SEC investor bulletin on settlement income streams, a mixed bag

Earlier this month the SEC issued an investor bulletin entitled " Pension or Settlement Income Streams, What you need to know before buying or selling them." While it is not unusual for the SEC or FINRA to provide alerts to the general public on certain types of investments or issues which they feel might be harmful to investors, the nature of this particular alert cuts across, and seems to jumble together, two very distinct issues and transactions. 

SEC Investor bulletin on Settlement Income Streams.

SEC Investor bulletin on Settlement Income Streams.

The first is the sale of structured settlement income streams by court settlement beneficiaries who receive periodic payments as a result of a verdict or settlement for personal injury that occurred at some time in the past. While this is a practice that is still somewhat controversial in settlement profession circles, the law and process governing this process is covered under IRC section 5891 and is also supervised under state law in the 47 states which have adopted the model legislation as to process. 

The second side is a bit more relevant in my opinion to investors, that being the emerging market for purchasing secondary market annuity products, or settlement income streams. These factored income streams, which until recently were almost exclusively packaged into pools and sold as high yielding securities to institutional buyers is now being offered to private investors through direct purchase options. This area I can see the SEC wanting individuals to be cautious and inform themselves as to the pricing, risks and rewards of these programs, but in cases of institutional buyers the warnings on this sort of transaction make no sense what so ever.  

I asked Matt Bracy, immediate past President of NASP to join us in studio to discuss this investor alert and the implications for the factoring profession. I also have a follow up conversation with Matt looking at the implications for the structured settlement profession as well. This is a four part commentary, today is part one, so watch for our next three installments over the next few days.