by John Darer® CLU ChFC MSSC RSP CLTC
Before recycled structured settlement payment rights become the "Tupperware" of the financial services industry, it is worth making a few points for individual investors:
A Periodic Payment Plan funded with "recycled" structured settlement payment rights, providing promises to pay periodic payments acquired in the secondary market have:
- No tax authority
- No regulatory oversight
- No credit/performance enhancements
- No state ‘guarantee fund’ protection
- No liquidity
- Many risks associated with enforcing and monitoring receivables acquired through structured settlement payment rights ‘transfers’
- An unrated (‘naked’) promise by delegee/obligor (i.e. ‘general unsecured creditor’)
These bullet points were highlighted by Patrick J. Hindert of S2KM in a presentation made at the Qualified Settlement Fund Symposium in Memphis Tennessee September 27-28, 2012, according to our sources.
In addition, due to a regulatory gap, recycled structured settlement payments rights may, in some instances, be offered by individuals or firms that hold themselves out as financial advisers but have no meaningful financial credentials.
They echo a number of caveats which I have made in other blog posts.Whether or not these points dissuade some from acquiring the investments is up to their own level of risk tolerance, but the risks of buying structured settlement payment rights by individual investors must be disclosed up front.
Hindert is the co-author of a seminal text on structured settlements and is one of the primary structured settlement market's biggest critics. This represents one of the few occasions in over 8 years that Hindert has highlighted anything substantially negative associated with structured settlement transfers or investing in structured settlement payment rights.
* recycled structured settlement payment rights come about when someone needs "cash now" and seeks to raise the cash through the sale or all of the right to receive their future structured settlement or annuity payments. The transfer of the payment rights from seller to buyer is governed by state structured settlement protection acts that exist primarily for the benefit of the seller, not the buyer. For a structured settlement transfer to be concluded, the state acts require that a judge determine if the transfer is in the best interest of the seller and any applicable dependents. on a Federal level the buyer must adhere to certain conditions in order to avoid an onerous 40% excise tax [see IRC 5981]
Post Script 10/02/2012
The title of our post and content is self explanatory. Patrick Hindert has chosen to respond to the post with a personal attack from his blog as if this post was about him when Hindert, was merely mentioned as an authority, to support points we have already made and published previously over the last 3 years. For example
Despite the "sashay', Hindert has publicly admitted to making the bullet points. Period. This author stands by his post, Regardless of whether the bullet points are taken in the context of comparing periodic payments funded with recycled structured settlements to a traditional structured settlement, or other forms of financing future periodic payments, there is an undeniable inherent risk which Hindert himself acknowledges. When balancing risk versus reward, investors will surely want to identify the risks associated with such investments and how such risks can be mitigated.