Will the AIG Structured Settlement Class Action Improve Transparency in Pricing?

Last week, “Speaking of Settlements” explored the question how much commission is a structured settlement broker paid and why does it matter. One issue posed for discussion is transparency. That issue has taken center stage in the class action suit against AIG, Ezell v. Lexington Insurance Company. The class action raises RICO claims against AIG. Mark Wahlstrom, host of “Speaking of Settlements,” says that the case “is raising some key issues as to how structured annuity settlements are priced, who is paid, and how pricing and payment should be disclosed to the vulnerable end user of the product.” Wahlstrom explores these questions in this report.

The standard commission is four percent, Wahlstrom says. However, this figure is not disclosed in the settlement documents. Nowhere is there any mention of the commission. Even in the few states that have some disclosure requirement, it usually only applies in cases involving minors or incompetent plaintiffs. There is no disclosure of how the commission figure was arrived at nor how it is split up, if it is.

Settlement professionals might ask why disclosure matters. The answer, Wahlstrom says, is that plaintiffs’ lawyers, judges, and regulators are all getting interested in such issues. Wahlstrom points out that an opaque process has the potential for conflicts of interest. Also, competitors such as trust companies, investment advisers and others “are making the [settlement] profession’s lack of disclosure and pricing commissions a big issue in their presentations to injury victims and their lawyers.”

Wahlstrom says he’ll be discussing the fiduciary standard in next week’s presentation. However, consider what an agent selling a non-structured annuity to a consumer is required to several things: (1) provide a full company illustrated term sheet explaining pricing, terms, liquidity cost, surrender charges, and ownership and beneficiary rights (which must be signed by the owner and the annuitant); (2) hold a full suitability interview with the client to determine the client’s assets, income, sophistication, understanding of the product, and how this particular annuity was chosen for the client; (3) the client must sign the disclosure statement and initial the illustration, and the agent (under penalty of perjury) must sign the statement of disclosure saying that the information is true to the best of the agent’s belief.

Wahlstrom points that few if any of these things are required when preparing a contract for a person who is probably very unsophisticated and badly injured, perhaps even impaired. Wahlstrom’s question for his counterparts is, how long do you think this disparity in procedures can continue? The profession’s failure to follow fiduciary standards is coming back to bite the profession. “It’s time to change voluntarily before change is forced on us.”

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.