While that case and story are deserving of several broadcasts, today's centers on the careless use of the term Structured Settlements in the complaint that was filed to dissolve the firm. The complaint or petition to the court described the lending pool as a collection of structured settlements, when the proper definition clearly would have been law suit loans or cash now programs.

We will be doing several follow up stories on this, but for now it is important for every settlement professional to be aware that thanks to the wide spread reporting of this story that our trade term of Structured Settlements is being linked with one of the biggest frauds ever perpetrated by a lawyer and we need to be proactive in protecting our profession.

Even a modicum of reporting and analysis, never mind a call to a structured settlement firm or the NSSTA, would have revealed that this has NOTHING to do with the  corrupt sale and " purchase of structured settlements, whereby an individual sells a stake in a large legal settlement for cash." Nothing could be further from the truth and this kind of lazy reporting and analysis will now take weeks of corrective posting, writing and commentary to counter the misperception created by these kinds of posts. Scott Rothstein

Trust me, we will be doing a long series of podcasts on this starting tomorrow discussing the structured settlement industry response, the response of the factoring business that is also being unfairly and inaccurately tainted, and a review of the despicable " cash for plaintiffs" business that soaks the most vulnerable, uniformed and helpless victims, all with out ANY state or federal regulation oroversite.

No, for those of you who care to know, this story is about the "cash now" industry that has sprung up in the trial lawyer circles where in hedge funds and investment pools, exactly like the one Rothstein was apparently running gather up assets and then go and cut private deals with plaintiffs in law suits to give them up front money right now and in return the "lender/loan shark" goes and collects on the case when it settles.

This is a cess pool of conflict of interests, clients being sold out by their attorneys, rebates and referral fees to the lawyers who send them clients and a totally unregulated shadow business run by the likes of a Rothstein and the attorneys who work with them. Even if he didn't take a dime of client money and this all works out in the end as just one big "misunderstanding", this will bring welcome light to the repulsive act of exploiting desperate plaintiffs in return for huge yields to investors and lots of money to the lawyers charged with protecting their welfare.

Hopefully AmLaw Daily will retract this error at some point and put some real work into exactly what has been going on with these lending pools and litigation cash pushers. Every legal convention and meeting of lawyers has these sales teams circling around them now and perhaps AmLaw Daily should investigate why no one has until now looked into these abusive and questionable dealings before.

Keep watching The Settlement Channel and The Legal Broadcast Network, we will be bringing you the real story from the lawyers who are in the case and can provide insight and information into yet another unfortunate black eye for the legal profession.

This comes as no great shock as the company has been staggered by a series of market related developments that made it almost impossible for structured settlement brokers to utilize their product.

The first major change was the turmoil of last year in which Hartford Life was one of the major red flag companies caught up in the variable annuity market in which their widely sold and highly popular line of annuities were pummeled by market value guarantee riders that rating agencies required them to reserve heavily for at the very time when capital was the most difficult to raise. The company weathered the storm, partnered with Allianz financially to some degree and rode things out, but the resultant drop in their AM Best Rating to A crippled them in the structured settlement arena. A similar fate befell American General Life and in a matter of weeks two of the industries leaders were essentially sidelined and deemed unfit to write a wide range of settlement annuities.

It is a sad day for the profession as another market leaves an already reduced group of life markets and another group of quality professionals are put out of jobs in a touch economy. Watch my interview with John Darer

The topic for this weeks discussion is the passage of California Senate Bill 510, a bill that was originally going to be vetoed by the Governor, but with the cooperation and assistance of both the structured settlement and factoring industry passed with enhance consumer protections for those looking to sell all or part of their structured settlement annuity.

The history of relations between the factoring and structured settlement industry have been strained at best, so this bill and the cooperative approach taken to add a level of additional oversight and analysis of structured annuity factoring transactions is a welcome change. The net result, as you will learn from watching this video interview, is model state regulation that gives greater protection to consumers while not restricting their right to factor or sell their annuity.

First, let me state that I take the non-qualified structured settlement market very personally in that I have spent the better part of the last 4 to 5 years working to position myself and my firm in the area of pollution litigation, employment litigation and other areas where non-qualified annuity markets are needed to fund the structures we hope to sell. The departure of Prudential and their PRUCO subsidiary was one thing, the capacity limits on cases with Allstate was another, but to me the utter failure of our profession and trade associations to work with affiliated professionals to EDUCATE our potential clients is the biggest train wreck. 

