I typically don't address internal politics and issues between bloggers and industry members as I've always tried to have The Settlement Channel and our other properties focus on news, education and commentary, but with the NSSTA mailing on December 23rd regarding John Darer's structured settlement transparency initiative this topic has now reached a point where I feel I need to weigh in.
For a little bit of background on this topic, John back in 2007 began to circulate the concept that the settlement profession needed to begin a central list or repository of names as to which settlement firms or professionals choose to accept referral fees from factoring companies. John, and others, believe that the acceptance of fees for referring a structured settlement recipient to a factoring company is unethical and further adds directly to the cost of an already costly transaction for people looking to cash out of a settlement annuity program. However, what really is the focus of this initiative is John's belief that a lot of settlement professionals talk out of both sides of their mouths on this issue, declaring their animus toward factoring, but willfully accepting undisclosed compensation at the expense of annuitants when no one is looking.
As someone who spent most of his career as I have speaking out against the practice of undisclosed rebates on structured settlements, I naturally agree with the principal that any broker who refers a client to a factoring firm, and who then accepts compensation for that referral, owes a duty to that client to inform them that they are being compensated and to further disclose how that compensation impacts their pricing on the factoring transaction. To do less then this is in my opinion is exceptionally unethical and worthy of the public scorn that John wishes to generate through his online list.
The initiative is quite simple in nature. If a broker or planner does not accept compensation for the referral of names to settlement factoring firms, they can make that declaration and be part of the list that John will keep on his site and publish for review by trial lawyers and others who might care to know where a broker stands. Also, if someone does not choose to sign the pledge for a particular reason or fails to respond to the request, then they are placed in the "did not sign" column. I am of course simplifying the concept but at it's core you either declare you don't accept referral fees or that you do, or might, in certain circumstances. Pretty simple concept on it's face and one that shouldn't upset anyone.
However, nothing in the structured settlement profession is simple, and we now have an email communication to NSSTA members in which the position of NSSTA on the list is discussed. I'll not get into all the specifics, but essentially they are clarifying two key points:
- The driving force, John Darer, is a NSSTA member but that this is not a NSSTA initiative.
- That being a member in NSSTA in and of itself is an indication of a professionals support of structured settlements and the activity of NSSTA to curtail abuses of factoring companies is sufficient proof of a members commitment to integrity.
Well, as wonderful as that all sounds, the facts are that there are a lot of NSSTA members who take referral fees on factoring transactions, don't disclose their relationships with factoring firms and act in a fashion that is contrary to NSSTA's stated mission. Other then the decision to remove Symetra Financial from membership a couple of years ago, it is a very rare event to see a NSSTA member called on the carpet for activities contrary to the stated goals or the organization, and I think everyone knows it.
However, to see a letter from NSSTA to membership on this issue on this only further illustrates the nerve this is striking in our profession that so loves to fly under the radar and have a lot of it's activity cloaked in privacy.
Ok, what do I think of this and what is my position?
- I believe strongly that factoring is a clients absolute right and given the reforms in the industry and model legislation that fighting the factoring industry is a foolish endeavor by NSSTA and detrimental to the rights of most annuity recipients. Our efforts as a profession should be focused on growing our markets, attracting more life companies, partnering with allied professionals and not spent battling a market that depends on the sales of our annuity product for it's very existence. It is an absurd waste of time, talent and resources to continue this anti-factoring crusade in light of all of the other issues facing our profession.
- I believe that the reason most people factor is due to bad annuity design and lack of appropriate education and counsel at the time of settlement. The settlement profession is directly responsible for most of the cases that are subsequently factored due to our complete abandonment of the injury victim and annuity owner post settlement, leaving them easy prey for aggressive marketing tactics by factoring companies and other financial firms. If we did settlement planning instead of jamming structures down a persons throat at a time when they are vulnerable, we would have a lot less need to factor. In short, lets do a better job in total and eliminate the need to factor through creative and thoughtful planning of the clients entire needs instead of just selling them a product and never talking to them again.
- I think most of the consumer related advertising by factoring firms is aimed at the worst impulses of people in a financial bind and is tacky beyond belief, but it is up to judges who review these transactions to decide about suitability and pricing options, including referral fees and charges paid to a settlement professional. The problem is that referral fees can be buried in the factoring companies margin by an unethical firm and if they aren't specifically disclosed the client doesn't know the structured settlement professional has a stake in this deal and is adding to their cost. The education of judges to these types of issues is where we should focus our fire!
- I share John Darer's frustration at the ethical duplicity of many in our profession who score cheap points attacking factoring, but when offered a substantial referral fee, melt in the face of temptation and accept the funds. I further share his frustration that NSSTA takes a very passive approach toward this ethical lapse, all while spending a great deal of time and effort combating factoring in general, yet ignoring this issue in it's membership. His initiative is a by product of that frustration and lack of attention to the issue by NSSTA.
- NSSTA, despite it's by laws, is limited in it's ability to extract the equivalent of a "loyalty oath" from it's members of a voluntary association. They can encourage, they can suggest, they can through their actions work to moderate the worst elements of the factoring business, but regulation of member actions and behavior is a slippery slope that an association as cautious as NSSTA is not going to engage in. We are going to wait a long, long time before we can expect to see NSSTA head down this path.
So, at the end of the day, what do I think of this and how am I personally going to handle this situation?
1. I believe it is the right of every settlement broker and professional to refer their clients to the factoring company or professional of their choice if they are approached by a client who needs to factor their payments. No association or industry watch dog has any right to interfere with that decision or choice. It's legal, it's a standard business practice and it can not be stopped. To not refer clients to ethical and professional factoring firms is tantamount to abandonment of that client and would be professionally negligent.
2. I personally do not accept referral fees on factoring transactions, however I do reserve the right to accept such fees in the future if in my opinion my work on the transaction is most appropriately compensated through some sort of referral fee or commission.
3. I believe any and all referral fees should be fully disclosed to the client PRIOR to any court hearing or pricing decision and subsequently fully disclosed in the court of jurisdiction that reviews the proposal for fairness and reasonableness.
4. I believe NSSTA should have no position on the topic of broker disclosure beyond a recommendation in it's by laws about disclosure of fees and conflicts, but should invest it's time, talent and resources into growing our markets, building our brand and bringing new life markets into the fold. The fight against factoring is largely yesterday's battle and state laws regulating process provide sufficient protection and regulation. The best answer to factoring is better planning, better education and high professional standards in planning design and working with affiliated professionals who assist the client AFTER the settlement with their financial planning needs and decisions.
5. I believe John's initiative is a worthy voluntary endeavor to bring some level of accountability to the profession that NSSTA simply can't provide. I personally will fall into the "other" category as I am not closing the door to compensation from factoring transactions, but as stated above believe disclosure and court supervision is the best possible answer to these abuses. I think it is up to each professional member to decide if they want to participate in this initiative, but whether or not they do, they have an obligation to have a clearly stated policy when dealing with factoring issues with their clients.
In summary, I believe factoring is going to be receding as one of our industries most pressing issues, with the focus shifting to growth of markets, advertising, branding and consumer awareness of our profession taking primacy. The factoring battle is counter productive and is now reminiscent of the "bad old days" of when plaintiff experts were routinely excluded from the business and the end result was the Weil case. Make up your own mind on where you stand on factoring, sign or don't sign, but then get on to more productive pursuits in growing your business and raising awareness about the value of structures. Remember, the factoring business needs US, as they don't have a business if we aren't writing structured settlement annuities, we don't NEED them. Elevate your site and lets get the business growing and get past this distraction.