Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Big Claims by Big Contributors to Trial Lawyer Associations Weaken Plaintiffs' Arguments vs AIG

by Structured Settlement Watchdog

In bringing the structured settlement class action case against AIG (which was dismissed with prejudice in September 2018 and now on Appeal in the First Circuit), I previously opined that  Plaintiffs'' weakest argument has to do with undisclosed broker compensation and their choice of representative plaintiffs who were represented by sophisticated juggernaut law firms which makes their theory less credible.

The "Mean Monkey Illusion"

Notwithstanding their lack of accounting for anti-rebating laws, Plaintiffs in Ezell v Lexington insurance have selectively omitted from their prosecution certain large contributors to trial lawyer associations who have made claims that seem to undermine the plaintiffs' arguments, so that they could paint their "mean monkey illusion".

Fact: A review of plaintiff structured settlement brokers and settlement planners who contribute to state trial lawyer associations and AAJ, reveals many are silent on commissions on their websites.

Fact: A website for the Beirut Bombing lawsuit settlement fund reveals a copy of a June 2, 2016, letter to Maria T. Vullo of the New York Department of Financial Services, part of the efforts of one plaintiff firm to get a waiver or exception to reduce commissions, evidence of the awareness of the anti-rebating law. The anti-rebating laws kill the damages valuation. 

Then there is this...

Here's one from a plaintiff exclusive structured settlement expert whose statement speaks for itself

" Unlike many other investment vehicles and products, structured settlements do not charge management fees, commissions, or expenses"

Then there are these...

"There are no costs to create a structured settlement to the plaintiff attorney or injured party. The insurance broker's commission to arrange and purchase the structured settlement annuity is paid by the life insurance company".

One of the largest partners for justice with the New York State Trial Lawyers Association which includes structured settlements and attorney fees as part of its defined services states on its home page that these are "structured settlement services provided free of charge", However the subject firm does provide an affidavit that does disclose the commissions.

"We are paid directly by the life insurance company where the annuity is placed. Life insurance companies pay a 4% commission based on the amount that is put into the structured settlement. Normally, we are paid a portion of that commission percentage, usually 2%, while the remaining 2% goes to defense's structured settlement broker. Ours is a one-time commission payment. Also, we will never bill you for our time when we help you with servicing your annuity in the future".

Then there is this disclosure made on the website of a firm that does both plaintiff and defense...

"They earn a commission on the sale of the funding instruments used to fund the structured settlement*. This commission is built into the price of the annuity such that no fee is paid outright by either party. If the case fails to settle or settles without a structure, no fee is charged"

All of these quotes appeared on websites of structured settlement brokerage firms in the week of January 11, 2019.

My November 6, 2010 post  How Does Structured Settlement Broker Get Paid? Who Pays It?

Structured Settlement Broker Affidavit Bronx County New York   Download IA-21StructureBrokersAffidavit

 

How Does Structured Settlement Broker Get Paid? Who Pays It?

by John Darer® CLU ChFC MSSC CeFT® RSP CLTC

Let's Talk Structured Settlement Commissions

Virtually every structured settlement broker or structured settlement planner boldly states that either:

• They work for free
• There is no charge for their services
• There is no cost for retaining their structured settlement brokers
• There is no cost for retaining their settlement planners

How can structured settlement brokers or settlement planners work for free and afford to make contributions to buy influence with trial lawyers?

It's common knowledge to lawyers (but perhaps not to injured persons) that many of these structured settlement brokers, settlement planners and/or their firms are contributing big money to state and national trial lawyer associations to buy influence or access, sponsoring RIMS or other legal or insurance conferences, taking out big expensive full page ads in Business Insurance, paying money to the campaign of your lawyer's favorite political candidate, taking your lawyers and colleagues to ball games in catered corporate suites, flying lawyers around in private aircraft,  some boasting of virtually unlimited financial resources.  It's their marketing prerogative of course.

But the truth is that structured settlement brokers or settlement planners DO NOT REALLY WORK FOR FREE. For appointed agents of an annuity issuer (a  population that includes settlement planners), compensation is paid by commission  (or share of commission where there is more than one agent/broker planner)  from the placement of a structured settlement annuity as a "qualified funding asset". Some settlement planning/structured settlement firms disclose this upfront in their web advertising, others do not. This contingent compensation is not unlike the services of a real estate broker that you might engage, the lawyer that you retained to prosecute your lawsuit, or an agent that sells you a life insurance policy. A structured settlement annuity is an insurance product sold by licensed and appointed agents and/or brokers.

How Much Do Structured Settlement Brokers or Settlement Planners Get Paid?

Commissions Vary By the Type of Product Placed

A. Structured Settlement Annuity Funded Structured Settlements

The pricing of a structured settlement annuity, including the indexed linked annuity payment adjustment rider offered by Pacific Life, includes a uniform commission structure, which is 4 percent of the premium placed with the annuity company. As I understand it the uniform commission was intended to eliminate selection bias that might exist if one company paid more compensation than another. The qualified assignment fee (ranging from $0 to $750) is commissionable with some companies. In other cases it is not. Insurance laws in effect in most states expressly prohibit reduction of commissions or rebating.

