As 2009 moves to the last quarter and the NSSTA regional in Las Vegas is in the books, I've been reflecting on the non-qualifed structured market and wondering if it isn't the single greatest failure of our profession and one that will haunt us for years as our traditional market shrinks.
First, let me state that I take the non-qualified structured settlement market very personally in that I have spent the better part of the last 4 to 5 years working to position myself and my firm in the area of pollution litigation, employment litigation and other areas where non-qualified annuity markets are needed to fund the structures we hope to sell. The departure of Prudential and their PRUCO subsidiary was one thing, the capacity limits on cases with Allstate was another, but to me the utter failure of our profession and trade associations to work with affiliated professionals to EDUCATE our potential clients is the biggest train wreck.
We can talk about structured sales, a fantastic product doomed by the collapse of the real estate market and horrible marketing, or we can talk about the complete failure to educate employment and compensation attorney's on the value of structuring or using QSF's to provide tax relief for their claimants on taxable cases. Each of those could fill several blog posts. However, the example i'd like to use is the failure of our industry to capture a huge natural market, that being structured legal fees and how our associations and life companies failed to do even the most basic of education of the people who typically kill most non-qualified or structured legal fee cases.
CPA's!
Now I might have missed it, but when during the last 5 years has anyone from the life markets, NSSTA or SSP advertised to or reached out to include the CPA community in educating the rank and file Public Account or tax professional on the options available for lawyers to structure cases, the use of QSF's, structure taxable damage awards or how to take advantage of structured sales?
Anyone with even a modest bit of experience in the field, or at the home office who listens to agents, knows that the deal killer on 99% of all taxable damage structure cases and legal fees is the CPA, with the reason's being two fold for their opposition to our planning and products. Objection one is they don't know about the product, the tax laws that are related to it and thus have no basis to recommend it, so they simply kill it rather then do the research. The second objection is a pocket book issue and that is the fact that many CPA's now double as product salesmen or investment advisors and are unable or unwilling to share in commissions on a product they can't offer directly.
There might be little we can do about the second situation, but the education of CPA's and tax professionals should be fundamental and on a scale similar to when structured settlements were founded back in the late 1970's or in the early 1980's when section 130 came about. Instead what we have is continued resistance to spend money where it is needed to educate the deal killers and create a base of knowledge they can go to if they are presented with a structured legal fee, structured sale, non-qualified annuity, etc. I am appalled and amazed on a daily basis when I present the concept of non-qualified annuity options to lawyers and other professionals who are utterly clueless and unaware of their options. These aren't local guys doing a case every 10 years, but people immersed in big litigation, major pollution, wage and hourly and other cases that should know, but don't. Further, when they refer me to their tax professionals, their utter confusion and ignorance is even more alarming in all but a few exceptional cases.
On one of my most recent cases I had the pleasure of working with a CPA who represented plaintiff counsel in an honest, professional and objective fashion. His research was exceptional and done with an open mind in order to best serve his client and in the end we will be able to assist his client in structuring a substantial fee while also allowing his clients to realize tax savings from the non-qualified structures. How sad is it that his behavior and knowledge was remarkable instead of being the norm in doing business?
My point is this, the slow demise of non-qualified business was the result of neglect and lack of initiative to properly educated CPA's and others who held the veto power over most sales decisions. The fact that structured settlement brokers needed to work with CPA's instead of litigators and claims professionals and educate them on the process doomed the sales from the start as most brokers can't hang intellectually with most tax guys. Sorry if that offends anyone, but it's fact that most settlement professionals know little about planning and taxes outside of their narrow litigation niche and the CPA's exploited that weakness to kill sales in many caes. Absent an existing endorsement from the CPA professional society or an industry sponsored data base of tax law information, most brokers never stood a chance in arguing with a CPA to save a deal.
While I don't expect many, if any, life markets to restart their non-qualified operations, I do know that their are many private initiatives to set up off shore subsidiaries to write non-qualified deals that cut the life markets out for good. It will take a few months, maybe a year, but the life markets and the trade associations will only have themselves to blame for another lost opportunity and market that is pirated away through the creativity of banks, trust companys and innovative brokers who have grown weary of the settlement industries lack of guts and drive to build new markets to replace the ever shrinking litigation area that has been our core for decades.
What a timid, placid and lifeless profession we have become when we let outside agents walk in and create products that open new markets and cut brokers out entirely in huge areas of litigation.
