Is the Secondary Market Too Good To Be True?
A fair number of people who have requested more information about the secondary annuity market have cast it aside as ‘to good to be true.’ Many other advisors might mention they have never heard of this market. I was personally in the same place six months ago. In order for me to become comfortable enough to recommend these products I had to go through the same process of discovery that you’ll want to go through before buying.
Every objection can be explained so I’d like to share the answers to the two most common skeptical questions in order to clear the air.
Why hasn’t my advisor heard of SMAs?
Secondary market annuities are better known as ‘factored structured settlements’ within institutional circles. You see, prior to 2009 these contracts were absorbed entirely by major corporations. After the credit crisis in 2008, many banks stopped buying these so the companies who sell them started actively searching for additional funding sources. Several partnerships were started with brokers who could offer them to individual investors as the yields offered exceptional value.
When financial institutions purchase these contracts, in many case they will be securitized and offered as a part of a bond or mutual fund, with a watered down yield of course. It’s not all too far-fetched to assume you may actually hold ownership in these as part of some of your other investments.
It’s important to understand the overall market is very small in relation to other financial products. The average annual market for these contracts is less than $800 Million. Of that, less than 20% is available to consumers. That may sound like a lot but it pales in comparison to the $200 Billion annual market for primary market annuities, including all fixed, variable, index and immediate annuities. If banks begin actively buying these contracts again it will no longer be available to you.
How do I know the insurance company will actually pay me?
I consider this a very reasonable concern since you need ultimate assurance when you part ways with a major chunk of savings. There are three key factors that offer certainty as to the outcome.
First, we have attorneys that review each deal to make sure all issues that prevent the sale are remedied. These attorneys specialize in this type of transaction whether an individual or bank is the buyer. Since they are working on for your benefit they are willing to take time on the phone to explain their experience with this process. By the way, this legal consulting comes at no additional cost to you.
Second, all transfers are court approved and the issuing company is given a court order to redirect the payments to you. It’s easy to verify this through court filings and you are given a copy of this court order at closing of the sale to you.
Third, each issuing company will issue a form acknowledging the court ordered transfer. This document is issued from the home office of each company from a specific division that deals with structured settlements. This document is also including in your closing book and a representative within the company will confirm that your name is now listed as the person who will receive payments.
As I mentioned before, this is all due diligence I performed when deciding whether to offer these deals to my clients. When it’s all said and done, you’ll receive as much or more confirmation of the transaction than you’d get with any primary market annuity.
Since this market is only accessible to a very small number of advisors nationwide, it’s no surprise that few people know about it. Don’t let that stop you. Do your research and find the value. This could be a very limited opportunity so you don’t want to miss it because you didn’t take the time to investigate.
Please let me know how I can help. You can click here to start learning about Secondary Market Annuities.
Bryan J. Anderson