Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary

"Eco-Friendly" S2KM "Recycles" Structured Settlement Statistics in Campaign for "Unification"

by John Darer CLU ChFC CSSC RSP CLTC

It's nice to see that S2KM and Patrick Hindert "go green"and recycle.  Pat's review of the 2014 AAJ Annual meeting recycles his Primary Market Update from February 2014.  It must be a slow structured settlement news day in Cincinnati.

In the eco-spirit of conserving bandwidth, I'll simply link to Structured Settlement Primary Market Update, my February 27, 2014 blog post which addresses  the statistics to which Hindert refers.

Boiling down Hindert's message,  "to grow the primary (structured settlement) market, structured settlement proponents must learn how to better market the benefits and applications of structured settlements to plaintiff attorneys and these other professional groups and associations in the context of evolving settlement planning marketing, work product, business standards and educational priorities.

This educational and marketing challenge requires all structured settlement participants to fundamentally "re-think" structured settlements and their own roles in personal injury settlement planning. One result should be consideration of a more unified marketing strategy to plaintiff attorneys and their clients among heretofore competing professional associations such as NSSTA, SSP and NASP".

I agree. However should we all have a problem where "unified marketing strategy" might mean a structured settlement agency or FMO, systematically providing annuitant contact details acquired by its brokers, to a publicly traded factoring company (when the annuitant has not approached them to sell their structured settlement) so that the factoring company can contact them,  in exchange for monetary consideration per lead, or other financial backing?  As I reported earlier this year, that such activity is purportedly occuring and that the purported  revenue stream was purportedly significant enough to be included in a financial disclosure made to a private equity concern from which the purported company was purportedly seeking financing. 

A number of settlement planners "originate"structured settlement factoring deals.  Even more are putting their settlement planning clients in the position of investor in transferred structured settlement payment rights. There is no licensing whatsoever required to be in the structured settlement factoring business, no continuing education requirements and unlike any other financial service segment, there is no regulatory body that oversees how consumers in this underegulated niche are approached and solicited.  There is absolutely nothing to define what activity, if any, is  a conflict of interest. Is this a solid foundation for a "unified marketing strategy"?

Some banks and wirehouses are already in bed with structured settlement factoring companies, providing financing, facilitating securitizations and back up servicing of structured settlement payment rights, (primarily used where the annuity issuer will not dice payments in a partial transfer). I have seen first hand where the combination of a settlement purchaser and a financial advisor affiliated with a large bank,  acted to cause a 29 year old father from Florida, with 2 toddlers,  suffering from an obvious cognitive deficit, to sell all of his structured settlement payments amounting to $60,000 annually , his and his children's sole source of support,  to the detriment of the annuitant that needed legal intervention to rectify.   The financial advisor spoke to him about investing in mutual funds. Somehow the Florida judge, who did not meet the seller approved the transaction as being in his best interest and that of his dependents. 

National news media is  actively looking into the activities of structured settlement secondary market. The financial reporters who approached me with were both stunned and fascinated to learn about the licensing/regulatory gap in the secondary market. 

Were NASP to lead an effort to create a licensing standard with enforceable rules akin to life settlements there would be an ever greater sense of legitimacy from which to build such a strategy.

 

NASP Focus on "Impacts of Unethical Conduct" by Its Members in Settlement Transfers

by John Darer CLU ChFC MSSC RSP CLTC

The National Association of Settlement Purchasers (NASP) has released the agenda for its annual meeting in November 2014 in San Antonio, Texas.  It is notable that a considerable amount of time is devoted to ethical issues related to the structured settlement transfer market segment and judging by the following topics, that there is a tacit acknowledgment that some of its members and/or non-members are engaging in unethical conduct.

