I’m not usually one to throw stones.

But an article recently appeared in the Daily Journal that raised my ire sufficiently to elicit a response. I’m attaching a copy of my rebuttal Letter to the Editor, published January 13, 2010 in both the San Francisco and Los Angeles editions, for your convenience.

Structured Settlements Offer Financial Security in Good and Bad Times

The Dec. 4, 2009 article by David Higgins (“Recession’s Effect on Settlement and Fees”) was loose with its facts and illogical in its conclusions.

For starters, the author simplifies the very complex subject of economics. How can he know what the future holds? If he does, then that puts him above the likes of Paul Volcker and Warren Buffett. Of special note, particularly in light of Higgins’ assurances that inflation will rise, was the economic community’s collective failure to predict our current “Great Recession.”

Second, his recommendation that people should rethink structuring their settlements and their attorney fees simply because interest rates are “at historical [sic] lows” completely misses the mark and is ingratiatingly misleading. Some things just make sense regardless of economic realities and it’s doubtful that guaranteed, tax-advantaged future income tailored to an injury victim’s (or an attorney’s) specific living needs will ever fall out of favor.

Third, let’s put today’s rates in context. Long-term interest rates have been at or below 4 percent for 71 out of the last 135 years (Irrational Exuberance, Princeton, 2005). That means since the late 19th century, interest rates have been about where they are now for more than 50 percent of the time. The last time rates were at current levels for longer than a year was 1924. They remained there for 35 years.

Finally, Higgins neglected to reference his primary connection to the structured settlement industry these days: He sells his services to clients who, for a variety of reasons, need or wish to establish a qualified settlement fund (QSF) when settling their lawsuit. While a QSF can be a necessary and useful tool in some situations, quite often it merely adds an unnecessary (and often costly) layer to the settlement process. In nearly 20 years of providing structured settlement products and services to clients across the country, I have seen very few situations where a plaintiff would have been financially better served by choosing to establish a QSF.

There’s no doubt that careful thought must be given to a client’s overall situation before deciding on which settlement option is right for them. But an unbalanced article that uses fear to discount the proven and universally accepted value of a properly crafted structured settlement plan does a disservice to all attorneys and the clients who trust them to negotiate fair settlements. Structured settlements offer financial security in good times and in bad. Attorneys and their clients who reject them out of hand based solely on assumptions about the future may wish to heed Benjamin Franklin’s maxim: “One today is worth two tomorrows.”

Dan Finn, CPCU, CSSC
President, Finn Financial Group
Newport Beach

The original article I took aim at was so full of conjecture, hyperbole and mean-spiritedness that it’s hard to imagine anyone not being able to see past its transparency. Suffice it to say the author distorted facts to argue his case that structured settlements were probably not a good idea in this economy (while not-so-subtly promoting his own agenda, by the way).

In addition to my Letter to the Editor, here’s some bonus contrarian data to support my belief that the exact opposite is actually true:
In the first quarter of 2009, fixed annuity sales grew by 74% over the same period in 2008 according to LIMRA International, Inc. (Thomas, Trevor. “Fixed Annuity Sales Surge,” National Underwriter, May 29, 2009).

That’s $36 billion worth of annuity purchases, in one quarter alone, that suggests people were fleeing their more risky investments in favor of a surer thing.

The need for safety and financial security transcends economy just as it does age, size, gender, race, nationality, creed, or almost anything else. Safe, secure, tax-advantaged, guaranteed income has a place in any economy. Don’t fall into the trap of trying to out-smart the future. She always wins!

For years, contingency fee-based attorneys-in-the-know have practiced the tax-deferral strategy known as Structured Attorney Fees. This simple, yet amazingly effective method of financial planning supplementation has allowed them to set aside funds earned during their prime income-producing years in exchange for a flow of guaranteed, uber-secure, tax-advantaged retirement income.

