SEC and FINRA Issue Investor Alert on Pension or Settlement Income Streams (with Lofchie Comment)
The SEC and FINRA issued a joint alert about the risks associated with pension or settlement income streams and what investors need to know before buying or selling them.
The alert noted how people receiving a monthly pension or regular distribution from a personal injury settlement may be targeted by salespeople offering an immediate lump sum in exchange for the rights to the future payments.
Potential pitfalls outlined in the alert include:
- whether the transaction is legal and if retirees are restricted from "assigning" their pension;
- whether it is worth the cost in terms of the discount rate;
- whether the company offering the lump sum is reputable;
- what your tax consequences will be; and
- whether you will be required to purchase life insurance, which will increase transaction expenses and reduce your payout.
The alert urged customers to make sure the financial professional selling the product is registered with a state or federal regulator, inquire as to how the salesperson is being compensated and whether he is authorized to sell this product, and determine what organization is ultimately paying the customer before investing in such products.
Lofchie Comment: Broker-dealers with remote offices should be mindful of any such activity, as it is not obvious that it is activity in a "security" and so may be done outside the supervision of the firm.
Click here to view Investor Alert (links externally to SEC website).See also: SEC Press Release and FINRA Press Release.