In my commentary last week I opened up the idea of whether or not structured settlement annuities, which are used to fund structured settlement payment programs, need to be sold under a fiduciary standard. My discussion centered around a series of events in the profession, specifically the AIG class action suit, which is alleging some degree of deception or undisclosed information on pricing and compensation, as well as the Department of Labor rule that the Trump administration announce will be reviewed with an eye toward reducing some of it’s more harsh compliance requirements on retirement account management.
Well since that video and commentary, the Trump administration rule review has been formally announced and we as professionals can anticipate that some, if not all, of the more punitive compliance measures the former rule contained, will be eliminated or softened so that commission investment products sold to retirement account investors will not be subject to Fiduciary rule standards.
So what does this all have to do with structured settlement annuity funding, which enjoys a historic exemption from not only the fiduciary standard rules, but also the more recent NAIC rules that mandate greater training, compliance, disclosure and suitability standards for the sale of annuity contracts in 27 states, a number which is certain to grow in the coming months, as more states adopt these standards as well.
As a 30 year veteran of the structured settlement and settlement planning profession, I’ve witnessed a lot of changes, but our little niche profession seems to sit here in a quiet, sheltered place where the same rules applied to retirement investors, retail annuity investors and others, simply don’t apply to us. We are not required to do suitability standard analysis. We are in almost every instance working as agents, not brokers or fiduciaries, when we set up structured settlement programs. This vitality important, irrevocable annuity package involving minors, injury victims, widows and others, relies upon our objective analysis, but which analysis and sales recommendation, is not overseen by a regulatory body similar to that which other professionals must answer too.
I believe this is about to change and that the move toward a fiduciary, full disclosure standard and a clear declaration of whether we are agents, brokers, advisers or registered representatives at the time a recommendation and sale is made, will be the professional standard required by trial lawyers in every case going forward.
As evidence I point to the fact that just about every major bank and brokerage firm recently declared in a Wall Street Journal article that even if the DOL softens rules and backs away from the fiduciary standard, they intend to keep most if not all of the protections and compliance in place as they believe it is the direction consumers are going and regulators will adhere to in the future. In short, most of the “Big Guys” are deciding that self policing and setting a higher bar is good business and will avoid issues in the future.
I believe the structured settlement profession needs to do the same in light of litigation and what our peers in other areas of finance are going to do. We can set a higher bar voluntarily or we can have one imposed upon us by courts, litigation and regulators. I think we would be wise to choose self discipline rather than the heavy hand of regulation and the risk of litigation.
The tide is turning and we need to be ready. Full disclosure with honest and clear communication of what role we are playing when giving advice, coupled with a compensation model that makes clear who are clients are, as well as the cost of our services, is not just a good standard, it’s good business.
You can learn more or contact Mark Wahlstrom at Wahlstrom & Associates.