No Assignment Fee/Not applicable:   American General Life Insurance Company  (AIG), Berkshire Hathaway Life of Nebraska, First Berkshire Hathaway Insurance Company and National Indemnity Company (reinsurance structured settlement), United States Life Insurance Company in the City of New York (AIG), USAA Life Insurance Company

Commissionable Assignment fee:  Pacific Life Insurance Company, Pacific Life and Annuity Company and United of Omaha (Mutual of Omaha). have commissionable assignment fees

Non-Commissionable Assignment Fees:  New York Life, Independent Life, Prudential Insurance Company of America, Metropolitan Life Insurance Company, Metropolitan Tower Life Insurance Company

B. Market Based Structured Settlements

There are different market based structured settlement options for both plaintiffs and attorney. Depending on the solution there could be recurring fees of1%, 1.14%, 1.5%, 1.75% or more charged annually, or debited  (proportionately if not annually) from account balances on a quarterly basis.  So a $1,000,000 into a market based structured settlement could cost $10,000, $15,000, $17,500 annually. Using a simple example, a 1.5% fee on $1,000,000 could result in $150,000 in fees over 10 years, even without any growth  (15,000 times 10). Some providers offer volume discounts. One attorney fee solution provider charges 1% annually and then has breakpoints to lower charges at $5M and other levels.

C. Duration Based Compensation Model (Indpendent Life Insurance Company)

In 2021, Independent Life Insurance Company, a Texas based life insurnace company that only issues structured settlement annuities, introduced a 2%-4%-6% duration based compensation model. The lower percentage is for duartions under 10 years, the second from 10-20 year durations and the 6% is for 20 year plus.

The Indpendent Life move to a Duration Based Structured Settlement Compensation Model was seen partly in reponse to low short term interest rates during and coming out of the Covid-19 pandemic to create business opportunities. The 6% was a risk reward carrot on a stick in an attempt to attract longer term money to the company. For more information, please visit Duration Based Structured Settlement Compensation Model (4structures.com)

D. Funding Agreement Structured Settlements

Introduced by American General and US LIfe as a way to do deferred start dates on non qualified assignments. Funding agreements are not annuities and thus not subject to IRC 72(u). Furthermore compensation can be variable provided the Defendant or insurer meets certain asset requriements and satisfactorily completes a  due diligence questionnaire.  For more information, please visit Funding Agreement Structured Settlement for Taxable Damages (4structures.com)

 

Last updated January 6, 2024

We Don't Need The "Huzpah"-Lah in the Structured Settlement Industry

by John Darer CLU ChFC MSSC RSP CLTC

As if it wasn't enough to take on the responsibility of critiquing structured settlement websites for the improper use of the English language, for the first time I have an issue over the Settlement Channel's use of Yiddish.

In today's rant concerning one firm's commission sharing agreement Mark Wahlstrom uses the word "Huzpah". There is no such word in Yiddish. I believe the word Mark meant to use was "Chutzpah" (pronounced with the phlegmatic "ch" as in the Scottish, Loch Ness or "Achmed the Dead Terrorist".), or Hutzpah, not Huzpah (which is too close to the word for "the white canopy" under which the groom "steps on the glass").  Incidentally the modern use of the word "chutzpah" can be used to express strong disapproval as Mark has,  or a  grudging admiration, which he has not.

Further to the subject of Mark's rant. I believe I have seen the precise commission sharing agreement that Mark describes. It is being circulated by members of a large national agency and has been for some time.  I disagree with Mark that the "kitchen sink agreement" is a sign of desperation. I see it is a sign of cheeky yet amusing opportunism. As opportunistic as it may seem, it's hardly worth anyone getting apoplectic over (and I'm not saying Mark is). I just can't imagine any settlement planner ever agreeing to the first offering and it isn't being pushed hard anyway.

It is worth noting that I learned today that the same national company (of whose representative I am assuming Mark refers) apparently sent guidelines (to its members) for splitting commissions , on a mutually favorable basis with brokers or settlement planners engaged by the plaintiff.

I continue to be troubled however (in view of Principle VI of the NSSTA Code of Ethics), that any member of any NSSTA member firm is soliciting business or participating in a transaction without being insurance licensed in the state, or seeking a share of commissions on variable or securities products without being appropriately licensed etc. I encourage Mark Wahlstrom to report such behavior in writing, along with the evidence to the NSSTA Board of Directors. It is not enough that NSSTA members (and non members) gripe to each other about ethics. Do something about it!

 

What Are The Fees With A Structured Settlement Annuity?

by John Darer® CLU ChFC MSSC RSP CLTC

Are there any fees when you agree to a structured settlement annuity?

It's an interesting question because there are no external fees with a structured settlement annuity. Some individuals will evaluate a structured settlement proposal for you and charge a separate external fee, but this will not affect the cost of the structured settlement annuity. Some feel such money is well spent. Unless you have negotiated to pay an external fee, you do not have to fork over a check to an agent or broker. The structured settlement broker or settlement planner who places, or co-brokers the structured annuity that funds the periodic payment obligation set forth in the settlement agreement you sign, is paid a commission by the annuity issuer. To the best of this author's knowledge there is no trailing commission paid (like the 12b-1 fee on a mutual fund).

A structured settlement annuity is a financial instrument issued by a life insurance company and commissions can are only issued by those companies to licensed agents or brokers authorized by those companies to place the structured settlement annuity product.

The commission paid to the structured settlement broker or settlement planner is factored into the expenses of the annuity issuer in pricing its structured settlement quotes, just like its advertising costs, salaries and other overhead expenses. In the United States the commissions are all the same regardless of annuity issuer. Clearly from a pure "amount of commission" standpoint there is no incentive to place business with one company over another. State anti-rebating statutes prohibit licensed insurance agents from reducing or paying any part of their commissions to annuitants.

A number of structured settlement brokers and settlement planners, including this author, use a structured settlement affidavit or declaration to set forth the amount of commissions paid.

If there is a qualified assignment there is a fee of $0-$750 on qualified cases. There is a $1000 fee with one vendor who takes on non qualified assignments. A qualified assignment benefits all parties. It is essential if a security interest in the assignee is desired.

In the UK, commissions for placement of annuities used to comply with periodical payment orders are variable and therefore priced accordingly.

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Contact structured settlement expert John Darer® at 888-325-8640 for further information