Secondary Market Annuities in the Wall Street Journal

 In a 2010 article titled “Another Can’t-Miss Deal That Can Miss Spectacularly” the Wall Street Journal’s Jason Zweig took a look at Secondary Market Annuities.

The entire tone of the article is typical of the Journal’s view of annuities in general.  That is, they are rather derogatory.

The article does make some good points.  But what I take issue with is that Mr Zweig’s tone paints a bleak negative picture around Secondary Market Annuities based on one thing that for many of our buyers is in fact a primary benefit.

Primarily, he jumps on the liquidity of Secondary Market Annuities.

Certainly SMAs are not liquid, but that is exactly the benefit many buyers are looking for… stable, solid yield over a long period of time. For many people, liquidity is irrelevant, what with their other assets and needs.  But the chance to get off the Wall Street roller coaster is a rare blessing.

It seems with many other investments,  it is ‘Buy one liquid asset, get 2 heaping measures of volatility as a free added bonus’.  Secondary Market Annuities are a refreshing, “what you see is what you get” fire-and forget missile that never misses the target.

Throughout our process we make it quite clear these are not liquid investments, so I hardly see this as reason to avoid the market overall. If liquidity is what you need, by all means do not buy. But if a guaranteed outcome is what you are after, then you are in the right spot.

(Incidentally, while it is true that direct to investor court ordered assignments would make re-assignment impractical or impossible, the procedure we follow at Annuity Straight Talk through our wholesale firm DCF Exchange DOES allow for reassignment. So while there is not a ready liquid tertiary market to sell your payments instantly, they now can easily be re-sold if needed.  Furthermore, the ‘fugu’ that Mr Hamlin is well know for referring to is far more likely to crop up in this type of direct to investor assignment than in our more sanitized process.)

Zweig’s second ominous warning addresses a prior party claim to a payment stream. While it’s certainly possible this sort of thing could happen, it’s exactly the scenario we, and our third party counsel at DCF Exchange, and outside counsel from our suppliers, look for in every transaction.

A good comparison could be this, to paraphrase Zweig’s words from the article. “An ominous risk when buying a car is that your car could be seized from you by a re-po man from a pawn shop where the prior owner took a loan and never repaid the money.”

This could definitely be you… if you bought a used car, and didn’t get a title from the seller… and just gave them cash for the keys….

So, to Zweig’s scenario…Is it possible? Definitely.

Is it likely? No way.

Are you stupid enough to not do your due diligence when making a big investment? I sure hope not!

Jim Terlizzi, who is quoted towards the end the article and who buys hundreds of millions of dollars of settlements annually for DRB Financial Solutions, is absolutely correct in illustrating the importance of jurisdictional review of the payments stream, and confirmation of court ordered reassignment. Not surprisingly, that is exactly what we do in our SMA transaction process.

Overall, Mr Zweig’s article is something many people read when digging for info on Secondary Market Annuities, and it makes a few good points. But what irks me is that the only legitimate negative he illustrates– liquidity- is in fact a conditional negative. It might not be bad for many readers, but he seems to paint the whole market with this broad brush, then he carries on with the story with scary, but not very realistic, information.

Of course, you can read the article here.

Your comments welcome,

Nathaniel M. Pulsifer

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *