by John Darer CLU ChFC MSSC RSP CLTC
My structured settlement industry brethren are providing independent professional advice to would be sellers of structured settlement payment rights. The predatory nature of the solicitation and approach by buyers of structured settlement payment rights and the lack of regulation of sale practices has lead to a number of highly publicized poor decisions and worse.
A number of states mandate that there be independent professional advice, but it is prudent to seek independent professional advice whether it is mandated or not because it is difficult to reverse a bad mistake.
Should the role of independent professional adviser begin with an apparent presumption that the act of selling structured settlement payment rights is in the best interest of the would be seller?
Here is how one of my industry colleagues markets his services as an independent professional adviser.
"In short, there are few firms more suited to help you unwind a structure that no longer fits your needs and determining what your best options are to sell your payment program. ____________________will ONLY work on a fee basis and never takes finder fee's (sic), referral fee's (sic)or commission's (sic) from the purchasor's (sic) of annuity cash flows. Our objective is to quickly and professionally assist you with this transaction and to insure you obtain the best possible price and that you get through the court approval process as quickly as possible".
My approach to independent professional advice in this context is different. I approach an IPA assignment to first determine whether or not the transaction is in the payee's best interest. In a lot of cases it isn't I determine the reason for wanting to sell and the backstory. I determine if the payee has explored other options, how they have done so and the results of those efforts. If in fact a structured settlement factoring transaction is in their best interest, in my opinion, I will make sure that they have shopped around and that they have a clear understanding of the transaction and it's impact on them and their family as well as the finality. I ask the factoring company to provide documentation so I can see what disclosures have been made. I make it clear on our website that an IPA is not a rubber stamp, nor should it be.
One person called me to sell structured settlement payment rights to pay the balance of the cost of her mother's funeral which had occurred a few weeks prior. The cost of doing a factoring deal was 5 times more than the amount she "needed now" from a lump sum due in only 3 months! A vulture factoring company was drooling to do the deal. Instead of sanctioning this bad deal, I suggested contacting the funeral home and working out a financial arrangement with a nominal amount of interest if necessary.
Years ago, before Peachtree's merger with JG Wentworth, I was asked to do an IPA on a Peachtree case in which the discount rate was in the high teens. The annuitant had not shopped around and it was clear he could have done much much better and at the very least negotiate with Peachtree for a better deal. He said he was too far down the pike and had a court date and did not want to start over. I memorialized my findings including his comments in the IPA.
There is nobody more outspoken on the structured settlement factoring industry business practices than me over the last 12 years. I think it is a good idea for qualified individuals in the primary market to provide such advice if they really believe in structured settlements, as I do. It's a lot better than sitting back and reading about the "drek" IPAs produced by the likes of Charles E. Smith Esq. to the Access Funding victims.
On a technical note, my industry colleague claims to be "more suited to help you unwind a structure". His statement about "unwinding a structure" is highly inaccurate and I doubt his ability to prove that he has actually done this. You see, when someone receives cash now in exchange for some or all of their structured settlement payment rights, the structure actually stays in place, only the rights to the payments are transferred to someone else. What's wrong with describing what actually happens? At the very least, use a better metaphor.