by Structured Settlement Watchdog
There are several types of transactions for individual investors (including tort victims):
- Acting as the direct counterparty to a structured settlement factoring transaction. You invest money in the right to receive periodic payments from someone else's structured settlement directly or through an intermediary; the transaction is subject to a judge's approval and your name as the buyer appears in the Court Order approving the transfer.
- Acting as the assignee for "warehoused" payments that have already been purchased by someone else, for example a factoring company. The factoring company then assigns the rights to you in exchange for cash in an amount that is greater than the amount that they paid for the structured settlement payment rights.
One such person who has purchased "warehoused payments" suggests that there is an active market buying and selling these rights by individuals. If the original annuitant sells with a 16% discount rate, follow on sales are possible with lower discount rates of 10% or 8.5% so that every one "with their hand out" makes money. Clearly one understands the motivation of a yield hungry investor, but what about the original annuitant?
The question is why does the original acquisition cost have to be so expensive for the annuitant? If a deal is available at 9% discount rate instead of 16% or 18% (thereby putting MORE cash in the annuitant's pocket or MINIMIZING the amount of payments needing to be sold to raise cash) why shouldn't the annuitant get that rate?
- Annuitant is too ignorant to shop or negotiate for better rates.
- Annuitant is too lazy to shop. It's their money and they want it now.
- Annuitant can't get over stupid but memorable commercials that cost millions of dollars (something that "factors"-pun intended- into the buyer's low offer) and is willing to take much less money for the value of absurd entertainment.
- Annuitant is getting poor advice from a financial adviser or settlement planner.
- Annuitant is not seeking independent professional advice
On the other hand advisers for investors seek, and may have a duty to find, the highest possible yields. Those highest possible yields may have been acquired "by any means necessary", even if it ultimately means opportunistically hosing the annuitant for a non competitive discount rate. A judge can always reject the transaction and they sometimes do. What is reasonable in relation to an average, and the best deal out there, may be entirely different things.
The current system has the potential to set up annuitants to be mugs.