Thousands of structured settlements are funded each year in settlement of personal injury cases. But almost never does anyone ask, “How much commission does a structured settlement broker or agency get paid when they write a structured settlement annuity which is then used to fund a personal injury settlement program?” The answer to that question and why it is important are the subjects of this report by Mark Wahlstrom, host of “Speaking of Settlements.”
Wahlstrom points out that the answer is easy for brokers and planners who work in the structured settlement field. The answer: four percent. It is a flat commission on the total amount of the premium paid to the agent who has the contract with the insurance company underwriting the annuity. Wahlstrom explains that if he wrote an annuity for $100,000, his general agent would get a $4,000 commission. Wahlstrom would then get a slice of the commission based on his contract with the general agent.
The four-percent commission has been the standard since structured settlements began in the 1980s. The agent gets paid at the time of sale because this is a one-time transaction. Wahlstrom says the commission question needs some attention because of “two big factors that are confronting financial services companies.” The first is transparency and pricing. The second is suitability and fiduciary standards in product design. Both of these issues will be covered in future editions of “Speaking of Settlements.” This report discusses why these issues matter.
The importance of transparency and pricing is apparent from a reading of Spencer v. Hartford Financial Services Group, Inc. and a consideration of the issues in the recent class action suit against AIG. “Law firms and outside entities are increasingly looking at how structured settlement annuity contracts’ commission arrangements and pricing each fail to disclose to all parties how this product pays the agents and settlement professionals.” The damage claims in both cases relate to disclosure and how the amount of the commission affects the injured parties. Wahlstrom’s point is that the industry is very antiquated in how it discloses compensation arrangements for the people setting up the contracts. This lack of transparency will not be acceptable in the world as it is developing, where there is increasing pressure for transparency. “Our old way of doing business, I think, is ending.”
As for product suitability and fiduciary standards, that factor is here. Annuity and financial professionals have already been hit hard after the Department of Labor passed tough new rules for anyone managing retirement accounts. These regulations might be softened a bit during the Trump administration, Wahlstrom suggests. However, “the genie is out of the bottle.” There will probably be continuing pressure to impose fiduciary standards more widely in financial arrangements like structured settlements. Wahlstrom also suggests that bar associations, plaintiffs’ attorneys, and courts will push for the imposition of fiduciary standards in structured settlement arrangements of all kinds.
Wahlstrom cautions his fellow structured settlement professionals that they will need be able to explain who they work for in these transactions; who pays their compensation; how does the compensation affect the net return on injury settlements; is the compensation suitable and consistent with fiduciary standards; and does the injured party understand each of these elements, and does the party consent based on full disclosure?
Mark Wahlstrom, President of Wahlstrom & Associates, founded of one of the nation's first plaintiff only structured settlement firms in 1983 and is a renowned specialist in settlement planning, structured settlement annuities, structured legal fees, and the administration of large, complex multi-claimant settlements using qualified settlement funds and trusts. He has also become widely known over the last decade for his innovative development of an online broadcast platform, Sequence Media Group, upon which he has produced hundreds of hours of shows for The Legal Broadcast Network, and The Settlement Channel, with the content being of interest to attorneys, paralegals, judges and settlement professionals all over the United States. The Legal Broadcast Network is a featured network of the Sequence Media Group.