We can talk about structured sales, a fantastic product doomed by the collapse of the real estate market and horrible marketing, or we can talk about the complete failure to educate employment and compensation attorney's on the value of structuring or using QSF's to provide tax relief for their claimants on taxable cases. Each of those could fill several blog posts. However, the example i'd like to use is the failure of our industry to capture a huge natural market, that being structured legal fees and how our associations and life companies failed to do even the most basic of education of the people who typically kill most non-qualified or structured legal fee cases.

CPA's!

Now I might have missed it, but when during the last 5 years has anyone from the life markets, NSSTA or SSP advertised to or reached out to include the CPA community in educating the rank and file Public Account or tax professional on the options available for lawyers to structure cases, the use of QSF's, structure taxable damage awards or how to take advantage of structured sales?

Anyone with even a modest bit of experience in the field, or at the home office who listens to agents, knows that the deal killer on 99% of all taxable damage structure cases and legal fees is the CPA, with the reason's being two fold for their opposition to our planning and products. Objection one is they don't know about the product, the tax laws that are related to it and thus have no basis to recommend it, so they simply kill it rather then do the research. The second objection is a pocket book issue and that is the fact that many CPA's now double as product salesmen or investment advisors and are unable or unwilling to share in commissions on a product they can't offer directly.

There might be little we can do about the second situation, but the education of CPA's and tax professionals should be fundamental and on a scale similar to when structured settlements were founded back in the late 1970's or in the early 1980's when section 130 came about. Instead what we have is continued resistance to spend money where it is needed to educate the deal killers and create a base of knowledge they can go to if they are presented with a structured legal fee, structured sale, non-qualified annuity, etc. I am appalled and amazed on a daily basis when I present the concept of non-qualified annuity options to lawyers and other professionals who are utterly clueless and unaware of their options. These aren't local guys doing a case every 10 years, but people immersed in big litigation, major pollution, wage and hourly and other cases that should know, but don't. Further, when they refer me to their tax professionals, their utter confusion and ignorance is even more alarming in all but a few exceptional cases.

On one of my most recent cases I had the pleasure of working with a CPA who represented plaintiff counsel in an honest, professional and objective fashion. His research was exceptional and done with an open mind in order to best serve his client and in the end we will be able to assist his client in structuring a substantial fee while also allowing his clients to realize tax savings from the non-qualified structures. How sad is it that his behavior and knowledge was remarkable instead of being the norm in doing business?

My point is this, the slow demise of non-qualified business was the result of neglect and lack of initiative to properly educated CPA's and others who held the veto power over most sales decisions. The fact that structured settlement brokers needed to work with CPA's instead of litigators and claims professionals and educate them on the process doomed the sales from the start as most brokers can't hang intellectually with most tax guys. Sorry if that offends anyone, but it's fact that most settlement professionals know little about planning and taxes outside of their narrow litigation niche and the CPA's exploited that weakness to kill sales in many caes. Absent an existing endorsement from the CPA professional society or an industry sponsored data base of tax law information, most brokers never stood a chance in arguing with a CPA to save a deal.

While I don't expect many, if any, life markets to restart their non-qualified operations, I do know that their are many private initiatives to set up off shore subsidiaries to write non-qualified deals that cut the life markets out for good. It will take a few months, maybe a year, but the life markets and the trade associations will only have themselves to blame for another lost opportunity and market that is pirated away through the creativity of banks, trust companys and innovative brokers who have grown weary of the settlement industries lack of guts and drive to build new markets to replace the ever shrinking litigation area that has been our core for decades.

What a timid, placid and lifeless profession we have become when we let outside agents walk in and create products that open new markets and cut brokers out entirely in huge areas of litigation.

The reason I mention this is that once again the factoring companies and other financial firms are MILES ahead of the structured settlement profession in how they are getting into video search results and taking over structured settlement video search results the way they took over standard google results over the last few years.

We have recently signed on John Darer to start providing commentary for Legal Broadcast Network in structured settlements, something I'm sure will cause a few coffee spills when they read this, but we are also expanding our commentary to start including a variety of voices in the settlement profession and continuing to keep this as an open platform. As part of that open platform we plan on totally dominating video search results on the topic, so before people get all bent out of shape about WHO is speaking, lets remember the alternative is factoring companies and other marketers who are hostile to our product. Besides, if you want to provide another alternative voice on structures, all you need to do is pick up the phone and call me and i'll set you up with your own commentary as well and may the best commentator win!

Once again the message is that those who make a regular commitment to the creation of original content and they syndicate it across various media platforms are going to dominate search engine results in structured settlement videos as well. It's the fastest growing area of the internet and our industry and it's players ignore it at their peril.

