Mark Wahlstrom mentioned in Forbes article on structured sales

This particular article, and my mention in it, probably falls under the " at least they spelled my name correctly " category, but it still warrants reading and review by structured settlement professionals, for the sole reason that it shows how both Allstate and Prudential continue to under support the marketing and education of professionals on the new structured sale annuity products.

You can read the full article, entitled " Deferral games" in this weeks Forbes by clicking here. Registration is required but is free, or you can just pick it up at new stands.

As many of you know, both Allstate and Prudential have come out with structured sales annuity products that are used to fund and secure installment sales of real property. I think it's a tremendous product, that it will have a great deal of application in the estate planning and real estate business, and that it offers a unique opportunity for the settlement market to begin to grow again. However, as noted in my earlier post, " The destruction of a trade name " the real estate deferral industry and tax shelter con artists have jumped on the trade name "structured sales" or "Structured installment sales" and used it as a front to again start selling privately managed accounts, variable annuities or other high commission schemes.

This article basically attacks the private annuity, 1031 exchange, private foundations and structured sales, and throws them all into the same basket, implying that only a fool defers capital gains at 15%. While I agree with the author that a lot of very shaky schemes are out there, I do think that the structured sale could have enjoyed a little more description then it got, but then that's the problem you run into when you are trying to cram all this into an article and come up with generalizations. I do think the structured sale came out relatively unscathed, but the description of the return as a paltry 4% isn't accurate and the benefits of life time annuities, deferral of taxes, conversion of assets into income didn't really get a fair hearing. I don't blame Forbes or the reporter for it, but I do blame Allstate, Prudential and to a lesser degree NSSTA.

We are being presented with a unique opportunity here, to recast our business and build a new market based upon a potential market, real estate transfers, that dwarfs the settlement market, and quite frankly we are blowing it as an industry. I have yet to see a trade article in the tax or financial planning press, and other then a favorable mention in the WSJ a few months back and another article in Vacation Homes magazine last month with myself and Henry Strong quoted, there is very little discussion in the business press. As a result we now have tax professionals who don't know the product commenting on it's merits, sleazy marketing organizations co-opting the name, and structured settlement professionals spinning their wheels trying to work with people and organizations they are ill suited to work with.

My solution? How about Allstate and Prudential digging into the advertising budgets and starting to do an educational campaign on this product to CPA's, Tax professionals, Tax law bloggers and others that shape the opinions of those who decide whether deferral is a good idea. In addition, lets do some industry advertising and education to real estate professionals on how this works, why it works and most importantly, who to work with to get it done.

If this doesn't happen the financial press and others who are either hostile to our interests or just not interested in learning the story are going to shape the destiny of this product. The old days of flying under the radar and cutting deals isn't going to work with this product and it's time for some fresh thinking.  

Structured Sales, the impending destruction of a trade name.

The name and concept of "Structured Sales", the marketing label given in 2005 to the use of non-qualified assignment mechanism and customizable fixed rate annuities to back up and fund installment sales obligations in the disposition of real property(and business interests) by it's creator, Allstate Insurance Company, is in great peril due to the double whammy of not trade marking the name, and lax observation of the sharks in the real estate industry who want to piggy back on the term to sell questionable products.

Just as we have seen the term "Structured Settlements" essentially hijacked on the internet by factoring companies who use it in search engine manipulation schemes to steer web traffic to their online factoring sales machines, the shadowy marketing machines that ran Private Annuity Trusts into the ground have turned to "Structured Sales" to prop up their organizations and it's going to get very ugly, very quickly, unless the life markets and settlement industry move just as quickly to head them off.

Here is a brief run down on what I, and others such as John Darer, are seeing at the moment, in particular check out his posts on his structured sales blog and get a glimpse at what the industry is about to deal with:

1. For some reason the structured settlement industry has been exceptionally slow to grasp the enormity of the potential in structured sales. A few isolated brokers and general agents have started to market them and reach out to the financial planning, tax planning and real estate community, but no where near the scale needed to really capitalize on the potential. While the entrance of Prudential Insurance to the market helps a great deal, the marketing and PR effort by Allstate and Prudential on this new product has been almost non-existent, and largely focused on the structured settlement brokers, who in general have no idea how to sell it or market it to real estate professionals. What you have after the first year is a lot of smoke, but very little fire (sales), because most guys just don't know how to close cases in this somewhat different market.

2. In a largely ignored, but huge decision, the IRS killed the primary competition for Structured sales, when they essentially gave Private Annuity Trusts, the death penalty. I have a really good podcast by Attorney Robert Wood discussing what happened and it's implications for structured sales. While the Structured Sales markets, Allstate and Prudential, largely gave this a ho-hum response, the real estate capital gains industry was essentially dealt a body blow by the IRS decision as the Private Annuity Trust market had devolved into a massive marketing machine into which huge amounts of assets were poured into variable annuities, private fund managers and others that collected fat up front commissions, as well as on going asset management fees. As a result of the huge amounts of money generated by these internet based, search engine specific marketing entities, there was a substantial industry developed around the tax deferral and commissions available in private annuity trusts, and now that the legs were kicked out from under that business, they MUST FIND another viable sales tool. If you don't believe me, just Google "private annuity trusts" or "Capital gains tax deferral" and see what you get. This my friends, is our new competition. I would contend that our industry has little to no idea of the competitive forces and marketing practices of the "tax deferral industry" that is in the early stages of appropriating the term "structured sales".

