by John Darer® CLU ChFC MSSC RSP
Van Nuys, California attorney Eugene Ahtirhski observes that 'Recently we have been seeing an increase in funds marked for a primary market annuity being used to purchase a secondary market annuity in an effort to obtain a better rate of return for the payee"
A "secondary market annuity" is not an annuity
What Ahtirski then explains is telling:
"It is basically recycling of financial tools, if you think about. in the end the payee does not know the difference all they know is the settlement they received is being paid out over time'.
While I believe that structured settlement payments rights are an asset class that may have an applicable place in the financial plan or settlement plan for certain qualified individuals, Mr. Ahtirski's statement triggers concerns that some investors may not really know what they are getting into. Does anybody feel that this is a good thing?
At present there is little to no regulation of the structured settlement secondary market. The limited protections are in place to protect the original annuitant/seller. There is no regulation of the sales approach or the process of reselling of acquired rights. Some merchants of these rights have misled consumers by mischaracterizing these these rights as "annuities". One I reported about in another post falsely claimed that the same statutory protections apply to these rights as apply to regular annuities.
The fat lady has not yet sung, but it doesn't appear that owners of acquired structured settlement payment rights will receive statutory consumer protections in the Executive Life Insurance Company of New York ("ELNY") liquidation. It is therefore a bit ironic that Ahtirski's observation about yield chasing draws a parallel to the "yield chasing" that went on from 1982-1987 when ELNY was in full swing.
Patrick Hindert, a Harvard educated lawyer and blogger who was recently honored by the National Association of Settlement Purchasers "for being a distinguished individual who has supported and defended the right to free alienability of property rights', included "in the larger context" of two slides he presented to the QSF Symposium sponsored by Evolve Bank and Trust on September 27-28. 2012, bullet points which support what I am saying about recycled structured settlement payment rights:
- 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’)
[Hindert blog post dated October 1, 2012]