Opportunities to buy structured settlement payment rights on live or warehoused structured settlement factoring deals are becoming more easily accessible to individual investors.
This author has seen a term sheet in the last few days offering rates of return of between 6.5 and 7.75% to factoring investors in structured settlement payment rights backed by the paper of Genworth, Symetra, Allstate and others in exchange for making a cash payment up front. Some investors may choose to fund the original deal and then resell the structured settlement payment rights to someone else for a profit.
Some say that in some cases the net after tax rate of return of the "derivative" is better than a regular structure and that tort victims should consider this as a financial/ settlement planning option.
Placed in a Roth IRA or retirement plan these payment rights represent attractive conservative rate of return. After all isn't that what the insurance industry and structured settlement industry is selling?
I have had the opportunity to speak with a number of reputable financial advisors who ARE already doing these deals for their clients.
Are there any ethical or regulatory considerations for settlement professionals engaging in this business as:
(1) an investor for their own account or qualified retirement plan?
(2) advising their clients to do so?
Naturally one wonders how fair was the effective discount rate charged to the original selling structured settlement annuitant, or how soon after the structured created is it being factored?
One Structured Settlement Industry Proponent Sees No Issue For the Following Reasons
(1) the broker/planner/buyer/tort victim/trust/IRA has no direct connection to the annuity placement with the original annuitant
(2) the seller/original annuitant needs liquidity and this simply is a means to provide it' and of paramount concern
(3) the settlement planner/financial adviser or trustee, if applicable, must serve the best interests of his/her client;
(4) investing in the "derivative" underscores a belief in structured settlement annuities.
Plenty of Detractors
Another industry detractor recently stated to this author that if discovered that one of its associates invested in one of these deals they could look for another firm. Another agency manager lamented that one of his associates lost a case to this "investment" vehicle.
The irony is that this new form of "competition" exists by virtue of the ability to factor a structure as opposed to structure commutations. I'll go out on a limb to express my doubts that a company like Allstate Life Insurance Company securitizes or sells derivatives of commutations effected by virtue of its Advanced Funding Exchange Notice (AFEN) rider.
The structured settlement and settlement planning industry cannot stick their heads in the sand on this issue. It is ripe for industry wide discussion.