Beyond Structured Settlements

Uniform Fiduciary Standard

What impact will a new uniform fiduciary standard, being developed by the Securities and Exchange Commission (SEC) as one result of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), have upon existing structured settlement and settlement planning business models and practices?

Dodd-Frank

Among other reforms, Dodd-Frank created the Consumer Financial Protection Bureau  (CRPB) and the Federal Insurance Office (FIO). CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....."

In addition to creating the CFPB and the FIO, Dodd-Frank directed the SEC to study the need for a new, uniform, federal fiduciary standard of care for broker-dealers and investment advisers and to apply such a uniform standard if it deemed necessary. The SEC:

• Released its fiduciary standard study in January 2011.
• Concluded that a uniform standard of care “at least as stringent” as the fiduciary standard currently applied to investment advisors should extend to all brokers, dealers and investment advisors.
• Is expected to release its proposed regulation for a uniform fiduciary standard this year.

Historically, brokers, dealers and insurance producers have been held to a "product suitability" standard which is less stringent than a fiduciary standard. As defined at uslegal.com, "[A] fiduciary duty is an obligation to act in the best interest of another party..... A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client." (emphasis added)

NAIC Annuity Suitability Regulation

For comparison purposes, the NAIC "Suitability in Annuity Transactions Model Regulation" (Suitability Regulation) provides: "In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the insurance producer, or the insurer where no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to his or her investments or other insurance products and as to his or her financial situation and needs, including the consumer's suitability information ..." (emphasis added)

The NAIC Suitability Regulation defines "suitability information" to include: age; annual income; financial situation and needs, including financial resources used for the funding of the annuity; financial experience; financial objectives; intended use of the annuity; financial time horizon; existing assets, including investment and life insurance holdings; liquidity needs; liquid net worth; risk tolerance; and tax status.

Significantly for structured settlements, however, the NAIC Suitability Regulation exempts "settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process". By way of explanation, the legislative history of the NAIC Suitability Regulation specifically references "structured settlements" and adds: "[a] regulator pointed out that this type of contract did not generally result from a recommendation by an insurer or producer but agreed that it did not hurt to have the exemption there."

Impact on Insurance Professionals

Although the SEC's anticipated uniform fiduciary standard has received limited publicity within the structured settlement and settlement planning industries, it has generated significant controversy and disagreement among financial planners, broker dealers and life insurance professionals.

A recent article by Brian Anderson titled "Impact of a Universal Fiduciary Standard" looks at the related issues from the perspective of "insurance producers". Part of a series of articles about threats to the independent life insurance distribution channel, Anderson's article includes the following summary of arguments for and against a universal fiduciary standard:

• "Proponents of a universal fiduciary standard — including many financial planner and consumer groups — claim consumers who rely on the financial advice of experts are confused by the different standards of care. These consumers are at an information disadvantage, they say, and vulnerable to exploitation by advisors who are not required to make recommendations in the best interest of the customer."
• "Opponents of a fiduciary standard — including many life insurance industry trade associations — say a universal fiduciary standard is unnecessary because the current suitability standard is effective. Opponents also say the imposition of a universal fiduciary standard would result in higher costs and reduced choices and service for consumers."

Some life insurance representatives have expressed concern, according to Anderson's article, that the anticipated SEC fiduciary standard could potentially ban commission-based compensation for insurance product sales and thereby destroy the traditional life insurance business model.

Others disagree. Anderson quotes Jill Hoffman, NAIFA assistant vice president of federal government relations, as stating: “The language of Dodd-Frank specifically says that a fiduciary standard can be met, and a person can still receive commissions, and a person can still sell proprietary products. In other words, the language says you cannot violate a fiduciary standard just because you sell proprietary products and get paid commission.”

Structured Settlements and Settlement Planning

Will the SEC uniform fiduciary standard impact settlement planners and structured settlement professionals? Here are some reasons why leading settlement planners and structured settlement professionals should study, and anticipate the need to adopt, whatever uniform fiduciary standard the SEC ultimately adopts:

• Blended products - Structured settlement annuities increasingly are paid into trusts that also include financial products.
• Multiple licenses - In addition to structured settlement annuities, settlement planners increasingly sell securities as well as multiple life insurance and annuity products.
• Competition - To successfully compete in today's economic and legal environment, structured settlement sales persons must adjust upward to match the higher product suitability standards and best business practices of their competitors including settlement planners, financial planners and trustees.
• Clients and Stakeholders - As a matter of self-protection as well as consumer protection, many structured settlement clients (defendants; plaintiff attorneys) and stakeholders ( judges; mediators) will increasingly demand higher product and sales standards for injury victims.
• Lawsuits - In this era of accountability and compliance, all structured settlement participants are likely to be held to higher legal standards.

What issues might a uniform fiduciary standard create for structured settlement and settlement planning professionals? At their worst, as S2KM has previously observed, certain traditional structured settlement business practices fail to meet any fiduciary standard. For example:

• Misrepresentations or omission of material facts
  • Cost or Value - From a claimant's perspective, a core strategy for traditional structured settlements often appears "to make a little money look like a lot of money". The Spencer v. Hartford class action allegations outline one "sophisticated" variation of this strategy which often depends on hiding or misrepresenting annuity "cost" and/or settlement "value".
  • Guaranteed payments - Many structured settlement sales brochures continue to promise "guaranteed payments" without specifying who guarantees what if and when an annuity provider like Executive Life of New York (ELNY) becomes insolvent.
  • Managed account - Many structured settlement recipients do not understand important product details when their case is settled including how structured settlements differ from managed accounts and why they cannot access funds without court approval pursuant to state structured settlement protection acts.
  • Structured settlement myths- historically used to promote sales such as:
    • Studies show that nine out of 10 lump sum recipients squander the entire amount within five years.
    • Structured settlements enable injury victims to live free of reliance on government assistance.
• Conflicts of interest - without written, informed client and/or customer consent
  • Single product - The danger of single product structured settlement sales persons is not limited to whether his or her product is in the "best interest" of a particular claimant/customer. The danger is also that single product sales persons are inherently conflicted in recommending how much of any settlement should be allocated to their product.
  • Multiple roles - A structured settlement sales person introduced into a case by a defendant or liability insurer frequently plays four separate roles each of which potentially conflicts with the other roles: agent for the annuity provider; broker for the defendant; broker for the plaintiff; and agent for the defendant in helping to negotiate and settle the case.
  • Compensation sharing - Unless all parties to a settlement are informed about whether and how structured settlement annuity commissions are shared, a structured settlement creates a variety of potential conflicts of interest.
  • Funding alternatives - Based upon traditional structured settlement business and compensation models, the potential availability and applicability of 468B qualified settlement funds for "appropriate cases" creates inherent conflicts of interest between defendants and their structured settlement brokers.