3. The marketing entities who had huge sales organizations and franchises that tax, financial and real estate professionals could join or purchase, MUST, have another high commission product to sell or their business model is going to collapse. Don't underestimate the amount of money these specialists were making on commissions at sale, as well as trail commissions and managements fees. That's important to note, as the money that was made on PAT's was substantially more then is available in selling Structured Sale annuities. In general, variable annuities provide between 7% to 2% in up front commissions, depending on the payment option the broker selects, and between .25% and 1.5% in trail commissions on the assets. Mutual funds or managed accounts can pay in much the same range, again depending a great deal on the company, amount invested and share class selected. Either way, its a lot more compensation then the 4% flat payment general agents get on structured sales products. I know of an agent recently who had a real estate sales agent tell him, "why would I sell a watered down SPIA with lousy comp that I might get 2% on, when I can make 2 or 3 times that using a variable product." I've had real estate and financial planners working in this market tell me essentially the same thing. In fact one said to me, and this is a direct quote, " I frankly don't care if it's good for my client, tell me what's in it, (structured sales) for me! What do I make, how much do I get paid and how quickly can I get paid. " Again, this is the type of sales and "advisory" mentality that pervades much of the real estate and capital gains business. You can't wholesale structured sales annuities through the existing "online marketing machines" with out running into severe resistance over the relatively sparse amount of commission that is available to the referring real estate or escrow agent.

4. The solution, as is apparent from the lightening speed at which the capital gains marketing firms are taking the term "structured sales" and twisting it to sell products that aren't even closely related to the structured sales products offered by Allstate and Prudential, is going to be to use the term "structured sale" as a come on or front to continue selling highly questionable tax deferral schemes funded by variable annuity contracts, mutual funds and managed accounts. Go ahead and Google "structured sales" and check out the firms that are very quickly showing up on the sponsored pay for clicks. Yes, you'll see my informational blog over at Wahlstrom & Associates, but you'll also see some firms that use the term, but then create sites that lead you to marketing organizations that are attempting selling structured sales through tax free foundations, private trust companies and or funding them with what appears to be variable annuity contracts or managed accounts. No where do Allstate, Prudential, NSSTA or other indications of our industry appear on these sites, so while they use the term, they are clearly not working to sell the product we currently associate with the concept of "structured sales".

In summary, what, in my opinion, do we have facing us and what should we be doing:

1. A huge marketing wave is about to hit this concept, led largely by the same organizations who first ran charitable trusts, then private annuity trusts, into the ground and brought regulatory and tax troubles by pushing the limits of what the IRS intends, all in the quest to collect assets in equity based products that pay larger commissions and trail compensation.

2. This marketing will use the term "structured sales" and will be heavily internet and search engine based and will in a short time dominate search engine results on the term. Look at the factoring companies as a model of what we can expect as far as the use of key words to drive people to sites that sell and market product that is either contrary, questionable or destructive to the sale of our product and the tax compliant use of structured installment sales or real estate.

3. If a questionable tactic or marketing scheme is allowed to gain currency on the internet, others will imitate it and the originators of the concept or those marketing in a responsible manner will be left in the cold. To me, the lack of a coherent PR and educational effort to the tax, financial planning and real estate community on the part of Allstate, and to a lesser degree Prudential as they just entered the market, is absurdly short sighted and indicates an institutional hubris that will prove very costly in the long run. They are about to see their concept stolen and twisted and they will only have themselves to blame.

4. NSSTA needs to be made aware of this looming danger and make our friends in Congress aware that this concept is viable and sound tax planning, but is being threatened by the same types of organizations that ruined private annuity trusts. Where are the NASD and SEC in policing the sales and marketing tactics of firms that are quite obviously registered reps or RIA's?

5. Structured settlement brokers and general agents need to be very selective about who they get in bed with to market and sell these annuities. There are going to be a lot of firms looking to offer structured sales to their clients in real estate and planning, but who might be less then ethical in how they market and sell it. Be aware of how your firm is going to be tied in with the new players who will be looking to work with your firm.

In summary, Brokers beware, and life markets, wake up!

Mark Wahlstrom featured in Robb Report Vacation homes on structured sales.

In the most recent edition of The Robb Report Vacation Homes magazine, currently on news stands December 2006/January 2007, Mark Wahlstrom was featured as an expert in an article written by reporter John Morell entitled "The Annuity Way".

Of course Robb Report doesn't have a link to it on their site just yet, but I'm providing copies if you contact me directly, and once I have permission to post a pdf file or link i'll do so. This is a glossy high net worth publication offered by Robb Report to subscribers, real estate, banking and mortgage professionals and the article goes into some detail about how structured sale annuities are beginning to gain acceptance in the real estate and planning world as a viable alternative for tax deferral of capital gains on real estate sales.

As you know this is an area of particular emphasis for my personal production of at Wahlstrom & Associates, and we continue to get daily phone calls from brokers, tax professionals and others about using these new planning devices, particularly since the death sentence imposed on private annuity trusts by the IRS recently, which to my mind were the only viable competition to structured sales as a planning tool.

If you are curious about the product, how it works or want a copy of the article, visit my other site and i'm sure you'll get a good start on what you need to know.