• Litigation Update and The Impacts of Unethical Conduct
• Ethics Issues in Structured Settlement Transfers
• Practical and Ethical Consideration in Structured Settlement Transfers
• Illinois Transfers (i.e.what is happening at the scene of the Brenston case and the class action that followed)

The primary market segment features Peter Arnold of Arnold Consulting, former  PR guru and deputy Executive Director for the National Structured Settlement Trade Association from March 2010 until a few months ago.  Eyebrows have been raised due to the timing of Peter Arnold's blog with a "careful for what you wish for message" about calls for greater regulation of the structured settlement secondary market by a panel sponsored by the American Association of Persons With Disabilities.

Pat Hindert's traditional Primary Market update features Medora Marriseau, an attorney from the Northwest for what appears to be Symetra/Clearscape, a company that no longer writes structured settlements. One assumes that there will be some meatier content than that.  Pat Hindert tends to have a jaundiced view of the structured settlement primary market while offering limited and muted criticism of the structured settlement secondary market.

I challenge Pat Hindert and NASP to openly address a level of regulation of the structured settlement secondary market on a par with every other legitimate financial service industry segment  (e.g. insurance, securities, real estate, life settlements)  OR defend why it should not be regulated in the same way.

 

 

 

The Single Claimant QSF | Potential For Abuse of Qualified Settlement Funds Observed by Leading Settlement Tax Authority

by John Darer CLU ChFC MSSC RSP CLTC

The Single Claimant QSF horse has been dead for half a decade.  It made a lot of people very successful while it lasted and it's presence was one factor that helped bring the structured settlement industry closer together, in my opinion.

Most significantly, unlike the decade from 2000-2009, no structured settlement annuity providers currently accept Single Claimant QSFs.  Pat Hindert, in his review of a recent article by San Francisco tax attorney Robert Wood observes on his blog,  "they have effectively shut down this strategic personal injury settlement planning opportunity for a wide scope of actual and/or potential structured settlement cases". First of all "Get over it!"  

Misplaced Blame

Then it's time for a fact check.   A number of structured settlement annuity issuers who did accept qualified assignments from single claimant QSFs left the market place, such as John Hancock and Aviva. Were "they" responsible for that corporate decision?

Adapt, improvise and overcome. Why continue to fight yesterday's wars in an industry that enjoys a greater degree of civility than it did 5 years ago and a far greater degree than it did 10-15 years ago?

Potential Abuse of Qualified Settlement Funds Observed by Leading Settlement Tax Authority

In closing I may as well saddle up old "Pepper" for a short "trail ride" and reminisce.  Robert Wood observes the potential for abuse in qualified settlement funds. Wood "chucks" out this "acorn":

"QSFs allow plaintiffs and attorneys to defer the receipt of payments or the recognition of income until distribution. To some, that may seem to be an enticing proposition. Indeed, there is no antii-abuse rule in the statute or regulations, nor do there appear to be any rulings or cases that test the bounds of the concept. Thus, one might debate the potential risk that an aggressive plaintiff or aggressive counsel might use a QSF as an incorporated pocketbook. With no express time limit on the existence of a QSF, a plaintiff or his attorney might use a QSF to defer paying tax on a recovery indefinitely, letting the money sit in the QSF to earn interest and dividends, then doling it out when needed"

Indeed,  in QSF Symposium 2012-2, Hindert appeared to advocate the following as an advantage of QSFs. QSF's were touted as part of the "settlement planning standard"

"Plaintiffs can conduct their settlement planning with a sum certain, using their own advisers, free from the pressures of litigation, with unlimited time to analyze and address tax, investment and government benefit issues"

I questioned Hindert on October 3, 2012 with Do Qualified Settlement Funds Offer "Unlimited" Time to Address Investments?.  Never got a response.

The "trail ride" is over.  Goodnight "Pepper".

Image 1: Wikipedia

Images 2 and 3 : Dreamstime

Robert Wood  article from Tax Notes June 23, 2014

Postscript:  The qualified assignment company for Independent Life Insurance Company, which entered the market in 2018 will take assignments on Single Claimant QSFs.

 

ELNY Victim Glenn Arensdorf | The Root Cause of His Nightmare

by John Darer CLU ChFC CSSC RSP

In " An ELNY Nightmare" Patrick Hindert draws a strange conclusion to the tragic story of Glenn Arensdorf, a 49 year old ELNY structured settlement recipient who is one of the worst impacted by the liquidation of the shipwrecked insurer.

