Posts tagged #SSP

Will the AIG structured settlement class action suit increase transparency in pricing?

In last weeks commentary on the question of “How much commission does a structured settlement broker get paid” I mentioned two key areas I wanted to expand upon. The first, “Transparency in Pricing” is the subject of this week's commentary.

The event which is driving a lot of this discussion, the class action suit against AIG structured settlements and it’s claims of a RICO level conspiracy with settlement brokers nationwide, raises some key issues related to how structured settlement annuities are priced, who is paid and how pricing and payments should be disclosed to the vulnerable end user of the product, that end user typically being a personal injury victim. The complaint focuses a great deal of attention on the non-disclosure of commissions, pricing and I'm sure it will be an area of discussion in the coming months are structured settlement professional association meetings. 

As I stated last week, the standard commission of 4% on all premium placed is consistent across all markets. You send in premium as the agent and you get paid 4%, what could be simpler? However, nowhere is that compensation or it’s impact on the pricing of the annuity plan disclosed to the annuitant, or their legal counsel, by the structured settlement agent, the life insurance company or the casualty company negotiating the settlement. There is no disclosure in pre-sale literature, applications or in court proceedings, other than requirements in a very small number of states or counties that have disclosure statutes, with those law typically enforced in cases involving minors or incompetents. Consequently, in the vast majority of structured settlements, there is no clear disclosure of how the pricing was arrived at, what the commission is, who the agent actually is and if there are any commission split arrangements between the structured settlement brokers involved in the case.

Settlement professionals at this point are probably throwing up their hands and saying “ What difference does it make?” Their point being that the commission has been “baked in” to the pricing for decades, no one ever asks and the actual client buying the annuity is the casualty company, so as to fund the structure laid out in the settlement agreement and release. The injured party isn’t even the buyer, according to this logic, but is simply the recipient of a cash flow that happens to be provided by an annuity company selected by the defendants in most cases.  According to this logic, the question by most professionals is "Who cares about commission and pricing disclosure?"

Well, as the AIG class action case seems to indicate, as did the Spencer vs Hartford case which ended the Hartford’s commission rebating on structures, trial lawyers, consumer advocates, judges and increasingly regulators, ALL seem to care. Many are in fact taking a dim view of this opaque process that is often filled with potential conflicts of interest. Further, some of our profession’s biggest competitors, such as trust companies, investment advisers and others are making the professions lack of disclosure in pricing and commissions a BIG issue in their presentations to injury victims, highlighting the level of regulatory supervision they need to adhere to and the Fiduciary Standard they are required to uphold when dealing with the injury victim.

I’ll discuss the Fiduciary standard issue next week, but for this week let’s just reflect on the fact that if I, as an agent, sell a NON-Structured annuity to a consumer I am required to:

  • Provide a full, company illustrated term sheet explaining pricing, returns, liquidity costs, surrender charges and ownership/beneficiary rights and this must be signed by the owner and annuitant.

  • I am required to do a full suitability interview with the client to determine assets, income, sophistication, understanding of the product and how we arrived at the decision that this annuity makes sense for them.

  • The client must sign the disclosure agreement, must initial or sign the illustration and I must, under penalty of perjury, sign that the statements, disclosures and information is true to the best of my belief.

Few, if any, of these things are required when we write a structured settlement annuity contract for people who are typically unsophisticated, badly injured or impaired.

My question to the Settlement Profession is How long do you feel that this major and glaring difference in standards is going to continue in a world where disclosure and fiduciary standards are becoming the norm across all financial sales and investments?

In short, our failure to simply follow the same standards that are required of any life or annuity agent when selling these contracts, is coming back to bite the structured settlement annuity profession and it’s time to change voluntarily before change is forced upon us. The AIG Class Action and RICO suit might seem like a distraction to some in the settlement profession. I can promise you that it is much bigger than that, and that structured settlement professionals need to take this head on and change our disclosure, pricing and sales practices to at least match those required of us in non- structured settlement sales.


How much commission does a structured settlement broker get paid on a structured settlement?

Question. How much commission does a structured settlement broker get paid when they place an annuity to fund a structured settlement?

You would think this would be a fairly routine question asked on every single personal injury settlement involving a structured settlement payment schedule, but the fact is that few if any lawyers ever ask this question. In fact in my career I can state that in maybe ten or twelves cases over a 30+ year time frame I might have been asked that question by either my trial lawyer or their client. 

Structured settlement brokers and experts know that answer is 4% commission on the total premium written on an annuity. It's been that rate since the 1980s, there is no residual or ongoing compensation and the commission is essentially "baked into the rate" so that the client sees a net payout and no disclosure of the commission or how the pricing was arrived at on the annuity.

While I see nothing nefarious about this long-standing practice, I've also observed over my 35+ year career that commission and compensation programs on other types of investments have evolved due to regulatory and consumer pressure, while this very basic, vanilla type annuity has never changed or modified in the least.

In this weeks Speaking of Settlements commentary I look at what I consider the two biggest issues facing the structured settlements. The first is "Transparency is Pricing" and the other is "Product suitability and Fiduciary standards in annuity design." While those might seem to be somewhat obscure issues, each of which will be covered in greater detail in a subsequent commentary and blog post, I feel they are major issues which together could permanently alter the process by which structured settlements are priced, sold and provided as a solution in settlement planning. 

Enjoy the video, it should give you something to think about, and watch for the more comprehensive analysis and videos on each of those two issues during the rest of January. Big changes are being imposed on the structured settlement profession by outside forces, so it would be prudent for the profession to act proactively to address them in a way that is positive vs our typically reactive approach to change.