For additional S2KM reporting about structured settlement business standards and practices, see the structured settlement wiki.

Settlement Planning 2012 Conferences

During the past two months, S2KM attended and reviewed three national conferences that featured settlement planning issues:

• ASNP 2012 Annual Meeting
• Risk Settlement Planning Practicum - see also: Structured Settlements and Settlement Planning
• SSP 2012 Annual Meeting
  • Part 1
  • Part 2

 In addition to many technical and product presentations (identified and/or summarized in the above links), what did attendees learn about fundamental settlement planning issues?  And what fundamental issues still need to be addressed more directly at future conferences before settlement planning becomes a recognized profession?

Definitions - Three conference participants offered definitions for "settlement planning" and/or "settlement planner":

• Joseph Tombs - "Settlement planning is a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life. Settlement planners represent a blend of several professionals: part tax lawyer, trial lawyer, special needs lawyer, financial planner, annuity specialist, social worker, and medical case worker."
• Timothy Morbach - "Settlement planning requires due diligence and informed consent. In that context, settlement planning provides a framework within which settlement stakeholders are able to craft case-specific terms and conditions, legal documents, financial instruments, plus related work product, to resolve claims and achieve safe harbor reflecting their respective best interests."
• Patrick Hindert - "The primary difference between special needs planning and settlement planning is that special needs planning includes clients whose disabilities result from many causes including but not limited to personal injury or workers compensation accidents."
• Note - "Rule 1: Terminology" in the SSP Standards of Professional Conduct provides multiple definitions related to settlement planning including the following for "settlement planner": "a representative who provides advice and other services to a person participating in the design, negotiation or implementation of a settlement or satisfaction of judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation. A settlement planner may represent a plaintiff, a defendant, an insurer, a guardian ad litem, an heir of a claimant, an attorney or another person participating in the settlement process."

Emergent Profession - Several conference speakers who discussed settlement planning from a structured settlement perspective described settlement planning as a larger and more complex successor business and profession:

• Joseph DiGangi - "Today we find our industry at a crossroad. In order to move forward, our only choice is to build great business models around the planning first approach. Settlement planning represents a needs-based consultative business model based on benefits, not products."
• Joseph Tombs - "Selling structures is easy. Expectations are low. Any primate can run quote software. A fixed annuity is one of the most simple financial products in the world. We are building a new profession that requires constant education and practice standards. Settlement planning increases expectations and potential liabilities. The more we study and practice settlement planning, the more we realize its complexity and understand its challenges."
• Charles Schell - "The Claims Management model benefits the settlement planning industry and Settlement Planners should acknowledge the benefits which include product marketing and continued protection of IRC sections 104(a)(2) and 130. Concurrently, defense brokers should recognize the benefits of collaborating, rather than competing, with Settlement Planners. These benefits include access to and trust of the customer, an awareness of financial needs and family issues plus multi-product financial solutions that feature structured settlements and enhance their sale."
• Jack Meligan - "SSP and its members have been promoting the practice of Settlement Planning as a more comprehensive solution for the financial issues facing personal injury victims and their families, and the profession of Settlement Planning as the next evolutionary step for members of the financial and legal communities that serve these injured Americans."
• Patrick Hindert - "The structured settlement business models that seem "normal" today began with a choice that made sense in the late 1970s and early 1980s. They have survived despite changes impacting the justification for that choice. Settlement planning is an emergent system in which many different elements interact. Settlement planning is producing a new business model that is influencing all of its constituent elements including structured settlements."

Multi-Professional - The professional backgrounds of conference participants provides some indication of an emerging community of professional practice and its collective knowledge base:

• Special Needs Attorneys - Michele Fuller, David Lillisand; Kevin Urbatsch; Rene Reixach; Jason Lazarus; Annette Hines; Linda Brown; Vincent Russo; Michael Amoruso; Harry Margolis.
• Tax attorneys - Robert Wood; Jeremy Babener; David Higgins.
• Miscellaneous attorneys - Professor Carl Pierce; Richard Risk; Daniel Hindert; Patrick Hindert; Karen Meyers; Mark Popolizio; Steve Riley.
• Settlement Trustees - Travis Finchum; Frank Maguire; Christi Fried; Wesley Cosgriff; James Creel.
• Financial and insurance professionals - Jack Meligan; Charles Schell; Joseph Tombs; Joseph DiGangi; Mark Wahlstrom; Mal Deener; Timothy Morbach; John Woolway; Robert Noack; Paul Hansen; Major General James W. Comstock; Anthony Prieto; Robert Birney; Jerry Hulick.
• Medicare Set-Aside Specialist - Douglas Shaw.
• Lien Resolution Specialist - Daniel Alverez.
• Note: none of the conferences featured guardian ad litems, life care planners or damage allocators as speakers.

Unanswered Questions - From S2KM's perspective, future settlement planning conferences need to more directly address the following issues:

• How large is the United States settlement planning market?
• Who comprises (and selects) the settlement planning team?
• What criteria and process (e.g. request for proposal) are appropriate for selecting members of the settlement planning team?
• What professional licenses and certifications are applicable?
• What primary laws and regulations apply to settlement planning?
• What work product does each settlement planning team member provide?
• Who integrates their individual work product into a settlement plan - and how?
• When is a settlement plan appropriate?
• What are the standard components of a settlement plan?
• What are the product suitability and disclosure standards for settlement planning?
• What does a settlement plan cost?
• What other metrics (besides cost) are appropriate for evaluating the success of a settlement plan?
• How are settlement planning team members compensated?
• What alternative compensation methods and/or business models would allow settlement planning to become more efficient and/or reduce costs?
• Once implemented, who has responsibility to monitor and/or amend the settlement plan?
• What are the Defendant’s responsibilities and duties in settlement planning?