Before I continue, I would like to express that it is tough to write these pieces because I am truly sympathetic to the tragedies of the victims.  Who wouldn't be?   But isn't the truth also important, even though it may not seem politically correct?

Patrick Hindert was one of the pioneers of the structured settlement industry.  He founded and led a firm called Benefit Designs, Inc., that was active at the relevant times that ELNY was actively underwriting structured settlement annuities.

1. Did Patrick Hindert, or any of the folks that he supervised with Benefit Designs Inc.,  place any annuities with ELIC or ELNY? 
2. Did Patrick Hindert, or any of the folks that he supervised with Benefit Designs Inc., place any claimant 100% into ELIC or ELNY?
3. What percentage of the structured settlements that were placed by Benefit Designs, Inc., that were underwitten by ELNY, were "buy and holds"?
4. What percentage of the structured settlements that were placed by Benefit Designs, Inc., that were underwitten by ELNY, used a "qualified assignment" to First Executive?
5. If the answer to questions 1 and 2 is yes then it would be helpful for Patrick Hindert to share why he,  Benefit Designs Inc., under his supervision,  or any of those that he supervised placed these annuities with ELIC and/or ELNY.

I think these are valid questions to ask of Patrick Hindert at this time.  I think that if Patrick Hindert or Benefit Designs placed any ELNY structured settlement annuities that he owes his readers  (including  National Underwriter and Insurance News Net) an upfront disclosure.

Keep this in mind when viewing Hindert's comments "Some proponents claim that structured settlements are "the ultimate safeguards to guarantee the long term financial health of people harmed in accidents". For Glenn Arensdorf and similarly situated ELNY shortfall payees, however, the structured settlement system has failed them. To protect their rights, they have been forced to challenge the legality and unfairness of Judge Galasso's liquidation order and restructuring agreement against long odds and powerful opponents.

Is it the "structured settlement system" or is it the "insurance regulatory system" which Mr. Stone and Mr. Christiansen have addressed in their class action complaint?

That being said, who was responsible for placing all of Mr. Arensdorf's structured settlement with ELNY in 1984? What was the rationale for doing so, by those responsible, for someone as profoundly disabled as Glenn Arensdorf when that was all Glenn Arensdorf had?

That is unfortunately a question that may never be answered because insolvencies are not typically covered by errors and omissions policies and any such claims regarding the placement may be time barred.

In 1982 Charter Corporation, the largest seller of SPDAs, abandoned the annuities after a rush by worried policyholders; the second-largest seller, Baldwin-United, went bankrupt, leaving FE in the lead in sales. That year, FE acquired Bay Colony Life Insurance Company of Delaware, which was renamed First Delaware Life Insurance Company. SPDA sales slowed, but the company's life insurance sales increased tenfold between 1981 and 1983. Clients were reassured by the 12.6% yield that FE's portfolio averaged during the first half of 1983, compared with an industry average of 9.9%. Policy surrenders remained at a minimum. First Executive was writing more new policies than industry notables Aetna and Connecticut Mutual, but Carr's unconventional investment practices attracted the attention of insurance regulators.  (emphasis added)

Read more: http://www.answers.com/topic/first-executive-corporation#ixzz2LwLBwNew

 

 

 

 

 

 

 

 

 

 

 

Do Qualified Settlement Funds Offer "UNLIMITED" Time to Address Investments?

by John Darer® CLU ChFC MSSC RSP

In QSF Symposium 2012-1, published September 26, 2012, Patrick Hindert reports that the Evolve Bank & Trust sponsored symposium was "dedicated exclusively to the advancement of qualified settlement fund (QSF) professionals, the purpose of the Symposium are (sic) to stimulate dialogue among QSF industry leaders and experts and to help shape industry thinking on QSF issues". Well I would like to start a dialogue among industry leaders and experts regarding a potential significant point about one of the purported benefits of qualified settlement funds.

