by Structured Settlement Watchdog
There have certainly been some creative sales pitches used by settlement planners when marketing structured settlement payment rights by settlement planners to injury victims and their attorneys as investments.
A Settlement Planner Statement
"If you want immediate, guaranteed income, there is not better financial product, without risk that the secondary market annuities that we’ve illustrated. I’ve sold over a billion in traditional structured annuities, and believe very strongly about all of the sales I’ve ever made. Unfortunately, those people make bad decisions and decide to sell their contractual rights, no different that a distressed home owner. That is an opportunity for you, and my job is to insure that you understand it and appreciate the entirety of the transaction"
FACTS: 1. The use of the term secondary market annuities is a misnomer. The injury victim or attorney who invests in what is referred to as secondary market annuities is actually the rights to receive the payments, i.e. "structured settlement payment rights".
2. Distressed homeowners are not subject to a court approval process. Distressed homeowners do not run the same gauntlet of abuse. They are not court scraped, forum shopped, induced into fraud, TCPA violated, groomed by unethical originators or otherwise running the same gauntlet of abuse
I was surprised to see a seasoned settlement planner mislabel structured settlement payment rights, just like some of the slimy cash now pushers do.
I was also surprised to see an investment in structured settlement payment rights mischaracterized as "without risk". There is origination risk. If the originator is not creditworthy, this may present problems down the road. Structured settlement transfer orders can be vacated as recent history as shown.
B. Settlement Planner Statement
"The insurance companies that have in force contracts are: New York Life, Metropolitan, Allstate, Prudential, John Hancock, Berkshire Hathaway, and many more. These are some of the same insurer that issue new contracts today at lower yields".
FACTS: 1. Structured settlement annuity contracts are in-force until the final payment under the contract has been made
2. Given that the above statement was made by the settlement planner in the context of soliciting a client to purchase "recycled structured settlements", the annuity contracts are not owned by the named insurers. they are owned by the qualified assignment company. But the investor is not buying the annuity contract, they are buying a derivative of the annuity contract. The cost of the derivative has no bearing on the cost of the annuity contract.
Upon information and belief, the settlement planner in question is appointed with New York Life, Metropolitan, Prudential and Berkshire Hathaway.
C. Settlement Planner Statement
"Each state has laws providing for protection in the event of a failure of a major life insurer. I’m legally bound not to share this as an insurance agent, but (your lawyer) can easily point you to the (State) Statute. There is adequate protection. see NOLGA.org (sic)"
While the settlement planner acknowledges his/her obligations under the law, he/she makes the disclosure, opines on the adequacy of the protection in providing financial advice to his/her clients. Note that insolvency is not typically covered under an insurance agents E&O policy. A proposal to amend the model act would specifically except out investments in structured settlement payment rights.
There are a number of settlement planners who are active in advising their personal injury clients buy structured settlements investments. I'm not confident that all of those that do (or those that dabble), have fully considered the origination risk on the deals they are placing. This could lead to massive E&O exposures the adequacy of coverage for which may not have be fully assessed. Expect to see more legal activity in this area in the not to distant future.
Warning About Recycled Structured Settlement Paymnets from Co-Author of Seminal Structured Settlement Text
"Some brokers are packaging and promoting re-cycled structured settlement payment rights as tax-free “in-force annuities.” Significantly, these investments are not annuities and they are not structured settlements as that term is defined in IRC section 5891(c)(1). Attorneys and other advisors representing personal injury claimants should perform careful due diligence before allowing their clients to enter into such investments" Patrick Hindert in a 2013 presentation to the National Association of Settlement Purchasers.