For professionals and product providers interested in learning more about settlement planning, see:

• The Society of Settlement Planners (SSP) website.
• The Registry of Settlement Planners (RSP) website
• The structured settlement wiki - settlement planning page

SSP 2012 Annual Meeting - 2

Charles Schell, incoming President of the Society of Settlement Planners (SSP), concluded the SSP 2012 Annual Meeting by communicating his thoughts for improving the settlement planning market and expanding its core structured settlement annuity product. In his remarks, Schell addressed alternative business models and challenged participants in both models to collaborate to improve business standards and practices.

What follows is a summary of Schell's SSP comments.

Alternative business models

"Structure brokers under the traditional Claims Management model have the advantage of access to claims adjusters. However, their single-product sale is frequently dismissed by injury victims and their families for many reasons including low interest rates, lack of liquidity and the defense brokers' ties to the defendant. As a result, many injury victims and their families make uninformed decisions or resent the limited financial options presented at the time of settlement.

"In contrast, injury victims and their families generally welcome Settlement Planners into their homes as trusted advisers because they are recommended by plaintiffs' attorneys. By introducing a menu of insurance and financial products and providers, Settlement Planners promote education and information sharing. They encourage the injury victim and his/her family to actively participate in the planning process. From my personal experience, more information equals more structured settlement annuities because the product is generally right in every case at some level of participation as one asset class.

"The Claims Management model benefits the settlement planning industry and Settlement Planners should acknowledge the benefits which include product marketing and continued protection of IRC sections 104(a)(2) and 130. Concurrently, defense brokers should recognize the benefits of collaborating, rather than competing, with Settlement Planners. These benefits include access to and trust of the customer, an awareness of financial needs and family issues plus multi-product financial solutions that feature structured settlements and enhance their sale.

Business standards and practices

"To grow the structured settlement market, both Settlement Planners and traditional Claim Management structured settlement practitioners must improve their business standards and practices. To do so, we must understand, embrace and promote full disclosure, product suitability standards and written, informed consent. Our disclosure practices should include compensation and conflicts of interest. Our product suitability standards should satisfy a fiduciary and/or "best interest" test. We should insist that our customers understand, and acknowledge their understanding of, our proposed products and settlement plans by signing a written informed consent form.

"Rather than complain about secondary market business practices, primary market stakeholders should take direct actions to improve the secondary market. First, by adopting our own "best interest" or fiduciary suitability standards, the primary structured settlement market can improve settlement planning. The result will be fewer cases that are "over-structured" and subsequently require structured settlement recipients to sell payment rights to obtain needed liquidity.

"Second, we can improve the secondary market by promoting one simple, best practice from the primary market - multiple quotes. Unfortunately, single quote transfers remain a common practice within the structured settlement secondary market resulting in unnecessarily high discount rates. By educating and encouraging judges to require multiple quotes as a necessary condition for meeting the "best interest" test, the primary market can help produce an important and immediate secondary market improvement.

"To summarize: my proposed strategy to improve and grow both the structured settlement and settlement planning markets:

• "Study and improve our business standards and practices.
• "Develop "customer centric" solutions that help injury victims.
• "Build collaborative business models by focusing on shared interests."

Acknowledgement: In addition to serving as SSP's President, Charles Schell is a founding partner of Forge Consulting. Forge is also an owner of The Settlement Service Group (TSSG) for which Patrick Hindert, S2KM's blog author, serves as Managing Director.

For additional S2KM reporting about the Society of Settlement Planners, see the structured settlement wiki.

Alternative Business Models

The future of structured settlements depends upon which of two alternative business models ultimately prevails - the traditional (defense-controlled) claim management model or the emerging (claimant centric) settlement planning model. (Note: see Addendum).

The Claim Management Model

The claim management business model was developed by members of the National Structured Settlement Trade Association (NSSTA), which is hosting its 2012 Annual Meeting this week in Washington, D.C. The claim management model has dominated the United States structured settlement industry since the enactment of the Periodic Payment Settlement Act in 1982. Its general characteristics:

• Defense control resulting from defense funding;
• Defense-approved lists of annuity providers and brokers;
• Proactive case identification and negotiation participation by defendants designed to sell structured settlements;
• De minimus regulation of sales conduct resulting in a lack of:
  • Disclosure - of compensation sharing and/or conflicts of interest;
  • Product suitability standards; and/or
  • Informed written consent by structured settlement recipients.
• Political and case-specific opposition to single claimant 468B qualified settlement funds (QSFs);
• A hostile view of the secondary structured settlement market.

The business justification for the claim management business model for defendants and liability insurers:

• Reduce claim costs by utilizing structured settlements; and
• Protect themselves from future risks by utilizing qualified assignments.

The traditional cost/risk analysis of the claim management model, however, does not adequately consider the impact on defendants of:

• Negotiating and defending damages using structured settlements funded with historically low interest rates;
• The added claim management costs specifically resulting from review of structured settlement-related file documentation;
• Potential accountability and liability resulting from:
  • Increasing legislative and regulatory protection for consumers and investors;
  • Defendant status as deep pocket originators of long-term payment promises with complex life-cycles;
  • Sales activities by defendant employees, attorneys and agents without qualified compliance supervision.

The Settlement Planning Model

As defendants and liability insurers re-think the traditional claim management structured settlement model, they should also investigate (for their own self-interest) an emerging, alternative structured settlement business model - the settlement planning model.

What is settlement planning? Joseph Tombs, a former President of the Society of Settlement Planners (SSP) and co-founder of the Registered Settlement Planner (RSP) program, defines settlement planning as "... a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life."

What is a settlement planner? The SSP Standards of Professional Conduct define "settlement planner" as "... a representative who provides advice and other services to a person participating in the design, negotiation or implementation of a settlement or satisfaction of judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation."

Although:

• The SSP Standards recognizes that "a settlement planners may represent a plaintiff, a defendant, an insurer, a guardian ad litem, an heir of the claimant, an attorney or another person participating in the settlement services", settlement planning is more "claimant centric" than the claim management model and involves a commensurate reallocation of responsibilities and risks away from defendants and liability insurers.
• Not dependent upon QSFs, the settlement planning model recognizes that QSFs provide important advantages and protections for plaintiffs and defendants.
• Product neutral, the settlement planning model recognizes structured settlement represents a core settlement planning tool that combines relatively low investment and dissipation risks.