In QSF Symposium 2012-2 , published September 30, 2012, Hindert states as one of the advantages to both defendants and plaintiffs:

"Plaintiffs can conduct their settlement planning with a sum certain, using their own advisers, free from the pressures of litigation, with unlimited time to analyze and address tax, investment and government benefit issues"

Hindert is to be thanked for making the assertion, which raises a number of reasonable and logical questions:

• Can a plaintiff truly leave money in a QSF for  an "unlimited time" (for example 5 years, waiting for interest rates to rise from current levels), and THEN,  enter into an agreement to make periodic payments under a traditional. or a non-qualified structured settlement?
• Where and at what point, if ever, do tax principles such as constructive receipt and/or economic benefit come into play in an unlimited time frame?
• Where is the support to Hindert's assertion of an "absolute" in this regard?
  

 

 

Risks of Investing in Recycled Structured Settlement Payment Rights

by John Darer® CLU ChFC MSSC RSP CLTC

Before recycled structured settlement payment rights become the "Tupperware" of the financial services industry,  it is worth making a few points for individual investors:

A Periodic Payment Plan funded with "recycled" structured settlement payment rights, providing promises to pay periodic payments acquired in the secondary market have:

• No tax authority
• No regulatory oversight
• No credit/performance enhancements
• No state ‘guarantee fund’ protection
• No liquidity
• Many risks associated with enforcing and monitoring receivables acquired through structured settlement payment rights ‘transfers’
• An unrated (‘naked’) promise by delegee/obligor (i.e. ‘general unsecured creditor’)
• Non-transferable

These bullet points were highlighted by Patrick J. Hindert of S2KM in a presentation made at the Qualified Settlement Fund Symposium in Memphis Tennessee September 27-28, 2012, according to our sources. 

In addition, due to a regulatory gap,  recycled structured settlement payments rights may, in some instances,  be offered by individuals or firms that hold themselves out as financial advisers but have no meaningful financial credentials.

They echo a number of caveats which I have made in other blog posts.Whether or not these points dissuade some from acquiring the investments is up to their own level of risk tolerance, but the risks of buying structured settlement payment rights by individual investors must be disclosed up front.

Hindert is the co-author of a seminal text on structured settlements and is one of the primary structured settlement market's biggest critics. This represents one of the few occasions in over 8 years that Hindert has highlighted anything substantially negative associated with structured settlement transfers or investing in structured settlement payment rights.

* recycled structured settlement payment rights come about when someone needs "cash now" and seeks to raise the cash through the sale or all of the right to receive their future structured settlement or annuity payments. The transfer of the payment rights from seller to buyer is governed by state structured settlement protection acts that exist primarily for the benefit of the seller, not the buyer.  For a structured settlement transfer to be concluded,  the state acts require that a judge determine if the transfer is in the best interest of the seller and any applicable dependents. on a Federal level the buyer must adhere to certain conditions in order to avoid an onerous 40% excise tax [see IRC 5981]

Post Script 10/02/2012

The title of our post and content is self explanatory. Patrick Hindert has chosen to respond to the post with a personal attack from his blog as if this post was about him when Hindert, was merely mentioned as an authority, to support points we have already made and published previously over the last 3 years. For example

Secondary Market for Structured Settlement Payments| Labeling is Questioned January 11,  2012

Despite the "sashay', Hindert has publicly admitted to making the bullet points. Period. This author stands by his post, Regardless of whether the bullet points are taken in the context of comparing periodic payments funded with recycled structured settlements to a traditional structured settlement, or other forms of financing future periodic payments, there is an undeniable inherent risk which Hindert himself acknowledges. When balancing risk versus reward, investors will surely want to identify the risks associated with such investments and how such risks can be mitigated.

