Posts tagged #Structured Settlement Expert Directory

Structured settlements and fiduciary standards, is this the future for settlement planners?

In my commentary last week I opened up the idea of whether or not structured settlement annuities, which are used to fund structured settlement payment programs, need to be sold under a fiduciary standard. My discussion centered around a series of events in the profession, specifically the AIG class action suit, which is alleging some degree of deception or undisclosed information on pricing and compensation, as well as the Department of Labor rule that the Trump administration announce will be reviewed with an eye toward reducing some of it’s more harsh compliance requirements on retirement account management.

Well since that video and commentary, the Trump administration rule review has been formally announced and we as professionals can anticipate that some, if not all, of the more punitive compliance measures the former rule contained, will be eliminated or softened so that commission investment products sold to retirement account investors will not be subject to Fiduciary rule standards.

So what does this all have to do with structured settlement annuity funding, which enjoys a historic exemption from not only the fiduciary standard rules, but also the more recent NAIC rules that mandate greater training, compliance, disclosure and suitability standards for the sale of annuity contracts in 27 states, a number which is certain to grow in the coming months, as more states adopt these standards as well.

As a 30 year veteran of the structured settlement and settlement planning profession, I’ve witnessed a lot of changes, but our little niche profession seems to sit here in a quiet, sheltered place where the same rules applied to retirement investors, retail annuity investors and others, simply don’t apply to us. We are not required to do suitability standard analysis. We are in almost every instance working as agents, not brokers or fiduciaries, when we set up structured settlement programs. This vitality important, irrevocable annuity package involving minors, injury victims, widows and others, relies upon our objective analysis, but which analysis and sales recommendation, is not overseen by a regulatory body similar to that which other professionals must answer too.

I believe this is about to change and that the move toward a fiduciary, full disclosure standard and a clear declaration of whether we are agents, brokers, advisers or registered representatives at the time a recommendation and sale is made, will be the professional standard required by trial lawyers in every case going forward.

As evidence I point to the fact that just about every major bank and brokerage firm recently declared in a Wall Street Journal article that even if the DOL softens rules and backs away from the fiduciary standard, they intend to keep most if not all of the protections and compliance in place as they believe it is the direction consumers are going and regulators will adhere to in the future. In short, most of the “Big Guys” are deciding that self policing and setting a higher bar is good business and will avoid issues in the future.

I believe the structured settlement profession needs to do the same in light of litigation and what our peers in other areas of finance are going to do. We can set a higher bar voluntarily or we can have one imposed upon us by courts, litigation and regulators. I think we would be wise to choose self discipline rather than the heavy hand of regulation and the risk of litigation.

The tide is turning and we need to be ready. Full disclosure with honest and clear communication of what role we are playing when giving advice, coupled with a compensation model that makes clear who are clients are, as well as the cost of our services, is not just a good standard, it’s good business.

You can learn more or contact Mark Wahlstrom at Wahlstrom & Associates.

 

Should structured settlements be sold under a fiduciary standard?

So What is the fiduciary standard and why is it important to discuss in relation to how structured settlements are sold, marketed and explained to personal injury victims?

I’ll place a link to the definition of The Fiduciary Standard in the blog post or video description, but for purposes of this commentary lets just go with the most basic of explanations, that being a standard in which the adviser, broker or agent is required to put the needs of the client, in this case the personal injury victim, ahead of their own financial or professional interests, ensuring that compensation, sales trips, production requirements or other factors don’t interfere with the type of recommendation they are making when it comes time to allocate their settlement dollars into a plan which designs and income or future needs plan.

As it stands now there is really no clear duty as to what the adviser is recommending, as the sale of annuity contracts that fund structured settlements seem to fall into some great gray area where we don’t do suitability studies and there is no expectation or legal requirement for us to act in a way that our recommendations comport with those of a fiduciary standard.

It is my theory that this is going to change and change soon, due to pressures and outside requirements which to date, the structured settlement profession has been largely exempted from.

So if structured settlements are not sold under the fiduciary standard, than what standard are they in fact sold or recommended? Essentially all annuity and life insurance agents are held to what is known as the “suitability standard” in which the recommendation of the product only needs to be considered generally suitable, regardless of whether or not it might meet the stricter test of a fiduciary. As I mentioned last week in my discussion on transparency in pricing, if I am writing a non-structured annuity contract I am required to do an exhaustive suitability interview and questionnaire with the client to make sure my recommendation is suitable to their age, needs, investment risk and future requirements. No such requirement is imposed on structured settlement agents and brokers. Why that is the case is a big part of why I’m raising the issue in this commentary.