The basic characteristics of the settlement planning model and professional, as outlined by Joseph DiGangi at the NSSTA 2009 Winter Meeting:

• Planning orientation
• Solutions before products
• Blended products and services
• Product neutrality
• Disclosure and informed consent
• Professional training and designations
• Comprehensive skill sets and knowledge base

From a claimant centric perspective, the settlement planning process includes five stages:

• Needs assessment
• Design
• Negotiation
• Implementation
• Monitoring

 Multiple professional associations and 2012 conferences are now studying various components and issues related to the settlement planning business model:

• The Academy of Special Needs Planners (ASNP) - S2KM attended and reviewed the ASNP 2012 Annual Meeting.
• Risk Settlement Planning Practicum - Hosted by the University of Tulsa Law School, S2KM reviewed this settlement planning conference whose presenters included Patrick Hindert, S2KM's primary blog author. Hindert spoke about the "History of Structured Settlements" and provided a schematic analysis of the structured settlement business cycle.
• Society of Settlement Planners (SSP) - S2KM will attend and review the SSP 2012 Annual Meeting April 30 - May 1 in Las Vegas. Among the presenters, Hindert will address "Settlement Planning Business Models: the Defense Perspective"

ADDENDUM (April 26, 2012): After reading S2KM's blog post, Charles Schell, President-Elect of SSP, asked the following question (which Schell promised to address at the SSP Annual Meeting): "Is it necessary for one or the other business model to prevail or could each side benefit by recognizing the role of the other?"

For additional information about settlement planning (aka settlement consulting or special needs settlement planning), see the structured settlement wiki.

S2P2J Release 51

Publisher Law Journal Press anticipates an April 2012 distribution date for hardcopy supplements for Release 51 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Online S2P2J will also be updated April 2012 to include Release 51 materials. First published in 1986, S2P2J is co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 51 Highlights

Release 51 for "Structured Settlements and Periodic Payment Judgments" features a comprehensive Executive Life update including expanded and updated coverage for the Executive Life of New York (ELNY) liquidation proceedings now in progress. In related reporting, Release 51 also:

• Expands and updates prior reporting for life insurance insolvency procedures and state guaranty association laws;
• Offers advice to plaintiff attorneys about how to address the risk of non-payment by annuity providers; and
• Summarizes recent case developments impacting Aurora, the successor company to Executive Life Insurance Company of California (ELIC),

Release 51 also updates Medicare Secondary Payer (MSP) developments and conditional Medicare payment requirements. Contributing author Peter H. Wayne IV provides current analysis and advice about Medicare Set-Aside (MSA) arrangements in liability cases discussing new and related case law, new CMS pronouncements and new CMS field office guidance with practice tips for structured settlement and settlement planning consultants, attorneys and claim supervisors.

Release 51 expands existing coverage of structured settlement business standards and practices including analysis of the following legislation impacting settlement planners:

• The NAIC Suitability in Annuity Transactions Model Regulation;
• The NAIC Annuity Disclosure Model Regulation;
• Dodd-Frank's impact on fiduciary and suitability standards; and
• The Uniform Prudent Investor Act.

Other topics addressed in Release 51:

• Structured settlement metrics for defendants and liability insurers.
• The Treasury's final regulations for IRC section 104(a)(2) incorporating amendments resulting from the Small Business Job Protection Act of 1996.
• The new IRS Lawsuits, Awards and Settlements Audit Techniques Guide.

"Structured Settlements and Periodic Payment Judgments" is now available in both hardcopy and online versions. For summaries of prior Release Highlights, see the structured settlement wiki.

ELNY Liquidation Hearing - 4

The Executive Life of New York (ELNY) Liquidation Hearing enters its seventh day today before Judge John M. Galasso in Room 35 of the Nassau County State Supreme Court Building in Mineola, New York. This blog post provides a summary update for S2KM readers. Note: see also the Addendum.

Days 1 and 2 - Attorneys for ELNY's Receiver, the Superintendent of the New York State Department of Financial Services (Superintendent), and the National Organization of Life and Health Guaranty Associations (NOLHGA) present their case for ELNY's liquidation and approval of a proposed Restructuring Agreement to create successor company Guaranty Association Benefits Company (GABC). They present two witnesses: Jonathan Bing, Special Deputy Superintendent of the New York Liquidation Bureau (NYLB), and expert witness Jack Gibson, a Managing Director of Towers Watson.

Attorneys for ELNY structured settlement shortfall victims cross examine Bing and begin their cross-examination of Gibson. Before the Superintendent's attorneys complete their case, Judge Galasso allows ELNY structured settlement shortfall victims attending the hearing to offer oral testimony as an accommodation to their travel schedules.

Day 3 - Attorneys for ELNY structured settlement shortfall victims continue their cross examination of Gibson. Judge Galasso denies their motion to compel immediate disclosure of source materials relied upon by Gibson as well as copies of all objections filed in connection with the Petition to liquidate and restructure ELNY.

Attorneys for the shortfall victims had argued that claims of confidentiality by the Superintendent intentionally deprived their clients of full and fair access to important and relevant information and, accordingly, a full and fair opportunity to challenge the Superintendent's proposed ELNY Restructuring Agreement. They also claimed it is "extremely prejudicial" to require them to cross-examine Gibson ("a highly skilled actuary") without access to the source data and assumptions he used to perform his calculations.

Day 4 - Attorneys representing ELNY structured settlement shortfall victims continue cross-examining Gibson. Judge Galasso agrees to two of their requests: a reservation of rights to call a witness representing NOLHGA to testify about participating Guaranty Association (PGA) coverage amounts and issues; and a Microsoft Excel version of Schedule 1.15 of the proposed ELNY Restructuring Agreement. In addition to Day 2 testimony from ELNY structured settlement shortfall victims, their attorneys have also entered documents into the Court record including:

• Written and oral statements by ELNY structured settlement shortfall victims;
• A Society of Actuaries Structured Settlement Mortality Study;
• An article titled "The Trouble with ELNY" written by Peter Bickford.

Day 5 - Attorneys from Hogan Lovells, representing Travelers Insurance Company as an "Objector", use their opportunity to cross-examine Gibson to show their support for the proposed Restructuring Agreement. Note: Hogan Lovells also serves as General Counsel for the National Structured Settlement Trade Association (NSSTA).

