by John Darer CLU ChFC MSSC CeFT RSP CLTC
The Secondary Market for structured settlements provides people who are receiving structured settlement payments, who perceive they are in need of liquidity, with the opportunity to assign future payments to a buyer in exchange for a lump sum of cash now. A judge must approve that the sale is in their best interest and that of their dependents.
The structured settlement secondary market is comprised of intermediaries who solicit customers and the structured settlement factoring transactions. The intermediaries then either (1) package up and securitize portfolios of factored structured settlement payments streams that are then sold to institutional investors. Institutional investors could be banks, hedge funds, insurance companies (including certain life insurance companies) and pension funds; or (2) assign payments directly to individual investors including retirees, personal injury lawyers, other plaintiffs and plaintiffs' trusts; or (3) to tertiary market intermediaries who have relationships with groups of individual investors.
The National Association of Settlement Purchasers claims that "without this option, people who receive structured settlements will be denied the flexibility to adapt to changing circumstances, achieve their financial goals, or make use of their financial assets".
If only that were completely true. Better said, "in its ideal sense, the structured settlement market provides liquidity to structured settlement payees who need it". The implication that structured settlement payees cannot achieve their goals if they have structured settlements is total bunk.
The statement that "people can make use of their financial assets" is somewhat inaccurate. What would be more accurate is to say that:
- The structured settlement secondary market gives people the ability to make use of, in all cases, a fraction of their financial assets (often less than 50% after factoring transaction discount rate "shrinkage")
- The structured settlement secondary market is a dangerous place, that should be approached by a payee with extreme caution due to the lack of licensing and regulation of sales practices. The buyer's representative you reach on he telephone at a call center may not be qualified to provide financial advice. Many of them only have a single financial solution, selling your payments or part of them.
- Any payee seeking recompense after one of these deals goes sideways, must find an attorney who is not tied to any of these companies; an attorney who understands the structured settlement factoring laws and is willing to fight an opaque labyrinth of LLCs and experts in sleight of hand.
- Many payees are approached in unethical and sometimes illegal ways, such as being induced to commit fraud in order to get the deal over the line in a state other than the state of domicile of the Payee.