A long time to wait for not a lot of excitment according to Rob, who says that while the clarification is certainly welcome, it's not the big game changing liberalization of section 104 that some people are making it out to be.

No reason to type a long discussion, just read Rob's brief summation here:

In September 2009, the Treasury Department issued Proposed
Regulations under Section 104, attempting to reflect the 1996 Act
statutory changes. See Prop. Treas. Reg. § 127270-06, available at
http://www.taxinstitute.com/pdfs/Proposed_Treasury_Regulation_
Section_127270-06.pdf. The Proposed Regulations state that it is not
necessary to satisfy the first the test enunciated in Commissioner v.
Schleier, 515 U.S. 323 (1995). They also state that it is no longer
relevant whether the remedial scheme under which the damages were
awarded is tort-like in scope.

In effect, the Proposed Regulations say they are reversing the result
in United States v. Burke, 504 U.S. 229 (1992). According to the
Preamble to these Proposed Regulations, after Burke, the Schleier
Court sought to verify the presence of tort or tort-type rights. The
effort, said the IRS, was to attempt to ensure that the damages were
paid for personal injuries.

Since the 1996 Act (post-Schleier) made clear that the injury must be
physical (which by definition must be personal), the Proposed
Regulations take the view that there is no need for the first part of the
Schleier test. The Proposed Regulations are proposed to apply to
damages received after they are published as Final Regulations.
However, taxpayers are allowed to apply these Proposed Regulations
currently, generally for damages received after August 20, 1996.
Claims for refund for such tax years may even be allowed.

Comment: Although this is a liberalizing change which is welcome,
the practical impact may not be too significant. In fact, few taxpayers
were tripped up by the tort or tort-type rights test. If taxpayers have
a problem, it is usually with the “on account of” and “physical”
issues. Unfortunately, the Proposed Regulations do not seek to
explain what constitutes a physical injury or physical sickness.

Perhaps no other area of settlements offers the potential, but at the same time greater frustration, then non-qualified annuities as the market is huge, but clearly the brokers do not have the ability to sell into it with the current people, resources and support.

Another part of this weeks discussion is on the difference between marketing and sales and the failure of the settlement profession and the firms that dominate it to build coherent marketing plans, organizations and to fund them appropriately. As we enter a phase that should be a huge selling opportunity for tax free fixed income, the relative weakness of the marketing programs in place continues to inhibit growth in the profession.

Watch for part three of this discussion next week, here on Speaking of Settlements.

On the brink?

LIMRA reported that sales of life insurance are down 23% year to date for the biggest six month decline since 1942. Structured settlements have had the worst 2 quarter performance in over 25 years and if you talk to anyone in the business they will tell you that starting in January of 2009 that buyers have simply vanished for entire lines of business, relative to past trends and experience. In general it is beyond dispute by anyone in the financial services, life insurance, annuity or structured settlement business that for the vast majority of agents and brokers this has been a very rough year with little hope for improvement.

So, what do we take from this and where do we go next as a profession?

I was reminded in a conversation with an associate the other day of a lesson I learned very early in my professional life. That being that the seeds of our destruction, or that of a great company or profession, are usually not sewn in hard times, but during the greatest period of prosperity and success. I was relating to him the story of when I was a young manager in the home office of New England Mutual Life back in the early 1980s that the company was selling a ton of whole life, riding the stock market boom and the division I was in had gone through a huge transition from a paper back office, to one that was fully automated and cross trained. The result of which was the company was rolling in cash and with the automation, I found that I had 5 open slots in my division that were empty due to the ability of less staff to do more work.

I was called into the VP's office and asked about the openings, at which time I said, well we really don't need them, in fact I could cut 3 or 4 more by attrition and still get the job done and save the division over $150,000 in salary. He looked at me and said something I never forgot. " Mr. Wahlstrom, in the corporate world, people are power. The more people you have, the more power you have. Now I don't care if they make paper airplanes all day, you fill those slots by next Friday or you'll be the one looking for a job." I, being a pragmatic guy filled the slots, but shortly thereafter started my structured settlement business as it was clear to me I was never going to be cut out for corporate life, and then as you might expect, a few years later New England Life ran into huge capital and operating issues due to it's bloated over head and stagnant sales, and was merged with Met Life and is essentially no more, the end of a really great company.