Cynthia Lindsey, an attorney representing a Michigan structured settlement shortfall victim, reaches the opposite conclusion during her cross examination of Gibson. After quoting dictionary definitions for "fair" and "just", Lindsey characterizes the proposed Restructuring Agreement as "a bunch of bull" telling Gibson: "You are asking this Honorable Court to approve this plan based upon your assumptions. You don't have facts." After repeated questioning by Lindsey, Gibson acknowledges NOLHGA has paid Gibson's employer, Towers Watson, "more than $3 million" since 2006 for their ELNY consulting work.

On re-direct examination, attorneys for the Superintendent (Sidley Austin) and NOLHGA (Faegre Baker Daniels) encourage Gibson to repeat claims from his earlier testimony that the proposed ELNY Restructuring Agreement represents the "best plan" and that none of the ELNY payees will be worse off compared with a straight liquidation.

Day 6 - Edward Stone, an attorney representing several structured settlement shortfall victims, continues questioning Gibson on re-cross examination. Stone questions whether all shortfall victims will be better off under the proposed Restructuring Agreement compared with a straight liquidation. In a straight liquidation, ELNY shortfall victims could receive full coverage payments from PGAs instead of net payments under the proposed Restructuring Agreement. Stone also introduces the idea of an alternative restructuring plan for ELNY and asks Gibson whether he considered various plan options.

Among Stone's suggested alternatives: 1) discounting ELNY's future deferred lump sum obligations to reduce ELNY's future liabilities and provide immediate cash for ELNY payees; and 2) selling ELNY to an existing life insurance company that could benefit from (and pay a premium for) ELNY's net operating loss carryforwards. Note: in an earlier interview with the Courthouse News Service, Stone stated he could develop a more "fair and equitable" alternative ELNY restructuring plan if he had access to the same information provided NOLHGA and Gibson since 2006.

When Gibson finally steps down (after six days of testimony and cross-examination), attorneys for the Superintendent and NOLHGA call NOLHGA's President, Peter Gallanis as a witness. On cross-examination, Carrie Tendler, an attorney representing multiple structured settlement shortfall victims, gets Gallanis to confirm that PGA contributions under the Superintendent's proposed Restructuring Agreement will be "net amounts" - i.e. their full coverage caps minus credits for current ELNY assets.

The ELNY Liquidation Hearing resumes Friday March 23, 2012 with Tendler continuing her cross-examination of Gallanis. For S2KM's complete reporting about ELNY, see the structured settlement wiki.

Day 7 ADDENDUM - Testimony by, and cross-examination of, NOLHGA's President Peter Gallanis continued on Friday March 23 eliciting the following information: Gallanis acknowleged GABC has not yet selected an investment manager or developed an investment strategy. Attorneys for structured settlement shortfall victims raised two issues related to the proposed ELNY Restructuring Agreement:

• Orphan contract enhancements create a potential public policy issue because they shift available funds that could be paid to other ELNY shortfall payees.
• If an ELNY structured settlement payee with life contingent payments dies, that payee could receive less than the present value posted on Schedule 1.15 creating a potential legal claim for his/her estate.

The ELNY Hearing continues on Monday March 26 with attorneys for the ELNY structured settlement shortfall victims expected to present witnesses.

ELNY Liquidation Hearing - 2

Presiding Judge John M. Galasso today denied a motion filed on behalf of Executive Life of New York (ELNY) structured settlement shortfall victims to compel immediate disclosure of source materials relied upon by testifying expert Jack Gibson as well as copies of all objections filed in connection with the Petition to liquidate and restructure ELNY.

Attorneys for the structured settlement shortfall victims had argued that claims of confidentiality by ELNY's Receiver, the Superintendent of the New York State Department of Financial Services, (Superintendent) intentionally deprived their clients of full and fair access to important and relevant information and, accordingly, a full and fair opportunity to challenge the Superintendent's proposed ELNY Restructuring Agreement.

Gibson, the Superintendent's expert witness, had earlier testified that an ELNY annuity administrative database prepared by MetLife had formed the sole basis for his projections regarding ELNY's future liabilities which, under the proposed Restructuring Agreement, would become liabilities of successor company Guaranty Association Benefits Company (GABC).

In addition to the MetLife database, attorneys for the ELNY structured settlement shortfall victims unsuccessfully sought disclosure of other documents relied upon by Gibson including an ELNY 2002-2010 Mortality Experience Study, a MetLife/ELNY Administrative Agreement, Investment Reports from ELNY's Investment Managers, plus information developed by NOLHGA showing Guaranty Association estimates and allocations for individual annuity contracts.

Neither the ELNY structured settlement shortfall victims nor their attorneys have had access to any of these materials which Gibson relied upon to conclude that GABC is financially viable. The ELNY structured settlement shortfall victims' attorneys claimed it is "extremely prejudicial" to require them to cross-examine Gibson ("a highly skilled actuary") without access to the source data and assumptions he used to perform his calculations.

In addition to Gibson's source materials, the ELNY structured settlement shortfall victims' motion also sought to compel the Superintendent to make accessible all publicly filed court documents including especially the Objections filed by all objectors.

Despite references to various objections in the Superintendent's Reply Memorandum and Jonathan Bing's Affidavit and testimony, the Superintendent has refused to share copies with the ELNY structured settlement shortfall victims or their attorneys. In contrast, the Superintendent has shared the full set of Objections with the National Organization of Life and Health Guaranty Associations (NOLHGA) and the Life Insurance Company Guaranty Corporation of New York (LICGCNY).

To address the Superintendent's claimed concerns of confidentiality, attorneys for the ELNY structured settlement shortfall victims offered to accept redacted versions of the documents or enter into a confidentiality agreement. Challenging the Superintendent's claimed concerns of confidentiality, attorneys for the ELNY structured settlement shortfall victims alleged the Superintendent's true motive is to deprive the ELNY structured settlement shortfall victims a full and fair opportunity to challenge the proposed ELNY Restructuring Agreement.

The ELNY Liquidation Hearing will reconvene Tuesday March 20, 2012 with attorneys for the ELNY structured settlement shortfall victims continuing their cross-examination of Gibson. For S2KM's complete reporting about the ELNY liquidation, see the structured settlement wiki.

SNTs and Structured Settlements

With declining annuity premium and historically low interest rates, structured settlement stakeholders should be discussing how to improve and grow their business. By substantially expanding Medicaid, Federal health care reform potentially increases the market for structured settlement annuities used to fund special needs trusts (SNTs).