What can Don Draper of "Mad Men" teach the structured settlement profession about new media?

"If you don't like what's being said, change the conversation."

One of the enduring lines from the iconic cable drama "Mad Men" is provided by the fictional advertising guru, Don Draper. Portrayed in the series as a genius in marketing, advertising and counter intuitive thinking, many of his ideas and slogans actually have great relevance in a new media world.  

What can Don Draper teach the structured settlement profession about new media?

What can Don Draper teach the structured settlement profession about new media?

Don Draper had multiple character flaws, but it was obvious that there was great wisdom in that particular line as it continues to resonate with fans and marketers years later. It was uttered during an early episode set in the mid 1960's, when developers were facing outrage over an announced plan to tear down the Old Penn Station so as to build the new Madison Square Garden. The Ad man's advice was essentially to stop talking about and defending what was being lost and to instead talk about and champion what was about to be gained. Great advice. 

So how does this relate to the structured settlement profession,and in particular the things being said about structured settlements and settlement planning in general?

First, in the last year we have witnessed an avalanche of news, both online and in standard media, concerning the factoring, or sale, of structured settlement payments and the abuses which are alleged to occur when those transactions take place. The primary focal point of the stories was in Baltimore, Maryland, where it was discovered that the late Freddie Gray was one of thousands of lead paint children, who after settling their liability case using a structured settlement, eventually sold those payments for lump sums of cash at a steep discount. The details of how that all occurred and it's impact aside, having already covered that in prior posts, but what really matters is that the term "structured settlements" has been repeatedly associated with fraud, corruption, bad planning, exploitation and even racism. While the primary structured settlement market likes to gloat about how the secondary structured settlement market "got what was coming to it", they completely miss the point that the concept of structured settlements as a brand has been essentially destroyed as a result. 

The vast majority of politicians, regulators, courts and even trial lawyers when asked to name a structured settlement firm would almost certainly reply in unison, " JG Wentworth" due to all of the advertising on selling structured settlement payments that has saturated traditional, trade and online media. Now you can add in major stories from Washington Post, CBS news, NPR and various Gannet dailies, with the result being that the term "structured settlement" is carpet bombed and associated with the worst kind of professional practices. It's a mess, it's happened and there is no turning back from it. NSSTA, SSP and structured settlement professionals can not possibly continue to pretend the brand isn't badly damaged and that this damage is impacting our professions future.  

So, what would Don Draper say to the over 400 structured settlement experts and settlement planning professionals that make up the primary market? 

1. Change the conversation. If our profession continues to glory in the abuses of the secondary purchasers of structured settlements, instead of refocusing the dialogue toward the exceptional benefits of structured settlements in personal injury cases, we are doomed as a brand and a profession. Enough about factoring abuses and corruption, let's discuss instead how directing payments of a structured settlement into a trust would have likely prevented the vast majority of cash out's, as there would have been a responsible entity to vet the decision to sell. Change the conversation to what works, not what doesn't!

2. Use their bad news as your good news. Reporters and news organizations couldn't care less about the survival of the structured settlement profession, they are looking for Pulitzer's, professional respect and audience. They simply report what they see as "news" and then move on to the next story, while settlement professionals have to live with the fall out. In this case it's simple to show lawyers, injury victims and others that these changes prove how serious regulators, courts and lawyers are about protecting injury victims settlements. Then highlight these law changes and process improvements and use them as the opportunity to discuss why protecting structured settlements is so important in the first place. People are hearing the term "structured settlement" online, in news and on TV, so take time to let clients know what a structured settlement actually is and why it is so important in protecting injured victims. 

3. Take full advantage of new media, social media and effective tools at your disposal.  The tools available to our profession are extensive, powerful and inexpensive, yet virtually all but a hand full of organizations and professionals actually use them. Blogging, podcasting, video commentary or associating with professional broadcasting cooperatives like The Structured Settlement Expert Directory and Settlement Channel are all options ANY planner can use. Instead we see either a scatter shot, or non-existent, effort to get involved in social media and commentary to our clients. You can get it done in a cost effective fashion that is powerful, impact-full and generates good will and new sales. There is simply no excuse for professionals to not invest at least 4 hours per month, one hour per week, toward branding yourself or your firm online. 

4. There is strength in numbers. The reality of new media and social media is that there is incredible strength in search, relevance, credibility and news feeds when you join a marketing cooperative, or if your firm is big enough, when you start your own online channel. For over a decade structured settlement professionals have bemoaned the fact that "we can't compete with factoring companies advertising budgets", so our associations, life markets, general agents and others elected to do nothing. At the very time when someone can for a few hundred dollars per month have a full blown video marketing platform that feeds into all major news feeds, most members are paralyzed into inaction or just jealously guard their dwindling number of clients they currently have. Joining a marketing group empowers you, dramatically amplifies your message and allows you to keep your current clients and acquire new ones. 

5. Start making your own news and stop being a punching bag.  Be on the attack. Manage your message and brand or just sit back and take it. Enough said.

The tools are in place, and have been in place for over a decade, for the structure settlement profession to brand our services as a social and financial good for injury victims. With the exceptionally low cost of video commentary and the availability of new media collaboratives, like The Structured Settlement Expert Directory , it is now possible for both individuals and the profession as a whole to dramatically improve sales, increase use of structured settlements and to educate our market on the various creative applications of the annuity platform at it's core. It's time to get moving and stop making excuses, our profession is at stake and we all know it!