NSSTA and AIG take on the issue of factoring referrals.
Sunday, November 19, 2006 at 09:56AM In a long awaited move both NSSTA and the settlement industry's big player, AIG, have both come out with forceful policy statements to the structured settlement industry on the issue of Factoring Referrals and the role of factoring in relation to the goals of NSSTA.
In the AIG letter that was sent out to all producers on November 2, 2006 J.P. Steele, the director of AIG/American General structured settlements addressed their concerns regarding factoring referrals. The key elements of the letter to brokers and agents are as follows:
1. AIG had become aware of one of the dirty secrets of the settlement business, that being that many factoring companies had been approaching settlement brokers and firms with a questionable business proposition. That proposition being if the settlement broker would turn over the names of annuitants in the cases they had written over the years, or decades they had been in business, the factoring company would pay a referral fee or commission to the broker for each case that resulted in a factoring transaction.
2. AIG issued a reminder to agents and brokers that participating in this practice is specifically prohibited by federal and state privacy laws and the structured settlement agent agreement with AG Life. As a result they made it abundantly clear that if a broker was found to have engaged in this activity they would face immediate termination of their agent agreement and would be referred to state insurance departments for further action.
3. They further reminded agents and brokers that a settlement agreement is a private contract, the terms of which are usually confidential, and that disclosure of material information could make the agent personally liable under both civil and criminal laws.
Essentially, this was a big, loud warning shot being fired by the 1000 pound Gorilla of the settlement community that the lax standards that have become increasingly prevalent in dealing with factoring companies will no longer be tolerated. Personally, I think this is long over due and hopefully will be a first step among the life markets to remind agents that they are under contract, must uphold privacy laws and resist the easy money being offered by factoring firms by sharing the names of annuitants. Obviously, I feel factoring has a legitimate place in the settlement world and is a crucial safety net for annuitants who are in desperate circumstances and must cash out of their annuity. You can listen to all of my podcasts and those of Matt Bracy and Settlement Capital by visiting the Capital Blog site. However, due care and professional standards must be maintained in the process of marketing to annuitants and informing them of their rights to factor, and the "gentle reminder" provided by AIG is a very positive step in that direction.
In a related move, NSSTA on October 26, 2006 offered to the membership a change intended to bring some of the wayward elements of the organization into compliance with larger mission. The specific wording is that membership in the Association is available only to " a business organization or individual that (a) is engaged in activities that advance the Associations mission, as set forth in Article I, Section 3; and (b) is not engaged, directly or through any related party, in other activities that are incompatible with such mission." They then go on to clarify this rather broad language and definition to include the following as activity's the NSSTA board feels are incompatible with that mission statement:
1. Actively soliciting and promoting structured settlement factoring transaction to individuals who are receiving periodic payments under structured settlements....Involvement of a NSSTA member or it's affiliates in actively soliciting and promoting liquidation of structured settlements through factoring transaction impairs NSSTA's credibility and consequently its effectiveness, in advocating the use of structured settlements to provide long term financial security.
2. Sharing information and documentation about existing structured settlements with, or using such information to solicit factoring transactions for, an entity engaged in structured settlement factoring transactions with respect to individuals recieving payments under structured settlements.
3. Using the status of NSSTA member and access to NSSTA communications channels to promote and facilitate structured settlement factoring transactions.
4. Selling payee names/addresses or other identifying information to an entity engaged in structured settlement factoring transactions.
The letter goes on to further outline the NSSTA belief that factoring is ultimately harmful to the general mission of NSSTA and is contrary to the interests of most annuitants, and that the organizations ability to effectively lobby to federal and state governmental officials, as well as the trial bar, judges and others is harmed when members are engaged in an activity that is ultimately harmful to the over all mission.
Clearly, we are looking at the big guns deciding enough is enough on factoring abuse, and that having fought to a stalemate in the war with factoring companies at the federal and state level, as seen by the establishment of section 5891 and the creation of model legislation in the states codifying the process by which factoring can occur, they are now going to flex their muscle in two areas; Agency appointments to write annuities and membership in NSSTA, the largest trade association of settlement professionals. The days of members and agents having a foot in both worlds is about to come to an end.