Congress created special needs trusts (self-settled; pooled; and third party) as part of the Omnibus Budget Reconciliation Act of 1993. When properly designed and administered, special needs trusts can receive settlement proceeds, including structured settlement payments, without disqualifying the trust beneficiary from SSI or Medicaid.

Whether a special needs trust is advisable in a specific case requires analysis of many factors including the extent of disability, the availability of government benefits, as well as the nature and amount of available personal and family assets. One complicating factor is shared regulatory authority. Medicaid is a joint federal state program. In addition to two federal agencies (SSA and CMS), state Medicaid agencies and state Medicaid plans also provide state-specific rules for special needs trusts. State and county Medicaid case workers interpret and apply federal and state Medicaid laws to individual cases.

The growth of special needs trusts has coincided with a corresponding increase in the number of special needs attorneys. Three national professional associations (ASNP, SNA and NAELA) now exist for special needs attorneys and several legal textbooks have been written about special needs trusts. Most of these textbooks, however, are generic and do not provide detailed state-specific analysis. One exception is a two volume treatise published in 2008 (with updates) by the California CEB titled "Special Needs Trusts: Planning, Drafting and Administration" (CEB SNT). Edited by Kevin Urbatsch, CEB SNT features 17 chapters separately written by leading California special needs attorneys plus detailed appendices with applicable legal forms plus federal and state statutes, regulations, case citations and other references.

Because California represents a large and strategically important state for both structured settlements and special needs trusts, S2KM recently reviewed CEB SNT to evaluate how this legal treatise addresses structured settlements and what opportunities it suggests for improving and growing the national structured settlement market. Most of the structured settlement discussion in CEB SNT appears under a Chapter 8 section titled "Use of Structured Settlements with First Party SNTs" authored by Donna Bradshaw and Leslie Ann Barnett.

Settlement Planning Team

For personal injury cases involving a special needs trust, Bradshaw and Barnett propose a collaborative settlement planning team consisting of a special needs attorney, a structured settlement broker, a SNT trustee, an independent financial planner and a life care planner. Neither Bradshaw and Barnett, nor other CEB SNT authors discuss this proposed planning team in detail. Arguably, such a discussion goes beyond the scope of this CEB SNT treatise.

The concept of a collaborative professional team, however, is critical for settlement planning and the future of structured settlements. Unfortunately, with only a few exceptions (most notably the ASNP 2009 and the SSP 2011 Annual Conferences both of which featured CEB SNT editor Kevin Urbatsch as a speaker), the following issues have to date received insufficient industry discussion:

• What is a settlement plan?
• Who are the necessary team members and what issues should they address?
• What is the settlement planning role, if any, for the plaintiff trial attorney? for the defense structured settlement broker?
• What work product(s) do each of the team members contribute?
• How are the various work products consolidated and by whom?
• How are conflicting recommendations reconciled and by whom?
• What does a settlement plan cost?
• How are the team members compensated and by whom?
• What disclosures should be made to the injury victim?
• What metrics are needed to evaluate the effectiveness of a settlement plan?
• How important are 468B qualified settlement funds for settlement planning?
• Who is liable, and how are damages apportioned, for settlement planning errors and omissions?

Structured Settlements

In the two volume CEB SNT treatise, structured settlements are the only SNT "funding product" that receives detailed coverage. Chapter 8 authors Bradshaw and Barnett justify devoting 12 CEB SNT subsections to "structured settlements" by stating: "special needs planners need to understand how structured settlements work with first party SNTs to best advise personal injury attorneys, persons with disabilities, and their families."

Acknowledging the need to understand how structured settlements work, however, does not mean Bradshaw and Barnett fully endorse structured settlements. To the contrary, they provide several warnings and cautionary notes:

• "Plaintiff's trial attorney may mistakenly believe (or be misled into believing) that a structured settlement annuity is the only effective tool for the major part of the settlement funds."
• "At times a structured settlement is funded for a person with a disability without consideration of the unique needs to that individual."
• "The most common issue is too much cash in the structured settlement and not enough cash outside the structure."
• "It is insufficient to retain just enough cash to purchase a home and a van; there also must be a financial plan to maintain the home and van and consider replacement costs"
• "When a settlement has been funded primarily in a structured settlement annuity, there is little protection from inflation."
• "Annuities purchased in a time of low interest rates are likely to grossly under perform when compared to a well-balanced portfolio of stocks and bonds."
• "If the SNT beneficiary has an emergency or needs cash quickly, the settlement annuity will not advance payments."
• "It is imperative that practitioners insist on a commutation rider whenever there is a possible estate tax situation."
• "Once the structure is funded, [the structured settlement broker's] job is done. It is then left to the SNT trustee and special needs practitioner to work with the structured settlement for the rest of the person with the disability's life."

Without explicitly criticizing structured settlement business standards and practices, these warnings and cautionary notes highlight structured settlement issues S2KM discussed in a recent blog series about "product suitability standards" including the need for full disclosure and informed consent.

Despite 12 CEB SNT subsections discussing structured settlements, Bradshaw and Barnett barely mention three structured settlement-related topics that are important for special needs attorneys:

• Periodic Payment of Judgments - California was the first state to make periodic payment mandatory in certain (medical malpractice) judgments "at the request of either party". Because California's medical malpractice periodic payment statute also influences settlements that include special needs trusts, California special needs attorneys should be familiar with its provisions.
• Structured Settlement Transfers - Structured settlement transfers represent a strategy option for SNT trustees and special needs attorneys to consider if and when they confront some of the potential structured settlement problems Bradshaw and Barnett identify above. California amended its state structured settlement protection statute in 2010 adding factors for the court to consider when determining whether a proposed transfer is fair, reasonable and in the payee's best interest.
• Qualified Settlement Funds (QFS) - Similar to structured settlement transfers, QSFs are controversial within the structured settlement industry. Arguably underused in single event cases, QSFs provide a valuable settlement planning tool that all special needs attorneys should understand and promote.

Conclusion

For a regressive structured settlement industry, first party special needs trusts represent a growing market segment and special needs attorneys provide expanding networks of potential professional allies. Although CEB SNT focuses on California special needs trusts, the subsections discussing structured settlements offer a useful learning resource for all structured settlement stakeholders. Bottom line: the structured settlement industry needs to expand its strategic dialogue with special needs attorneys. The objectives should include better marketing and product feedback plus improved educational programs, business models and business practices.

