Last week, “Speaking of Settlements” discussed the importance of transparency in structured settlements and the increasing interest in seeing structured settlement professionals follow a fiduciary standard in dealing with settlement clients. In this edition of “Speaking of Settlements,” host Mark Wahlstrom explains what a fiduciary standard means in the sale of annuities and why it is important to the structured settlement industry.
The most basic explanation of a fiduciary standard, Wahlstrom says, is that it requires advisors, brokers, or agents to put the needs of the client—in this case, a personal injury victim—ahead of their own personal interests. This means assuring that compensation, sales trips, production requirements or other factors “don’t interfere with the type of recommendation that the planner-advisor is making when it comes time to set up and allocate the settlement dollars.” At present, there is no clear standard that governs what an advisor recommends as to the sale of the annuity contracts that fund structured settlements.
The structured settlement world is presently in a gray area, Wahlstrom explains, where there is no requirement that what participants do follows a fiduciary standard. This is likely to change, and soon, because of pressures from the outside that, to date, structured settlements have been exempt from.
Instead of a fiduciary standard, the one that presently applies to annuity sales for structured settlements is a suitability standard—the product should be generally suitable for the purpose in question. This is a much laxer standard. Wahlstrom says that, if he is writing an annuity contract that is not for a structured settlement, he is required to do a great many things that never enter the structured settlement process. He has to do “an exhaustive suitability interview and fill in a questionnaire with the client” as part of the process to ensure that the annuity is the right thing for the client.
The push for the fiduciary standard comes in large part from an action of the US Department of Labor in 2016 imposing a fiduciary standard (starting in 2017) on any advisor working in IRAs, 401(k) plans, or pension plans. This requires advisors to offer “dramatically expanded disclosure” on commissions, fees, and potential conflicts of interest. Wahlstrom believes that the fiduciary standard is here to stay, regardless of the fate of the particular DOL regulation under the Trump administration. “Many of the largest funds, banks, and investment managers have already elected to stay under that standard” because they feel it is consumer-oriented. The standard will probably be the de facto standard going forward.
Wahlstrom believes it is only a matter of time before the standard becomes part of the structured settlement world through licensure restrictions or restrictions by insurance companies in appointing agents. Wahlstrom believes adopting the standard would elevate the structured settlement profession, but it would make some big changes in present sales practices. The AIG company is already facing in a class action lawsuit previously discussed on “Speaking of Settlements.” AIG has a number of practices that would need to be disclosed under a fiduciary standard.
Wahlstrom notes that some people in the structured settlement profession are concerned about changing to the tougher standard. The structured settlement profession has a history of low visibility. Wahlstrom points out that the AIG case and others in the past point out that the structured settlement profession has a history of changing only when forced to be court order or some other pressure. Structured settlement professionals, Wahlstrom believes, “should be striving for the highest possible standard, full disclosure, protection of injury victims” as the foundation of the profession.
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.