Is there a Conflict of Interest for Plaintiff Settlement Consultants?

by John Darer CLU ChFC MSSC RSP CLTC

The gluttony of NASP members Seneca One and Novation Funding whose obscene profit spreads, respectively, in the Lauren Nesbitt and Cedric Martez Thomas cases have raised an alarm that suggests that a closer look at the solicitation practices of these settlement purchasing companies, companies like them and the investors in these deals may be necessary.

Facts

• Some plaintiff structured settlement consultants and settlement planners market themselves as plaintiff exclusive or plaintiff loyal
  
• Some of the same individuals have their clients invest in structured settlement payment rights
• Some plaintiff financial advisers purport to be fiduciaries to act in their client's best interest
• Structured settlement payment rights are initially created when a structured settlement is established pursuant a suit or agreement that ends a legal claim or lawsuit.
• The internet is littered with websites of companies (and in some cases websites that purport to be companies) who advertise that they buy the rights to receive structured settlement payments.

• The companies (and in some cases websites that purport to be companies) who advertise that they buy the rights to receive structured settlement payments. may be brokers or may be direct funders using their own money or a combination of both
• These brokers and companies then sell the structured settlement payment rights, directly to investors, through brokers, including some primary market structured settlements brokers/ settlement planners, through websites that in some cases purport to be exchanges, or through securitizations.
  
• There is no regulation of how sellers can be solicited or sales practices
• There is no regulation of solicitors of sellers
• There is no regulation of solicitors of investors.
• There is no regulation governing who can solicit anyone and how they can be solicited.
• While a judge is required to approve a structured settlement transfer, the judge does not have the power to fine, suspend or revoke a license of any participant because there is no license or regulatory standard permitting him/her to do so.
• The term "Secondary Market Annuity" is used to market structured settlement payment rights to investors.It is wholly misleading.
  
• Structured settlement payment rights are not an annuity, what is being purchased is an unregulated derivative financial instrument.
• The fact that a life insurance company is paying the investor the payments is irrelevant, the investor does not own the underlying annuity that funded the original seller's structured settlement and is only buying the rights to receive payments.

How does this impact plaintiffs?

• Some plaintiff structured settlement consultants and settlement planners market themselves as plaintiff exclusive or plaintiff loyal
  
• Some of the same individuals encourage trial lawyers to refer business to them on the basis of such plaintiff loyalty.
• Some of the same individuals have lawyers' clients invest in structured settlement payments rights
• Some plaintiff financial advisers purport to be fiduciaries to act in their client's best interest

Can a fiduciary for a buyer plaintiff investing in structured settlement rights act as a fiduciary for a seller adviser plaintiff in the same structured settlement factoring transaction?

I am going to take a stab at this and say "No", but I would like to hear the opinions of others.

• A buyer's fiduciary must seek the best yield he or she can for the buyer and assure that the transaction is done correctly. 
• The seller's fiduciary must advise the seller if the transaction is in the seller's best interest and if it is must seek out the lowest cost of transaction from a competent buyer.
• At what point can a fiduciary for a buyer plaintiff adviser say that the discount rate is unfair for the seller, the seller could do better  (even if that were his or her personal belief)