by John Darer CLU ChFC MSSC RSP CLTC
Why An Attorney Should Be Skeptical of " We Do Not Charge" Advertising
Plaintiffs and plaintiff attorneys need to be mindful of advertised claims that a structured settlement or settlement planning consultant never charges you or your client for their services. (Emphasis ours).
Consider these products and related services commonly offered by structured settlement brokers and settlement planners and methods of compensation:
Structured Settlement Annuities
Your broker or settlement planning consultant is paid by a managing general agent for the annuity issuer. What is common structured settlement industry practice (and similar to what happens with brokers in a real estate transaction), the commission may have been split with one or more other structured settlement brokers or settlement planning consultants representing other parties. The standard commission paid by annuity issuers is 4% of the annuity cost [although one carrier Independent Life Insurance Company employs a duration-based compensation model that ranges from 2% for short durations to 4% for intermediate durations and 6% for long durations], net of the nominal qualified assignment fee (typically $0-$750) or non-qualified assignment fee (typically $500-$1400). Rebating of such commissions is prohibited under the insurance laws in most states.
Treasury Funded Structured Settlements
Your broker or settlement planning consultant is paid by the treasury funded structured settlement provider. Commissions are variable and determined by the settlement consultant. If one broker or settlement consultant agrees to work for 1% and another works for 4%, is the differential a charge?
Settlement Trusts
Be mindful that if your structured settlement broker or settlement planning consultant is incorporating a trust into the settlement planning solution for you or your client such as a Special Needs Trust, Medicare Set Aside Trust, Disability Trust, Settlement Preservation Trust, Settlement Conservation Trust, Recovery Management Trust there ARE fees and your structured settlement broker or settlement planning consultant may be sharing in them. The fees charged by the trust company are set forth in the trust documents. A structured settlement broker or settlement consultant may charge a flat fee up front and bill the trust or may simply earn a trail fee by sharing in the fees earned by the trust company assessed on assets under management. In other circumstances where a directed trust is used, and the investment function is separated from the fiduciary function settlement and the consultant has or is affiliated with a Registered Investment Adviser they may share in the fees earned by the RIA on the investment management piece.
Qualified Settlement Fund (468B Trust or QSF)
The legal departments of several state insurance departments have come out with opinions that state that payment of expenses of the qualified settlement fund by the structured settlement broker does not comply with the anti-rebating statutes. Prior to these opinions at or more settlement planner made the claim that they did "cost-free" QSFs!
Moreover, the near zero short term interest rate environment makes it highly unlikely that the interest earned on the pre-distribution QSF corpus will be sufficient to cover the expenses of the QSF and its trustee or administrator.
Factoring/Secondary Market Activity
Upon information and belief, a significant number of structured settlement brokers and settlement planners refer business to factoring companies or factoring brokers and demand and/or accept a referral fee. The referral fee, which could be undisclosed, ultimately affects the calculation of the effective discount rate. While the fees charged by the factoring company must be disclosed in the documents submitted for Court approval, the specific fee paid to the structured settlement broker or settlement planning consultant or financial planner may not be.
Factoring/Tertiary Market Activity
Upon information and belief, a number of structured settlement brokers and settlement planners. solicit and/or advise clients to invest in structured settlement payment rights and demand and/or accept a referral fee from intermediaries or the or the originator. The referral fee, which could be undisclosed, ultimately affects the calculation of the effective discount rate. While the fees charged by the factoring company must be disclosed in the documents submitted for Court approval, the specific fee paid to the structured settlement broker or settlement planning consultant or financial planner for the investment advice and placement of the investment may not be.
Note: The purpose of this post is to examine the fairness of an advertising claim, not an indictment of any one broker, settlement planner, firm or strategy.
Conclusion
Whether or not "we do not charge" or "we never charge you or your client for our services" or implying that you are "working for free" is a fair advertising claim SHOULD NOT hinge on whether or not a plaintiff or plaintiff attorney has to write out a check, or whether referral fees are buried in the fees charged by other vendors or service providers, in my opinion. How about you?
Last updated February 6, 2022
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