by John Darer CLU ChFC MSSC CeFT RSP CLTC
Is The Best Interest Standard Adequate?
Is the "Best Interest Test" in state structured settlement protection acts adequate to determine the suitability of a structured settlement factoring transaction, or should a uniform suitability standard be established that that places an obligation on the settlement purchaser and/or their brokers or affiliates, on par with other segments of the financial service industry?
A Defining Moment For the Structured Settlement Secondary Market
We're observing a defining moment with the structured settlement secondary market, where just horrible business practices are rampant. Forum shopping and churning of structured settlement annuitants into multiple costly and financially devastating transactions is an unfortunate reality. Why are state governments, letting unlicensed merchants., some of whom fraudulently pose as "financial advisors" dispense financial advice. Why is there no concern for the consumer by state legislators who could put a damper on the miscreants though a licensing standard?
While New York judges are doing a good job, judges in some states are simply not getting it done, to the detriment of people they are supposed to protect, resulting in financial devastation in some cases. More judicial education is sorely needed.
When annuities are sold to consumers by licensed and appointed insurance producers (agents or brokers) there is an obligation to determine suitability. There is an obligation on the producers and the insurers as well.
There is debate over whether suitability standards should apply to structured settlements and it is my opinion that they should. But they should apply to all aspects of the structured settlement market. A recommendation to sell a structured settlement payment stream that is producing stable income to an individual or family in conjunction with an investment recommendation for mutual funds or an investment in commercial real estate, as many factoring companies try to orchestrate is an action that should be subject to regulation, including licensing and a suitability standard.
Suitability Standard | Time to Make a Fuss?
A structured settlement Factoring Uniform Suitability Standard should include a mandatory questionnaire that gives a judge quality information reducing the opportunity for structured settlement factoring companies to manipulate judges concocting a story or manufacturing reasons to sell, or sell for second or third time, with few details. Some petitions literally have a kitchen sink of reasons listed without regard to whether executing on them is even mathematically possible. A suitability questionnaire would be helpful
Today I received a call from an individual associated with a Florida based structured settlement factoring company who called me about "selling my annuity". They contacted both my office phone and cell phone and during the course of the conversation without knowing anything about me or who I was they talked about putting the money into investments or real estate. I asked the person how it works and if they had a license and they said no. I got to thinking what if this sales call was received by someone without the professional qualifications that I have? This is the kind of call that is being made to 18 years kids and other young adults in New York, CT and all over the United States by vultures trying to peck their pocket. It's time that suitability standards hold them accountable in public view.
Two Florida structured settlement buyers' reps have used unreasonable investment projections on company letterhead as part of sales pitch to wrest structured settlement payments from unsophisticated annuitants at significant discounts. Upon information and belief none of the signatories of those letters had any investment or financial planning credentials.
State Attorney General Alert on Structured Settlement Factoring | Is This Part of Your Investigation? 4/4/2018
Was Client First Settlement Funding Show Of 8% Investment Projection to Structured Settlement Annuitant A Permissible Inducement? 7/24/2016
Are there any limitations on the obligations of insurers or producers to determine suitability pursuant to the Model Suitability Regulation? Sec. 6D states that neither a producer nor an insurer has any obligation to a consumer under the provisions of this regulation if:
- No recommendation is made;
- the consumer provided materially inaccurate information which led to an unsuitable recommendation;
- a consumer fails to provide relevant suitability information and the transaction is not recommended; or
- a consumer enters into an annuity transaction that is not based on the recommendation of an insurer or a producer. However, an insurer’s issuance of an annuity is to be reasonable under all circumstances actually known to the insurer, even if the situations listed above apply.