For additional information about special needs trusts and structured settlements, see the structured settlement wiki and Section 15.04[7] of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

Product Suitability Standards - 4

With declining annuity premium and historically low interest rates, structured settlement stakeholders should be discussing how to improve and grow their business. To help promote this discussion, S2KM's current blog series about "product suitability standards" highlights two fundamental issues rarely addressed during industry educational conferences:

• When is a structured settlement annuity appropriate for a specific physical personal injury claimant?
• What standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

Potential sources for structured settlement product suitability standards discussed in prior S2KM blog posts:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - State minors' statutes and state structured settlement protection statutes.
• Part 3 - The Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

Fiduciary Standard

Among other findings, S2KM's prior review points out a general legislative trend to protect investors and consumers with a more uniform fiduciary, and/or "best interest", standard of care. In general, a fiduciary standard is viewed as the highest legal standard of customer care requiring both a duty of care and a duty of loyalty. A fiduciary is required to act in the best interest of the investor and/or customer and to fully disclose all material facts plus any conflicts of interest. Trustees and investment advisers currently are held to a fiduciary standard which may soon also apply to financial planners and broker dealers. Many state minors' statutes and all state structured settlement protection statutes incorporate "best interest" standards.

Model Annuity Regulations

For some but not all annuity products, the National Association of Insurance Commissioners (NAIC) has created a "Suitability in Annuity Transactions Model Regulation". Significantly, the NAIC Model Suitability Regulation exempts structured settlements and provides less consumer protection than the fiduciary, and/or "best interest" standard. The NAIC has also promulgated an "Annuity Disclosure Model Regulation" "to provide standards for the disclosure of certain minimum information about annuity contracts to protect consumers and foster consumer education." It also exempts structured settlements. The legislative history of the NAIC Model Disclosure Regulation indicates that "[i]nterested parties spoke in favor of an exemption for sophisticated transactions such as ..... structured settlements."

A Hall Pass?

Do these NAIC exemptions mean that structured settlements have been given a "hall pass" for purposes of product suitability requirements? No. If structured structured stakeholders want to improve and grow their business, there are many reasons why they should: 1) understand the meaning and requirements of all three standards (fiduciary duty, best interest, and suitability); and 2) adopt better business practices that address and incorporate one or more of these product standards. Reasons include:

• Blended products - Structured settlement annuities increasingly are paid into trusts (UPIA standard) that also include financial products (Dodd-Frank standard).
• Multiple licenses - In addition to structured settlement annuities, settlement planners increasingly sell securities as well as multiple life insurance and annuity products.
• Competition - To successfully compete in today's economic and legal environment, structured settlement sales persons must adjust upward to match the higher product suitability standards and best business practices of their competitors.
• Clients and Stakeholders - As a matter of self-protection as well as consumer protection, many structured settlement clients (defendants; plaintiff attorneys) and stakeholders ( judges; mediators) will increasingly demand higher product and sales standards for injury victims.
• Lawsuits - In this era of accountability and compliance, all structured settlement participants are likely to be held to higher legal standards.

Three-Card Monte

Why do product suitability standards create issues for the structured settlement industry? At their worst, especially from the perspective of an unrepresented injury victim, some traditional structured settlement business practices not only fall far short of the fiduciary standard - they can resemble a game of "Three-card Monte" .

Misrepresentations or omission of material facts

• Cost or Value - From a claimant's perspective, a core strategy for traditional structured settlements often appears "to make a little money look like a lot of money". The Spencer v. Hartford class action allegations outline one "sophisticated" variation of this strategy which often depends on hiding or misrepresenting annuity "cost" and/or settlement "value".
• Guaranteed payments - Many structured settlement sales brochures continue to promise "guaranteed payments" without specifying who guarantees what if and when an annuity provider like Executive Life of New York (ELNY) becomes insolvent.
• Managed account - Many structured settlement recipients do not understand important product details when their case is settled including how structured settlements differ from managed accounts and why they cannot access funds without court approval pursuant to state structured settlement protection acts.
• Structured settlement myths- historically used to promote sales such as:
  • Studies show that nine out of 10 lump sum recipients squander the entire amount within five years.
  • Structured settlements enable injury victims to live free of reliance on government assistance.

Conflicts of interest - without written, informed client and/or customer consent

• Single product - The danger of single product structured settlement sales persons is not limited to whether his or her product is "suitable" or in the "best interest" of a particular claimant/customer. The danger is also that single product sales persons are inherently conflicted in recommending how much of any settlement should be allocated to their product.
• Multiple roles - A structured settlement sales person introduced into a case by a defendant or liability insurer frequently plays four separate roles each of which potentially conflicts with the other roles: agent for the annuity provider; broker for the defendant; broker for the plaintiff; and agent for the defendant in helping to negotiate and settle the case.
• Compensation sharing - Unless all parties to a settlement are informed about whether and how structured settlement annuity commissions are shared, a structured settlement creates a variety of potential conflicts of interest.
• Funding alternatives - Based upon traditional structured settlement business and compensation models, the potential availability and applicability of 468B qualified settlement funds for "appropriate cases" creates inherent conflicts of interest between defendants and their structured settlement brokers.

Recommendations

• Education - Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) should devote more educational resources to understanding product suitability standards applicable directly and indirectly to structured settlements including standards applicable to their clients and competitors.
• Business standards - SSP's "Standards of Professional Conduct for Settlement Planners" represents an important industry document that has received less attention among structured settlement stakeholders than it deserves. As a result of Dodd-Frank, SSP should review and re-consider the product suitability standards proposed in its current Standards of Conduct.
• Business model - Without violating anti-trust laws, both NSSTA and SSP should encourage their members to continue studying and discussing how transitional settlement planning business models impact traditional structured settlement broker roles, compensation models and business standards.
• Documentation - In the context of transitional business models and standards, structured settlement stakeholders should review and improve core case documents including client requests for proposals, sales materials, settlement agreements, broker of record letters, and commission sharing agreements.

For additional S2KM reporting and commentary about structured settlement business standards and practices, see the structured settlement wiki.