So, why is the fiduciary standards “ a thing” to even talk about, why not just keep on as we have been for decades? Why make this a problem when the profession hasn’t needed to address it previously? Well, you only need to look to the massive changes facing the annuity and mutual fund profession as a result of the Department of Labor deciding that in 2017 any advisor working on an IRA, KEOGH, 401K or pension plan MUST adhere to the fiduciary standard in their recommendations and offer dramatically expanded disclosure on commissions, fees and potential conflicts of interest. This trend is accelerating, whether or not that particular regulation stands under the new administration or not. Many of the largest fund, bank and investment managers elected to stay under that standard as they feel ultimately it is pro consumer and will be the de facto legal and administrative law standard going forward. In short the big bad world of compliance and law is catching up with the annuity profession and it is only a matter of time before structured settlements are swept into that category or agents are required to meet that standard in order to be licensed or appointed.

So what happens if structured settlements move to a fiduciary standard? Personally I think it would elevate the profession but it would also disrupt many of the current sales practices that are under examination, such as the AIG structured settlement program, approved lists, sales contests, trips, daily rate pricing and underwriting disclosure, adherence to HIPA standards and other elements that are currently common but not generally disclosed to clients in every case and situation, as there is no legal requirement to do so. None of these are big deals to fix or get rid of, but a lot of people in our profession object.

So why all the objections? In short because our profession has a history of preferring minimal disclosure, compliance and visibility. The Spencer vs Hartford case, The Weil vs Manufactures Life case and now the AIG class action all illustrate an unfortunate history of changing when forced by court order or some other outside agent or event. The objections against a higher professional standard will increasingly sound like the death rattle of a profession that is fighting a necessary change. Hopefully we as a profession elect to change before it is once again forced upon us from the outside and at great cost.

To learn more, contact Mark Wahlstrom at Wahlstrom & Associates. 

Are structured settlements a good idea in a zero interest rate environment?

"Should a trial lawyer propose, and should an injury victim accept, a structured settlement to settle their personal injury case in such a low interest rate environment?"

In this week's commentary on The Settlement Channel, I'm looking at the issue of zero interest rates, or even negative rates of interest, being offered on fixed income investments, in particular structured settlement annuity contracts. One of the constant refrains that structured settlement experts hear from trial lawyers, as well as their clients, is that structured settlements are a bad idea in a world where interest rates are offering effectively zero rate of returns when you factor inflation into the yield at 2%. On its face, you would think it's hard to argue with that logic as we are clearly in a historic period of zero to negative yields on fixed income and annuities. 

However, in practical experience, settlement planners and structured settlement experts have been hearing this same narrative for over 15 years now, as we have been in a 25 year bond market rally where rates have gone from double digits to the current negative or zero yields on high quality bonds and notes. It has always been "rates are too low compared to the past," but all along that 25 year curve, the value of a guaranteed, tax free income has been proven to be the key component of just about every successful settlement plan. The rate of return or yield is important for sure, but the consistency of the cash flow, monthly income, and security are paramount to injury victims who rely on those funds to live. I can personally attest that 15 years ago people were rejecting tax free yields of 7% to 8% as "too low," when the evidence of the last 15 years now shows that anyone smart enough to take those tax free deals was getting a yield roughly equal to that of the S&P over that same time frame, particularly when taxes and management expenses are deducted and a net yield is calculated. 

The question now is, what will planners, attorneys and injury victims be saying about their decisions to not structure annuity payments in the current rate environment? Will it be considered wisdom to have declined the option for lifetime, tax free income that was guaranteed, predictable, and couldn't be outlived or outspent by the injury client? Will they look back and say that the low rate environment was actually the precursor to a historic stock market correction, or even more likely, an eventual bond market correction that wiped out huge chunks of principal and crippled their ability to care for their future needs?

The bottom line is that no one can know what the economic and financial market futures of the US will be, they can only speculate. However, the one thing any experienced settlement planner or structured settlement expert does know is that guaranteed, tax free, no fee income for a person who can no longer work, care for themselves or needs to support a family, is like GOLD to them. Every plan requires an income strategy and over the last 35 years the structured settlement annuity approach has been proven time and again as the bed rock foundation of most settlement plans. There is almost always a place in the settlement plans of an injury victim for this monthly income and it is the wise attorney, planner or family that elects that option as PART of a comprehensive settlement plan. A structured settlement cash flow provides a safety net, a floor income and planning certainty in an uncertain world. No other investment option offers zero on going fees, administrative costs or taxes like a structured settlement does. It is truly unique in that regard. 

Conclusion: That even in a low interest rate world such as we see now, that while it might seem counter intuitive, it's entirely possible in a period of economic turmoil that the certainty and safety of a structured settlement payment stream makes the MOST sense as the people who rely on it can't afford to be with out an income, ever. Don't just focus on rates of return and what you think you might get in alternative investments, instead engage a competent structured settlement expert from the Settlement Expert directory to assist you in designing a settlement plan that makes sense. Chances are good you won't look back in 10-15 years with buyers remorse if you do.