While I'm largely sympathetic to the industry concerns about the abuses that have occurred, and continue to occur in the factoring area, I'm not entirely comfortable with the heavy handed and broad interpretation the association is taking in keeping its members " inline and in lock step." The facts are that factoring is legal, is being enshrined in both the federal tax code and state law and that those of us who work in the plaintiff market often have a fiduciary responsibility to our client, i.e. the claimant, to advise them of their rights, responsibilities and options regarding factoring if they are the beneficiary of a periodic payment stream. Further, here on this channel and other forums I often take up the issue of factoring, education on issues related to it, and it's not a huge stretch given the broad interpretation of the NSSTA rules that I could potentially be in violation under the provision of "promoting and facilitating settlement factoring transactions." I guess only time will tell on that one.
In the larger and more immediate picture, Symetra and Allstate might need to take a hard look at their factoring subsidiary operations or activities or face removal from NSSTA. Clearly, some changes are going to occur, some feelings will be bruised and people will need to make decisions as to how they handle their business. Stay tuned.
Reader Comments (20)
As you know in August and September I have raised a number of confidentiality issues on Structured Settlements 4Real after learning that a broker purportedly approached a factoring company with access to his or her files.
I have been writing about this subject for over a year. Nobody should be surprised or spin this as if it's a control thing by AIG or NSSTA. Aviva issues a privacy statement with all its policies. I would not be surprised if they follow AIG's lead.
For brokers that want to "swing both ways" the Society of Settelement Planners offers an apparent alternative on the factoring issue. As we all know thet have seen no problem in taking money from factoring companies in the past,as members or patrons, However a rumour is circulating that they are looking at a way to get rid of them.
Factoring Channel often covers alot of interesting points, the most favorable of which is its contribution to the effort to define the separate industries. Your efforts to provide information through your media outlet should not be held against you.
Good points across the board. You've been way out in front on this issue and quite frankly what we are seeing from NSSTA and AIG, and i'm sure other life markets shortly, is catch up for letting this go on too long. If I came across as implying AIG and NSSTA were being heavy handed, thats not how I feel, but I do think a broad interpretation of offenses could be used against a lot of people, although I don't think there is their intent. The association and the companies have ignored this for too long and with these pronouncements are trying to cast a wide net so the activity isn't shut down in one fashion, only to pop up somewhere else.
I appreciate your comments on the Factoring Channel, which as you know is geared specifically to begin to raise the standards of practice and give brokers and others the opportunity to avoid getting caught in traps that could cost them markets, licenses or access to their clientele. Hopefully by continuing to discuss the "right way" to market and work with people on factoring we can continue to raise the level of professional awareness.
I think on the issue of NSSTA and SSP I suspect that NSSTA will continue to marginalize the SSP and not worry about duel membership. I don't think there are that many duel members at this point anyways, and the bigger fish here are the life markets that are, or might be, building factoring operations.
From the SSP website:
Broker members:
Anthony Professional * Settlement Professionals
Bair John Professional FORGE Consulting
Bishop Richard Professional Settlement Professionals
Blevins Kathleen Professional Settlement Professionals
Derenne Charles / Chuck Professional * Premier Settlement Services
Eirich Craig Professional Settlement Partners
Hafner Donald Professional Settlement Partners
Isaac Paul Professional Settlement Professionals
Klapps James Professional JMW Settlements, Inc.
Lesti Paul Professional * Lesti Structured Settlements, Inc.
Loucks Karl Professional Karl Loucks & Associates
Marsh Leslie Professional Risk Management & Asset Conservation
Mazzotta Bruno Professional Structured Settlement Advisors
Meligan Jack Professional Settlement Professionals
Pickett Michael Professional MJ Pickett, CSSC
Steffey Dean Professional Settlement Professionals
Vezinaw Daniel Professional Settlement Professionals
Weeks Dirk Professional Structured Annuities, Inc.
