by John Darer CLU ChFC CSSC RSP
Apparently factoring companies and intermediaries are offering advances to structured settlement brokers who refer business to them. It is well settled that structured settlement factoring companies and intermediaries offer and pay fees to structured settlement brokers and settlement planners as an inducement to refer business to them. Some brokers choose not to accept these fees, but many do.
Some firms or intermediaries pay a flat fee for a referral, for example $100 per name of someone who they know has a structured settlement and then another flat fee (one website says $750) when the structured settlement factoring transaction is completed. Other firms leave the amount of commission open and may ask the broker how much commission he or she wants to build into the transaction.
My concern is and always has been:
- Are these referral fees being disclosed to the seller of structured settlement payment rights? If not, why not? If they are being disclosed, are they being disclosed on every case. or are they only being disclosed only if the seller asks?
- Would a review of transfer petitions by an independent auditor on behalf of selling structured settlement annuitant or annuitants show that commissions and all the people being paid are being disclosed in those petitions?
- If they are not being disclosed, should there be a legal requirement that they be disclosed?
- All things being equal, is it not important for a selling annuitant to have a fighting chance of determining if the broker's commission factors into the broker's recommendation to do business with Company A or Company B?
Is "get what you can get" from a tort victim good public policy? Was this what Congress intended in enacting the law that gave birth to IRC 5891, and what states had in mind when they enacted the various state structured settlement protection acts? Is this what they had in mind with laissez-faire regulation and supervision of the business practices?
Some structured settlement brokers and settlement planners throw around the term "fiduciary obligation" very loosely in their advertising. Isn't there big difference between agents and brokers in terms of responsibility? Agents or buyer's brokers have a duty to the factoring company or the investor. Don't brokers who solicit and then are engaged by structured settlement sellers, have a duty to the seller?
A similar controversy that arose with respect to contingent insurance commissions in or around 2004-2006, suggested that the difference between obligations of agents and brokers leads to unclear criticisms of contingent commissions as encouraging conflicts of interest (evidenced by the efforts of then New York Attorney General Elliot Spitzer and the settlement paid by a number of major insurance brokerages. A number of structured annuity issuers now include disclosure of incentive compensation in their quotes and/or in qualified assignment documents. Certain courts in the New York City area requires structured settlement affidavits and commission disclosure when a petition to approve a structured settlement is submitted on a minor's case. (Source for Portions of above: (Wikipedia)