 

 

 

 

 

 

 

 

Uniform Fiduciary Standards| Only Half The Story

by John Darer CLU ChFC MSSC RSP CLTC

It's a pity that an otherwise well written blog post by Patrick Hindert about Uniform Fiduciary Standards, inexplicably omits standards for the secondary market. Setting aside the good players, the secondary market for structured settlements (buyers) unfortunately includes:

1. Individuals in practice with criminal records.
2. People advising structured settlement annuitants about money who have problems handling their own money
3. People soliciting investors who have problems handling their own money
4. People soliciting investors and annuitants who have virtually no assets to their name.
   
5. A pattern and practice of unfair trade practices those soliciting American consumers but take extraordinary measures to remain anonymous by using websites registered overseas. engaging with proxy or privacy services to remain anonymous and using fake identities.
   
6. Better Business Bureau Report filings using fictitious names
7. Failing to be registered with the Secretary of State and/or obtain a Certificate of Authority to do business in ALL States they are doing soliciting investors or soliciting sellers of structured settlement payment rights.
8. The actions of sociopaths with an affinity for "spear-chucking" under the cloak of anonymity as a competitive business strategy who have no regard for the truth.
   
9. Individuals and/or companies who play dirty with diabolical black hat search engine manipulation schemes to steal competitors web traffic.
   
10. Hiring writers on the cheap who are at best not knowledgeable, and at worst functionally illiterate, to bombard the Internet with gaffe ridden social media mentions and blog posts that appear to have one or more of the following goals (1) suppress legitimate structured settlement and settlement planning content (2) defame legitimate players as part of an ongoing business strategy (3) lower the credibility levels of the companies who benefit from the rubbish.
    

The structured settlement secondary market also has a lack of (1) licensing, (2) regulatory oversight, and (3) lack of mandatory continuing education, or an professional certification program. Imagine how much more respected the industry would be if these were in place.

 

Product Suitability Standards For Structured Settlement Consultants-1

by John Darer CLU ChFC CSSC RSP

Pat Hindert enters the debate about Product Suitability standards in the settlement industry with the first in what promises to be an exhaustive blog series on the subject. Although there is no collaboration agreement between us it appears that this is a subject in which we have mutual concerns.

A structured settlement IS an appropriate solution for many litigation scenarios, not just personal injury or workers compensation. But like a good medication, it needs to be dispensed in an appropriate dosage. Since 2007, the term "over structured" has been used publicly by a number of folks in the primary and secondary market as one possible impetus for factoring of structured settlement payment rights. In my opinion it weakens the plaintiff's "immune system" to a degree that it becomes susceptible to the amusing midnight "Sirens" of "unemployment TV" seductively wailing "cash now" and they steer their financial ship onto the rocks.

The theory is that by not providing for enough up front cash to account for immediate cash and short term cash needs and anticipated future expenses in the solution, people resort to factoring. That's great business for the factoring company or factoring broker providing the liquidity, but a potential financial disaster for the structured settlement annuitant. A structured settlement that is factored within a month or two of its creation could result in a loss to the recently former plaintiff of a significant part of the cost that went into the portion of the structured settlement payments they are selling.

Basic fact finding should be able to uncover the plaintiff's needs and wants. Once again it is of critical importance is to get an understanding of of the plaintiff's immediate cash and short term cash needs. A good illustrative case is one we've previously reported on, which involved a Connecticut resident who executed a Settlement Agreement and Release on August 21, 2008. The terms of the release included a large structured settlement. On October 21, 2008, 60 days later, a transfer petition was filed in the Connecticut Superior Court in Milford to initiate the sale of 16% of the plaintiff's recently created monthly structured settlement payments to raise $150,000 in cash. According to the structured settlement transfer petition obtained by this author, the annuitant stated that the need for cash was related to needed modifications to the plaintiff's home. Because logic holds that discussions of the transfer must have ensued in advance of the October 21, 2008 transfer submission to Milford Superior Court it means that the shortfall in cash needs was uncovered within 4-6 weeks following the execution of the release. Wouldn't it have been cheaper to simply have $150,000 more up front cash?

In the Connecticut case the product itself WAS suitable however, the dosage proved not to be correct, in very short order. Was the amount structured suitable for the plaintiff in the case? Is there anything that the plaintiff's structured settlement consultant or plaintiff attorney could have done differently when the case was settled to have prevented the loss of the plaintiff's capital? Was there another solution? On a broader scale, where do you draw the line on over structuring? How do you define over structuring?

