Litigation

A number of structured settlement general agencies have cut commission sharing deals with wire houses as a business strategy. They know who they are and so do we. One can presume that the idea is to be the focal point of questions from thousands of stock brokers and wealth managers and hope for some of the crumbs that fall off the "assets under management" table.

Wire house deals are low margin deals for the structured settlement general agency which must also bear a dramatically increased risk of supervision of those who may not be properly trainedin the nuances of the structured settlement product, settlement planning issues and litigation recovery management for tort victims. Unlike the training of a group of casualty company claims adjusters or lawyers at a law firm (where a referral is generated and trained specialist professionals "do their thing"), in these circumstances the specialist may not get a look in other than to run a quote.

Is it possible that tort victims, their families, and their attorneys will mistakenly believe they are being properly advised on structured settlements by "experts" who have sparse knowledge and little incentive to recommend or place the product.  If these stakeholders do not know they are being improperly advised, they will simply turn down the structure alternative without any of us even being given the chance to properly discuss our product offerings.

There is a growing belief among trained professionals that such crumb trail business strategies are bad for the structured settlement industry. In this multi part series we will give you examples of how some of these programs appear to be run and the potential exposures to the industry reputation.

On April 22, 2009 a Vice President-Investments and lawyer at Robert W. Baird & Co. ("Baird") represented in writing to plaintiff attorney that it had the capability to provide structured settlement contracts through its insurance services division. Download Baird VP letter 4-22-2009. The material that accompanied the letter included a structured settlement quote using Navisys quote in the box software that came from Little Meyers & Associates, Ltd. of Cincinnati, Ohio. Download Little Meyers Prudential quote supplied to Baird Client in 4-2009. The structured settlement annuity issuer, The Prudential Insurance Company of America, was incorrectly named as Prudential Life in the Baird Vice-President and lawyer's letter .

In the material accompanying the letter from the April 22, 2009 Baird Vice-President and lawyer, several false and misleading statements were made in a document entitled " Advantages and Disadvantages of Managed Portfolio versus Structured Settlement (Annuities)"  Download Baird Report Excerpts

1. In making an "investment comparison" the Baird represented that the structured settlement had low volatility when in fact it has no volatility.

2. In making an "investment comparison" the Baird Vice President and attorney falsely representedthat income paid from a structured settlement is taxed at ordinary income when in fact it is income tax free pursuant to the terms of either IRC 104(a)(1) or IRC104(a)(2).

3. The Baird "investment comparison" failed to mention reinvestment risk,default risk and dissipation risk

and there's more in the material which has been supplied to this author.

Various securities and insurance laws govern market conduct and highlight the exposures to both the brokerage firm, its insurance group and the structured settlement general agency:

FINRA Conduct Rule 2210b  A registered principal of the member must approve by signature or initial and date each advertisement, item of sales literatureand independently prepared reprint before the earlier of its use or filing with FINRA's Advertising Regulation Department ("Department"). With respect to debt and equity securities that are the subject of research reports as that term is defined in Rule 472 of the New York Stock Exchange, this requirement may be met by the signature or initial of a supervisory analyst approved pursuant to Rule 344 of the New York Stock Exchange. A registered principal qualified to supervise security futures activities must approve by signature or initial and date each advertisement or item of sales literature concerning security futures.

FINRA Conduct Rule 2210d (A) All member communications with the public shall be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in the light of the context of the material presented, would cause the communications to be misleading.

FINRA Conduct Rule 2210d (B)  No member may make any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public. No member may publish, circulate or distribute any public communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.

Wisconsin Insurance Law 628,34 Unfair Trade Practices (1)(a) No person who is or should be licensed under chs.600-646, no employee or agent of any such person, no person whose primary interest is as a competitor of a person licensed under chs 600 to 646, and no eprson on behalf of any of the foregoing persons may make or accuse to made any communications relating to an insurance contract, the insurance business, any insurer or any intermediary which contains false or misleading information, including information misleading because of incompleteness.

Questions & Comments

The wealth manager with obviously little structured settlement bona fides stands to make a fraction in one time payment on the structured settlement, after Baird takes its cut, or make a recurring charge on the assets under management on the money not structured. 

As someone who had no skin in the transaction described I naturally wonder what level of training Little Meyers & Associates gave Robert W. Baird representatives. If one hopes to be profitable at a low margin business how are you going to win when you have people misrepresenting what you are offering?

As a member of an industry what are Little Meyers (and others who have such relationships) doing to the industry by apparently not adequately supervising the marketing practices of those they have these relationships with? That the principals of Little Meyers include a former NSSTA President and an instructor for the Certified Structured Settlement Consultant course makes the structured settlements "misrepresentation" by Baird all the more shocking.

TOPIC TO BE CONTINUED