Structured Settlements in a zero interest world, still a good idea.

In this week's video commentary on The Settlement Channel, Mark Wahlstrom discusses his recent posting on the topic of zero interest rates and whether or not structured settlements are still a viable option in a low interest rate environment. 

The concept he shares is that for most of the last 15 years people have continually stated that rates were too low, even when they were 7% to 8% yields, as the belief that they have to somehow match some past standard was the measuring stick of what was appropriate. 

Watch for The Settlement Channel video commentary each week, as well as the written commentary, either here on the main feed, over at The Structured Settlement Expert Directory or on the Legal Broadcast Network and various news feeds. 

Posted on June 23, 2016 .

Are structured settlements a good idea in a zero interest rate environment?

"Should a trial lawyer propose, and should an injury victim accept, a structured settlement to settle their personal injury case in such a low interest rate environment?"

In this week's commentary on The Settlement Channel, I'm looking at the issue of zero interest rates, or even negative rates of interest, being offered on fixed income investments, in particular structured settlement annuity contracts. One of the constant refrains that structured settlement experts hear from trial lawyers, as well as their clients, is that structured settlements are a bad idea in a world where interest rates are offering effectively zero rate of returns when you factor inflation into the yield at 2%. On its face, you would think it's hard to argue with that logic as we are clearly in a historic period of zero to negative yields on fixed income and annuities. 

However, in practical experience, settlement planners and structured settlement experts have been hearing this same narrative for over 15 years now, as we have been in a 25 year bond market rally where rates have gone from double digits to the current negative or zero yields on high quality bonds and notes. It has always been "rates are too low compared to the past," but all along that 25 year curve, the value of a guaranteed, tax free income has been proven to be the key component of just about every successful settlement plan. The rate of return or yield is important for sure, but the consistency of the cash flow, monthly income, and security are paramount to injury victims who rely on those funds to live. I can personally attest that 15 years ago people were rejecting tax free yields of 7% to 8% as "too low," when the evidence of the last 15 years now shows that anyone smart enough to take those tax free deals was getting a yield roughly equal to that of the S&P over that same time frame, particularly when taxes and management expenses are deducted and a net yield is calculated. 

The question now is, what will planners, attorneys and injury victims be saying about their decisions to not structure annuity payments in the current rate environment? Will it be considered wisdom to have declined the option for lifetime, tax free income that was guaranteed, predictable, and couldn't be outlived or outspent by the injury client? Will they look back and say that the low rate environment was actually the precursor to a historic stock market correction, or even more likely, an eventual bond market correction that wiped out huge chunks of principal and crippled their ability to care for their future needs?

The bottom line is that no one can know what the economic and financial market futures of the US will be, they can only speculate. However, the one thing any experienced settlement planner or structured settlement expert does know is that guaranteed, tax free, no fee income for a person who can no longer work, care for themselves or needs to support a family, is like GOLD to them. Every plan requires an income strategy and over the last 35 years the structured settlement annuity approach has been proven time and again as the bed rock foundation of most settlement plans. There is almost always a place in the settlement plans of an injury victim for this monthly income and it is the wise attorney, planner or family that elects that option as PART of a comprehensive settlement plan. A structured settlement cash flow provides a safety net, a floor income and planning certainty in an uncertain world. No other investment option offers zero on going fees, administrative costs or taxes like a structured settlement does. It is truly unique in that regard. 

Conclusion: That even in a low interest rate world such as we see now, that while it might seem counter intuitive, it's entirely possible in a period of economic turmoil that the certainty and safety of a structured settlement payment stream makes the MOST sense as the people who rely on it can't afford to be with out an income, ever. Don't just focus on rates of return and what you think you might get in alternative investments, instead engage a competent structured settlement expert from the Settlement Expert directory to assist you in designing a settlement plan that makes sense. Chances are good you won't look back in 10-15 years with buyers remorse if you do. 

What can Don Draper of "Mad Men" teach the structured settlement profession about new media?

"If you don't like what's being said, change the conversation."

One of the enduring lines from the iconic cable drama "Mad Men" is provided by the fictional advertising guru, Don Draper. Portrayed in the series as a genius in marketing, advertising and counter intuitive thinking, many of his ideas and slogans actually have great relevance in a new media world.  

What can Don Draper teach the structured settlement profession about new media?

What can Don Draper teach the structured settlement profession about new media?

Don Draper had multiple character flaws, but it was obvious that there was great wisdom in that particular line as it continues to resonate with fans and marketers years later. It was uttered during an early episode set in the mid 1960's, when developers were facing outrage over an announced plan to tear down the Old Penn Station so as to build the new Madison Square Garden. The Ad man's advice was essentially to stop talking about and defending what was being lost and to instead talk about and champion what was about to be gained. Great advice. 

