlement (Annuities)" Download Baird Report Excerpts
In making an "investment comparison" the Baird Vice-President represented that the structured settlement had low volatility when in fact it has no volatility.
In making an "investment comparison" Baird Vice President falsely represented that income paid from a structured settlement is taxed at ordinary income when in fact it is income tax free pursuant to the terms of either IRC 104(a)(1) or IRC104(a)(2).
The Baird "investment comparison" failed to mention reinvestment risk, default risk and dissipation risk with respect to a managed portfolio
and there's more in the material which has been supplied to this author.
Various securities and insurance laws govern market conduct and highlight the exposures to both the brokerage firm, its insurance group and the structured settlement general agency:
FINRA Conduct Rule 2210b A registered principal of the member must approve by signature or initial and date each advertisement, item of sales literature and independently prepared reprint before the earlier of its use or filing with FINRA's Advertising Regulation Department ("Department"). With respect to debt and equity securities that are the subject of research reports as that term is defined in Rule 472 of the New York Stock Exchange, this requirement may be met by the signature or initial of a supervisory analyst approved pursuant to Rule 344 of the New York Stock Exchange. A registered principal qualified to supervise security futures activities must approve by signature or initial and date each advertisement or item of sales literature concerning security futures.
FINRA Conduct Rule 2210d (A) All member communications with the public shall be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in the light of the context of the material presented, would cause the communications to be misleading.
FINRA Conduct Rule 2210d (B) No member may make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public. No member may publish, circulate or distribute any public communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.
Wisconsin Insurance Law 628,34 Unfair Trade Practices (1)(a) No person who is or should be licensed under chs.600-646, no employee or agent of any such person, no person whose primary interest is as a competitor of a person licensed under chs 600 to 646, and no person on behalf of any of the foregoing persons may make or accuse to made any communications relating to an insurance contract, the insurance business, any insurer or any intermediary which contains false or misleading information, including information misleading because of incompleteness.
Questions & Comments
- Presumably a registered principal of Baird signed off on the "sales material" that included the false representation of, among other things, the tax consequences of the structured settlement alternative. Hello compliance department!
- The wealth manager with obviously little structured settlement bona fides stands to make a fraction in one time payment on the structured settlement, after Baird takes its cut, or make a recurring charge on the assets under management on the money not structured.
- As someone who had no skin in the transaction, in view of Little Meyers official denial of a relationship with Baird, I naturally wonder how the Little Meyers & Associates quotes got into the hands of Robert W. Baird representatives. Who is the missing link?
- Who was responsible for training and supervision of the Baird Vice President for a) the securities comparison with the structured settlement product b) the solicitation of insurance? Who signed off on the securities sales literature that was used in comparison with structured settlements? The supervisory sign off rules on investment sales literature simply underscore that two people may have got it wrong. Even if a correction were made several months later (from an outside stimulus) does that exculpate the original piece of outgoing correspondence?
- In general, if members of the structured settlement industry have relationships with wire houses are they doing enough to adequately supervise the marketing practices of those they have these relationships with?
** this author learned that on July 8, 2009 the Vice-President of Robert W. Baird transmitted another Navisys "Quote in The Box" structured settlement quote to an attorney, bearing the notation, "prepared by Karen D. Meyers", to the attorney for the plaintiff, accompanied by the unmistakable words "Baird's structured settlement proposal". Little Meyers' legal representative continues to deny a business relationship between Little Meyers and Baird .
UPDATE: An official Little Meyers statement on this subject appears in a follow up blog dated July 29, 2009