by Structured Settlement Watchdog
Financial media organizations can slap on pseudo quality controls in an effort to feign legitimacy to the gross misinformation they've published, but it should come as no surprise that people who are bona fide credentialed experts in the structured settlements space are going to call them out.
Investopedia self describes as it "helps investors understand financial concepts, improve investing skills, and learn how to manage their money. Investopedia reaches nearly 19 million people each month" [Investopedia website, About Us April 11, 2021].
Yet its March 18, 2021 article by Kate Dore and allegedly reviewed by Marisa Figat (Investopedia manager of Content Integrity and Compliance), is an F grade flunk when it comes to explaining structured settlements. Investopedia has unfortunately done a disservice to its 19 million readers for the following reasons:
- Failure to demonstrate an understanding of the difference between an award and a settlement
- Failure to demonstrate an understanding that inclusion of a structured settlement in a settlement plan is a non-binary decision.
- Failure to demonstrate an understanding of constructive receipt as it pertains to settlement taxation
- Failure to demonstrate an understanding what getting a lump sum at settlement means
- Failure to competently explain the difference between a structured settlement and an annuity
- Conflated CFPB 2018 warnings about the secondary market to the primary market
- Conflates the term structured settlement companies, to describe structured settlement factoring companies, which do not offer or place structured settlement annuities and which likely neither hold insurance licenses or are subject to insurance regulators. I find it amusing that the use of the term by Investopedia is actually discredited by a prior publication of one its own cited sources, that I reviewed in 2018(see below).
To illustrate some of these points, lets examine the FAQs that Investopedia published in the March 18, 2021 update to the article "Best Structured Settlement Companies"
1. "After winning a personal injury lawsuit, you may have a couple of choices for how to accept your money. You may opt for a series of payments over time—a.k.a. a structured settlement. If you’re looking for a lump sum, you may work with a structured settlement company. These companies offer a smaller lump sum in exchange for your structured settlement payments."
Why Investopedia is unreliable on structured settlements
An award and a settlement are two different things. If you won a lawsuit, generally that means a jury or judge determined that the defendant was liable and awarded you damages. In such cases, you can negotiate a settlement as long as there are good faith appealable issues and there has been no final judgment. "Awarded a structured settlement" is a fiction, a creature of misinformed financial writers for the structured settlement secondary market.
2. "Structured settlements and annuities have a few things in common. Both involve fixed income periodic payments and may prevent you from spending a lump sum of money. There's a key difference, though. You can buy an annuity as an investment from an insurance company. A structured settlement offers the same payment structure, but it’s a payment option you can choose after winning money from a lawsuit".
Why Investopedia Attempt to Explain the Difference Between Structured Settlements and Annuities Fails
A structured settlement is a form of settlement that (in part) includes an obligation to pay future periodic payments. A structured settlement is not an annuity. However a structured settlement may be funded with a structured settlement annuity. It may also be funded by United States Treasury obligations see IRC 130(d)]. Periodic payment settlements can be funded with other types of assets as well. You cannot choose a structured settlement if constructive receipt has occurred. Click "What Are Structured Settlement Annuities?" for a more comprehensive and authoritative explanation.
3. In discussing the lump sum v structured settlement decision Investopedia published "It depends. A structured settlement may offer more money over time. It may also be a good idea if you don't have experience managing money. Your payments are tax-free—and there is less of a risk of losing the money through a bad investment. But if you need access to more money sooner, the lump sum option may be better. The biggest downside of a lump sum is you will receive less money overall. While selling your settlement for a lump sum is often tax free, it can be taxed in some situations too".
Why Investopedia fumbles whether structured settlements are a good idea
It appears that the Investopedia writer has conflated (a) what a plaintiff contemplates during settlement planning discussions with (b) what a structured settlement annuitant, who is receiving (or due to receive) structured settlement payments contemplates if he/she/they sometime later encounters a liquidity crisis.
Investopedia cites the Better Business Bureau reports for Peachtree Financial Solutions, Fairfield Funding, DRB Capital, Stone Street Capital and the Consumers Advocate report for Stone Street Capital as its only sources for its top 5 list, but fails to provide any sources for the flunk worthy consumer facing commentary about structured settlements. The cited sources are stated to be accessed March 31, 2021 although the update says March 18, 2021. Investopedia also materially omits that 2 out of the 5 companies it lists are from the same family. All of the shilled for companies are members of the National Association of Settlement Purchasers.
Consumer Advocates prominently displays the disclaimer "Many or all of the companies featured here provide compensation to us. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear below. In my August 10, 2018 post Consumer Advocate Completely Bombs on "10 Best Structured Settlements of 2018" | Admits It's Misleading, I pointed out their admission "Companies that deal in purchasing structured settlements are formally called structured settlement factoring companies, but they are commonly (and somewhat misleadingly) referred to as structured settlement companies..."
My interest as always is seeing that consumers have the clearest path to accurate information about structured settlements.