So how does this relate to the structured settlement profession,and in particular the things being said about structured settlements and settlement planning in general?

First, in the last year we have witnessed an avalanche of news, both online and in standard media, concerning the factoring, or sale, of structured settlement payments and the abuses which are alleged to occur when those transactions take place. The primary focal point of the stories was in Baltimore, Maryland, where it was discovered that the late Freddie Gray was one of thousands of lead paint children, who after settling their liability case using a structured settlement, eventually sold those payments for lump sums of cash at a steep discount. The details of how that all occurred and it's impact aside, having already covered that in prior posts, but what really matters is that the term "structured settlements" has been repeatedly associated with fraud, corruption, bad planning, exploitation and even racism. While the primary structured settlement market likes to gloat about how the secondary structured settlement market "got what was coming to it", they completely miss the point that the concept of structured settlements as a brand has been essentially destroyed as a result. 

The vast majority of politicians, regulators, courts and even trial lawyers when asked to name a structured settlement firm would almost certainly reply in unison, " JG Wentworth" due to all of the advertising on selling structured settlement payments that has saturated traditional, trade and online media. Now you can add in major stories from Washington Post, CBS news, NPR and various Gannet dailies, with the result being that the term "structured settlement" is carpet bombed and associated with the worst kind of professional practices. It's a mess, it's happened and there is no turning back from it. NSSTA, SSP and structured settlement professionals can not possibly continue to pretend the brand isn't badly damaged and that this damage is impacting our professions future.  

So, what would Don Draper say to the over 400 structured settlement experts and settlement planning professionals that make up the primary market? 

1. Change the conversation. If our profession continues to glory in the abuses of the secondary purchasers of structured settlements, instead of refocusing the dialogue toward the exceptional benefits of structured settlements in personal injury cases, we are doomed as a brand and a profession. Enough about factoring abuses and corruption, let's discuss instead how directing payments of a structured settlement into a trust would have likely prevented the vast majority of cash out's, as there would have been a responsible entity to vet the decision to sell. Change the conversation to what works, not what doesn't!

2. Use their bad news as your good news. Reporters and news organizations couldn't care less about the survival of the structured settlement profession, they are looking for Pulitzer's, professional respect and audience. They simply report what they see as "news" and then move on to the next story, while settlement professionals have to live with the fall out. In this case it's simple to show lawyers, injury victims and others that these changes prove how serious regulators, courts and lawyers are about protecting injury victims settlements. Then highlight these law changes and process improvements and use them as the opportunity to discuss why protecting structured settlements is so important in the first place. People are hearing the term "structured settlement" online, in news and on TV, so take time to let clients know what a structured settlement actually is and why it is so important in protecting injured victims. 

3. Take full advantage of new media, social media and effective tools at your disposal.  The tools available to our profession are extensive, powerful and inexpensive, yet virtually all but a hand full of organizations and professionals actually use them. Blogging, podcasting, video commentary or associating with professional broadcasting cooperatives like The Structured Settlement Expert Directory and Settlement Channel are all options ANY planner can use. Instead we see either a scatter shot, or non-existent, effort to get involved in social media and commentary to our clients. You can get it done in a cost effective fashion that is powerful, impact-full and generates good will and new sales. There is simply no excuse for professionals to not invest at least 4 hours per month, one hour per week, toward branding yourself or your firm online. 

4. There is strength in numbers. The reality of new media and social media is that there is incredible strength in search, relevance, credibility and news feeds when you join a marketing cooperative, or if your firm is big enough, when you start your own online channel. For over a decade structured settlement professionals have bemoaned the fact that "we can't compete with factoring companies advertising budgets", so our associations, life markets, general agents and others elected to do nothing. At the very time when someone can for a few hundred dollars per month have a full blown video marketing platform that feeds into all major news feeds, most members are paralyzed into inaction or just jealously guard their dwindling number of clients they currently have. Joining a marketing group empowers you, dramatically amplifies your message and allows you to keep your current clients and acquire new ones. 

5. Start making your own news and stop being a punching bag.  Be on the attack. Manage your message and brand or just sit back and take it. Enough said.

The tools are in place, and have been in place for over a decade, for the structure settlement profession to brand our services as a social and financial good for injury victims. With the exceptionally low cost of video commentary and the availability of new media collaboratives, like The Structured Settlement Expert Directory , it is now possible for both individuals and the profession as a whole to dramatically improve sales, increase use of structured settlements and to educate our market on the various creative applications of the annuity platform at it's core. It's time to get moving and stop making excuses, our profession is at stake and we all know it!