ELNY Liquidation: A.M. Best Concerned About Impact on Settlement Purchasing Companies' Investors

by John Darer® CLU ChFC MSSC RSP CLTC

The proposed liquidation of Executive Life of New York (ELNY) has potential fall out for investors in at least one structured settlement securitization, according to "the world's oldest and most authoritative insurance rating and information source", A.M. Best Company.

In an October 11, 2011 press release A.M. Best stated that it "has placed the debt ratings on three tranches of securities issued by 321 Henderson Receivables V LLC (Series 2008-3) (the issuer), a special purpose Nevada limited liability company, under review with negative implications. The rating actions were taken on the $74,646,000 Class A-1 8.00% Fixed Rate Asset Backed Notes, Series 2008-3; the $9,389,000 Class A-2 8.00% Fixed Rate Asset Backed Notes, Series 2008-3; and the $4,695,000 Class B 10.00% Fixed Rate Asset Backed Notes, Series 2008-3.

"The rating action was attributed to the fact that the Superintendent of Insurance of the State of New York has petitioned (dated August 31, 2011) the Supreme Court of the State of New York County of Nassau for an Order of Liquidation and Approval of a Restructuring Agreement for Executive Life Insurance Company of New York (ELNY), a life insurance carrier, who issued annuities intended to cover payments to claimants under the structured settlements. Those payments were subsequently purchased by the issuer. A.M. Best believes that the Liquidation and the Restructuring Agreement indicates that ELNY's ability to meet its ongoing contract obligations will be diminished". (emphasis ours)

Some settlement purchasers such as 321 Henderson, which is affiliated with JG Wentworth, purchase structured settlement payment rights from selling annuitants and then package the cash flows for sale to other investors, including insurance companies.

According to the ELNY Schedule 1.15 156 structured settlement annuities are estimated to have been factored.  Industry colleague Patrick Hindert informs us in his November 27, 2011 blog ELNY Liquidation-3. that  "reliable industry sources have informed S2KM the actual number of current ELNY SSAs previously factored is considerably higher".

According to Schedule 1.15, the total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 34 percent to 100 percent depending upon the individual contract

For those who are interested, the September 29, 2011  A.M. Best publication "Securitization of Period-Certain and Life-Contingent Structured Settlements" may be helpful reading.

Link to information about A.M. Best credit rating methodologies

 

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Settlement Planning Guide: "Especially Pernicious Myth" or "Holy Grail" About Dissipation of Cash Settlements?

by Structured Settlement Watchdog

Does the Settlement Services Group deserve a salute for "finding" the "holy grail" of dissipation studies, or has its Managing Director been hoisted on his own petard?

" Studies prove that most people who receive cash settlements spend 95% of their money within five years" Settlement Planning Guide The Settlement Services Group (TSSG), from Docstoc.com available on December 4, 2011 (emphasis ours)

Download Settlement_Planning_Guide_ TSSG 95 pct in 5 years

FLASHBACK...

"Among structured settlement industry myths, two are especially pernicious, long-standing and related:

• Myth #1: injury victims squander lump sums. Nine out of 10 lump sum recipients dissipate the entire amount within five years.  (Emphasis ours)

-Excerpt from Blog Post Dissipation Studies Patrick Hindert, the current Managing Director of TSSG June 23, 2009

Hindert chose to use an adjective that means "Tending to cause death or serious injury; deadly: a pernicious virus. - Causing great harm; destructive: pernicious rumors, Evil; wicked; malicious: pernicious lies" and assigned an ever-greater weight to the purported "dastardly deed" by qualifying it with the adverb "especially".

Our "assiduous research" has only uncovered one published statement (by a factoring company) which uses the 95% in 5 years dissipation assertion, but no factual support. Earlier this year the factoring company (which published the claim on its website) was challenged to come up with the proof to support its claim and failed to do so.