Product Suitability Standards - 3

When is a structured settlement annuity appropriate for a specific physical personal injury claimant? And what standards exist to help judges, guardians, trustees, mediators, attorneys, settlement planners, structured settlement consultants and other structured settlement stakeholders make this determination?

In two prior blog posts, S2KM has addressed these issues in the context of:

• Part 1 - NSSTA's Code of Ethics; SSP's Standards of Professional Conduct; and the NAIC's Suitability in Annuity Transactions Model Regulation.
• Part 2 - Minors' statutes and state structured settlement protection statutes.

This blog post discusses product suitability standards created by the Uniform Prudent Investor Act (UPIA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and highlights a general trend to create a more uniform fiduciary, and/or "best interest", standard of care to protect investors.

UPIA

When investing and managing assets (including settlement proceeds and structured settlement annuity payments), trustees historically have been held to a fiduciary standard. According to uslegal.com, "[A] fiduciary duty is an obligation to act in the best interest of another party..... A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client." (emphasis added)

More recently and comprehensively, a trustee's investment responsibilities have been re-defined legislatively by the UPIA which was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1994 and approved by the American Bar Association in 1995. The UPIA now serves as the most important reference, external to the trust document itself, for trustees to determine what fiduciary duties their position requires. With some state-specific modifications, 41 states, U.S. Virgin Island, and the District of Columbia have adopted the UPIA.

Prior to the UPIA, courts applied the "prudent man rule" when evaluating trustee investment performance. The prudent man rule required trustees “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering probable income, as well as the probable safety of the capital to be invested.”

The UPIA, by contrast, adopts "modern portfolio theory" as a different and more appropriate standard for trustees. Compared with the prudent man rule, modern portfolio theory promotes a holistic view of trust assets by focusing on the total return generated by a trust as opposed to viewing a trust's income and principal separately. By viewing all investments comprehensively, modern portfolio theory and the UPIA hold that a trustee (or other investor) can achieve a positive overall investment return despite the poor performance of specific investments. This new standard allows for greater investment diversification so long as the risk/reward ratio matches the purposes and terms of the trust instrument.

Section 2(c) of the UPIA identifies eight factors a trustee should consider when making any investment:

• General economic conditions;
• The possible effect of inflation or deflation;
• The expected tax consequences of investment decisions or strategies;
• The role that each investment or course of action plays within the overall trust portfolio;
• The expected total return from income and appreciation of capital;
• Other resources of the beneficiaries;
• Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
• An asset’s relationship of special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

Significant for structured settlement annuities, the UPIA's list of investment considerations fails to mention mental or physical disabilities of a trust beneficiary. From a settlement planning and/or special needs perspective, injuries or diseases that reduce an individual's normal life expectancy arguably should receive important consideration when a trustee makes investment decisions.

Dodd-Frank

President Obama signed Dodd-Frank into law on July 21, 2010. Among other reforms, this sweeping legislation created the Consumer Financial Protection Bureau (CFPB) and the Federal Insurance Office (FIO). CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....." Among its core functions are addressing consumer complaints and restricting unfair, deceptive or abusive acts or practices under the Federal consumer financial laws. Dodd-Frank provides the CFPB with significant authority that goes beyond existing consumer protection statutes. CFPB has broad authority to ask questions and demand information including consumer complaints. The FIO is part of the U.S. Department of Treasury and has authority to monitor all aspects of the insurance industry.

In addition to creating the CFPB and the FIO, Dodd-Frank directed the Securities and Exchange Commission (SEC) to study the need for a new, uniform, federal fiduciary standard of care for broker-dealers and investment advisers and to apply such a uniform standard if it deemed necessary. The SEC's assignment also required determining the existence of any gaps, shortcomings, or overlaps in legal or regulatory standards for the protection of retail customers.

Historically, investment advisers and broker-dealers have been subject to differing standards of care. Investment advisers are defined under Federal law as persons who “engage in the business of advising others. . .as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. . .” [15 U.S.C. § 80b-2] They are regulated under the Investment Advisers Act of 1940 and owe a fiduciary duty to their clients.

Broker-dealers are defined under Federal law as persons who engage in “the business of offering, buying, selling, or otherwise dealing or trading in securities. . .” [15 U.S.C. § 78b(12)] and may provide a variety of related services. Broker-dealers generally are not subject to any fiduciary duty under the federal securities laws. They do, however, have a duty of fair dealing which includes a “suitability” standard - i.e. broker-dealers must make recommendations that are consistent with the interests of their customers.

Adding further uncertainty for investors, the existing legislative and regulatory system, according to the Securities Industry and Financial Markets Association (SIFMA), also "leaves states free to develop their own often conflicting definitions of fiduciary standards. This can confuse investors and lead to inconsistent definitions and interpretations under existing state law." SIFMA has recommended adoption of a uniform definition of "fiduciary duty" applicable to broker-dealers and investment advisers that includes both a duty of care and a duty of loyalty. These duties, according to SIFMA, should require both broker-dealers and investment advisers "to act in the best interest of the customer, and to provide full and fair disclosure of material facts and conflicts of interest."

In January 2011, the SEC submitted its "fiduciary standard" study to Congress recommending the adoption of a uniform fiduciary standard for investment advisers and broker-dealers when providing investment advice to retail customers. The SEC's proposed standard would be “no less stringent” than the standard currently applicable to investment advisers, and would include the duty to act in the "best interest" of the customer.

Structured Settlement Annuities

Why are the UPIA and Dodd-Frank relevant and important for structured settlement stakeholders?

• Structured settlement annuities increasingly are paid into trusts (UPIA) that also include financial securities (Dodd-Frank).
• Settlement planners, as opposed to traditional structured settlement sales persons, are increasingly licensed to sell financial securities as well as insurance products.
• The UPIA (settlement trustees) and Dodd-Frank (financial planners; investment advisers; broker-dealers) directly impact structured settlement competitors.
• To be successful in the changing financial and insurance environment, anyone selling structured settlement annuities must understand and compete against the highest product suitability standards and best business practices.

Given the diversity, uncertainty and transition of various product suitability standards, how should structured settlement stakeholders address the issue of whether a structured settlement is appropriate for individual physical personal injury claimants? S2KM will offer practical case-specific advice and strategic industry advice in its next blog post.

For additional information about structured settlement business standards and practices, see the structured settlement wiki and Section 6.02 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).