Whitmore Michele Professional Settlement Strategies
Zimmerman Ward Professional Enterpriz Economic Consulting, LLC
What has to end however are the under the table and ethically destructive practices where brokers, be they SSP or NSSTA members, sending the names of annuitants or claimants to factoring companies in the hope of making additional money on the transaction all while hiding their involvement. If you want to factor a case, say it, have a good reason for it, match up with a good factoring company and do it, but stop skulking around and trying to pretend you are not doing it when you are. It's legal, it's necessary in many instances and when done it should be transparent and regulated.
Pete (or, if your a woman-Petra) have some balls and use your real name and be a real voice in the discussion
Re: Symetra
http://structuredsettlements.typepad.com/structured_settlements_4r/2006/06/ive_written_a_n.html
Re: Allstate
http://structuredsettlements.typepad.com/structured_settlements_4r/2006/06/the_water_buffa.html
I also recently expressed the concern over the erroneous implication, by the SSP President, that all defense representatives participate in rebates or kickbacks (without qualification) see link to his site "Top 10 Ways..." http://www.plaintiffbroker.com/guides.htm#article005
One word of caution to the annuity issuing companies who want to accomodate annuitants by self funding buyouts (if provided with a qualified order) a la Allstate. Be sensitive in your outgoing communications. What may be intended as a good deed can easily be perceived in a bad way by your brokers, appointed agents and trial lawyers if the message is not properly delivered. If it is delivered to often questions may arise over what business you are actually in. So be sensitive and cautious.
Allstate sends out a notice annually on the AFEN. The rider benefit, to Allstate's credit was extended retroactively to all existing payees. They didn't just screw the existing plaintiffs because being prescient, they thought that would give the likes of you something else to whine about.
The AFEN is added on all new issues, but those whose structures were set up prior to the AFEN are notified annually that they have had the AFEN added retroactively. While I've heard some say that they have heard otherwise I have yet to see any proof.
According to Allstate it is not contacting anyone but it's own payees and only for the limited purpose above. If people express interest they have an 800 number to call.
One NSSTA member owns a factoring company and it's very much not OK, I've written about it. The framework has been laid to give them the boot. Bear in mind the member in question, Symetra, was manufacturing annuities well before Clearscape.
It wasn't as if NSSTA just opened their doors to Symetra.but the 2005-06 SSP Board on the otherhand, desperate for cash, and knowing what they were doing to our business invited "cannibals" to their dinner table as long as they paid a substantial fee.
Nice job summarizing the difference between the Allstate AFEN rider and the Symetra situation. I think we can all read between the lines on the NSSTA resolution change that they are teeing up the offending party and giving them fair warning before using the big club and driving them out of the association.
Allstate is providing a benefit to their annuitants and are not out soliciting factoring business on other companies installed block of business. I honestly feel that most of the life markets are going to have to start offering the same benefit to their annuitants as well, particularly if we see the estate tax rates come back to 2000 levels, ie. $1,000,000 estates and up being taxed if the law isnt renewed before 2010, and if we see any additional changes by Medicare or Medicaid to further erode the ability to shield assets in annuities for means testing.
I know this discussion has evolved into a SSP/NSSTA compare and contrast, but I still don't think NSSTA is all that concerned about SSP membership per se, as much as they are about any member actively turning over their list of annuitants to factoring companies, or member life markets deciding to set up Clearscape type divisions of their own.
http://woodporter.com/pdf/TN122506.pdf
We're waiting to see who the money was behind Wood's opinion Pete. The poorly disguised strategy appears to be to get Allstate's "pick and roll" AFEN out of the way, then Symetra and National Indemnity out of the way so some can charge a higher rate to consumers.
I've been absorbed in a big case recently and i'll confess i've just started to read the article and go over it's ideas and implications. I'm going to most likely construct a series of podcasts with Rob Wood, Matt Bracy and others to discuss it at length. Hopefully by that point NSSTA will have formulated a response and counter point so we can have a really well rounded discussion on it. Stay tuned.