by John Darer CLU ChFC MSSC RSP CLTC
The year 2012 saw more primary structured settlement players, and settlement planners in particular, overt in their participation in the structured settlement secondary market. In my opinion transparency is a good thing.
The issue of whether or not the majority of the primary structured settlement industry feels it is acceptable to take a referral fee, appears to be a dead issue. The only open questions now are whether the issue of compensation is discussed and/or the amount of compensation is disclosed to the seller. Furthermore, whether the amount of such compensation is reasonable and, in the opinion of some of the settlement planners, whether it is any of the seller's business.
Over the years the trial bar has sent mixed signals on factoring. On the one hand the actual and purported behavior of certain factoring company participants is publicly reviled. Yet on the other hand there is evidence of actively practicing personal injury attorneys purchasing structured settlement payment rights themselves or even owning companies that actively market such services.
One structured settlement brokerage counts two or more affiliates who appear to have ownership interests in entities that directly solicit structured settlement annuitants offering a resource of funding to purchase their payment rights.
Other affiliates of the same brokerage started a company to acquire structured settlement payment rights in the secondary market through trusts and provide an alternative asset class that associated settlement consultants can market to their clients.
Another actively practicing settlement planner in San Francisco, who is affiliated with the same brokerage, and markets under 360 Financial, registered the domain StructuredSettlementInfo.com with Godaddy.com in March 2012. The website solicits people who want to sell their structured settlement payments and generates leads. Nick Coccimiglio uses the email address [email protected] for the registration according to information that is in the public domain.
Financial planners and, in recent years, settlement planners and actively practicing structured settlement brokers, have been a source of money, or pathway to a source of money for the acquistion of structured settlement payment rights. Make no mistake, there is a strong interest in these cash flows. Clients of financial planners and, in recent years, settlement planners and actively practicing structured settlement brokers seek the stable, secure cash flows that structured settlement payment rights provide with attendant rates of return that are generally higher than alternatives. Individual investors may be willing to accept a lower rate of return than large institutional investors and those who sell to them who have large advertising budgets to account for.
By cumulatively pricing a large volume of deals at lower discount rates the participants hope to squeeze JG Wentworth and other nebulous "TV advertisers". Some operators in the space have already claimed success in bringing rates down.
Coccimiglio is purportedly involved in an effort to obtain a favorable tax status on the use of secondary market cash flows to finance the long term obligations of claimants in the primary market.
A major challenge facing settlement planners that employ this strategic alternative, is finding inventory. Interpolating various published estimates suggest that between 5-10% of structured settlement annuitants seek to sell their payment rights. How does one find a suitable vehicle that matches up perfectly with a plaintiff's cash flow needs? While a traditional structured settlement or annuity can be immediately custom designed and priced using software provided to the appointed agents of the life insurance companies that issue the annuities, secondary market cash flows effectively are a "used car lot" system. Finding exactly what you need takes time just like it would if you visited a used car lot. Those who are patient reap the rewards. Soliciting directly is a method for gathering inventory.
Other challenges concern the under regulated marketplace, for structured settlement payment rights, such as lack of statutory protection afforded buyers and other risks detailed here in my November 16, 2012 commentary of a post written by Atlanta attorney Page Perry LLC.
NSSTA's ethics rules concerning factoring see some of its members operating in the secondary marketplace space on the QT.
The aformentioned 3 examples are firms and individuals who are not members of NSSTA. Fellow industry commentator and former NSSTA member*, Patrick Hindert has been openly critical of NSSTA for its stance and has advocated the postulate that factoring improves structured settlements.
Further developments in this space are to be expected in 2013. Subscribe and stay in touch with our commentary.
* this author understands that Hindert is no longer an NSSTA member.