I relate that story as I watched with amazement the life insurance and financial industry over the last 10 to 15 years turn certain departments or divisions into fiefdoms that sucked up policyholder or shareholder money and then used it for travel, entertainment, marketing and salaries that stunned me as a businessman, as I could see how little value it often provided to anyone other then the lucky few who had the expense account access. That largess and the big budgets in turn led to the structured settlement profession feeling they were entitled to "marketing support" from various life companies, something I also fell into the trap of at various times, with the result being an unhealthy reliance and Alliance between brokers and agents who should have doing the best for their clients, but instead felt more obliged to "send premium back home" to their benefactors.

It only took one phone call from a life market that had provided some marketing assistance, reminding me that I "owed them some premium" ( even when their rates were the worst in the market ) for me to end the practice permanently of accepting any form of assistance or marketing support from any life company ever again to promote structured settlements. To me, taking life company money to promote your firm is akin to taking money from the government or a foundation to run your company. It comes with strings that ultimately pressure you to do things that may not be in you or your clients best interest and you should avoid it like the plague.

So what does this have to do with the title of this post?

Simple, we are now seeing the humbling of not only many major life companies and the divisions inside them who thought they were marketing geniuses, but who in fact were really just riding a historic capital market boom and asset management surge. We are also seeing that same humbling of the brokers, agents and settlement professionals who considered marketing to be playing golf, buying lunch and waiting by the fax machine for the next case to show up. Much of that "marketing money" and genius turned out to be squandered with awareness of our products, respect for our profession and the need for our services at an all time low, relative to the tools at hand to effectively market in this new age world. It's not debatable, the numbers show it, and if people would just be honest we'd come to grips with the fact that what we did to get us here sewed the seeds of the measly harvest we are enjoying today. There were a lot of golf tournaments, campaign fund raisers, contributions to trial lawyer groups, crazy marketing schemes and alliances that may have been well intentioned, but were not followed up with the hard work of real marketing of converting prospects to clients.

A lot of people ask why I work so hard on my blogging, broadcasting and building The Legal Broadcast Network. The answer is pretty simple. I've had people at every stage over the last five years who wanted to "help" LBN, but were really into either riding our coat tails, stealing an idea, milking the start up or sponsorship money and claiming some degree of "ownership" for their perceived contribution. While LBN is building to be a true success, the fact is it "failed" on about 4 separate occasions as people stole our idea, stabbed us in the back, over billed for services to extract every sponsorship dollar they knew we had, tried to hijack our technology or simply worked to ride our coat tails to success. I don't believe in failure, as you only fail when you fail to get up after life or someone has knocked you down. I have worked this hard on the project as it's part of my character to be relentlesslly stubborn, but also because it honors those who HAVE supported us, invested with us, grown with us and to do less would be to dishonor their belief in what we have told them we intend to build. Someday i'll write the history of what it took to build LBN and you will be amazed that we are now a solid development phase company with over 1 million views, listens and reads per month and growing at 30% per month and operating in the black with out taking a dime of life insurance company money.

I relate this as I believe the Structured Settlement profession is also now in one of those times where it has been knocked down, times are tough, the business model is changing and a lot of people are waiting for someone "to do something". Coming off the plateau of success, easy money, easy marketing and prosperity is never easy, but I and others are convinced we are about to see the greatest period of growth and prosperity for the profession since it's inception. So what in my opinion is it going to take for professionals to succeed?

1. Get off the golf course, cut back on the vacation time, dig in and get to work. No one promised us a perpetual monopoly on our product or that markets and perceptions wouldn't change. It's going to take some hard work, working smarter and really MARKETING instead of just selling. ( Thank you Randy Dyer for pointing out that distinction.)

2. Create a marketing plan. Get real about your numbers, sales, assets and prospects and get started talking to trial lawyers, self insureds, small mutual and casualty companies, many of whom do not have a settlement professional who even attempts to get their business. If you don't have a marketing plan or can't hire someone to help you create one, your going to have a tough time in the next 5 years.

3. Expand your vision and markets. Non-qualified annuities, structured legal fees, structured sales, litigation consulting, Medicaid and workers comp, all offer huge opportunities. Prepare to educate yourself and add some product lines to your marketing plan.

4. Go back to what you know works. Those of us who started in life insurance know the 10-3-1 ratio. Ten phone calls, gets you 3 appointments and generates one sale. It has always been and will always be about that ratio. Use what worked in the past and start calling and contacting new prospects.

5. Stop being so intimidated by new media. The world is moving to search engines, social networks, online broadcast and education. Learn it, get involved or get left behind.

In short, take this opportunity and tough environment to get rid of old bad habits and practices and reinvent your professional practice. The demand for tax free, guaranteed, life time income will never be greater then in the next 5 to 10 years. It's time to get started building for the future.