For those who ever doubted the wisdom of this approach to retirement security nirvana, good news arrived recently in the form of an article that appeared in Kiplinger’s Retirement Report which reinforces this practice as an exceptionally wise choice.

In “A Ladder of Annuities Can Hedge Your Bets” (Kiplinger’s Retirement Report, November, 2009, p. 6), the author, Managing Editor Rachel L. Sheedy, maintains that “laddering” annuity purchases (i.e. regularly buying annuities over time as opposed to purchasing all at once) helps achieve an optimal balance of return and hedge against inflation for those seeking retirement security.

The article goes on to describe a 25-Year MassMutual Financial Group study which compared and contrasted several retirement-income strategies only to conclude that the laddered annuity approach returned 67% more money over that span than the traditional stock/bond portfolio and was the highest performing strategy overall.

Click HERE to view the Kiplinger article online.

But it gets even better!

Because the Kiplinger article doesn’t even consider one of the primary benefits of structuring attorney fees (earning interest on pre-tax income), it’s likely a study that also included Laddered Structured Attorney Fees would have even out-performed the “regular” laddered annuity portfolio.

Practitioners are cautioned that Structured Attorney Fees typically must be arranged in advance of the conclusion of settlement negotiations. Failure to follow established procedures may result in loss of opportunity to structure fees. As such, clients are encouraged to plan ahead and seek independent tax advice as needed to avoid missteps.

For attorneys who qualify though, nothing beats a Structured Attorney Fee for combining safety, rate of return and long-term financial security. And when “laddered” over a number of years, the returns and security can be compounded leading to a future filled with many market anxiety-free nights.

I recently had the privilege of assisting with the structured settlement choices made by two men who spent more than a decade in prison for crimes they did not commit. Eventually freed and vindicated of all criminal charges, they were wise to have selected excellent counsel to work on their behalf when it came time to negotiate their civil settlements.

Most people generally think of structured settlements only for “traditional” personal injury claims: auto accidents, dog bites, slip and falls, medical malpractice and the like. But for a variety of reasons, these two cases reinforced my belief that structured settlements can be even MORE valuable when applied to settlement discussions that are anything but traditional.

For confidentiality reasons, I will reveal only that these two settlements occurred in a major American city and their legal teams (these were separate cases) included respected Super Lawyers highly regarded for their skills. I was honored to have been offered the opportunity to assist on these challenging and quite unique structured settlements. And proud to have helped secure a portion of the financial futures of these two deserving men.

Because of the circumstances surrounding these cases, I reached out to Bill Moushey, a former high school basketball teammate of mine who, in 2001, had founded the Innocence Institute of Point Park University. I knew that Bill, an award-winning investigative journalist who was a finalist for the Pulitzer Prize in 1997, was himself committed to helping free the wrongfully convicted through the Power of the Press so he was the perfect person to contact for information on this subject. He proved an excellent resource for information relating to the processes that can lead to the wrongful incarceration in the first place.

Coincidentally, Bill was just about to publish a book chronicling the life of Pittsburgh Steelers linebacker James Harrison, the 2008 Defensive Player of the Year and Superbowl record holder. Its title and theme, Never Give Up, seemed an appropriate parallel to the two men I had recently been fortunate enough to help. So I ordered a copy for myself and a few more for other people I thought might enjoy reading a human interest story about a guy who wouldn’t quit.

It’s probably safe to assume that all of us, no matter our backgrounds, can relate to a time or two in our lives when we faced challenges and wanted to throw in the towel. But when you read this story about a talented person who overcame many challenges, some of which he readily admits to having brought about himself, to become one of the best in his chosen profession, it reminds you that focus, perseverance and belief in oneself are powerful allies in the quest for success. Never Give Up is a story about that quest. And obvious required reading for any true Steelers fan!

Click HERE to go to the book’s website.

On a very personal level, I confess to experiencing more than my own share of frustration, heartache and disappointment during my life. There have been many days when I thought the sun would never shine and hopelessness and despair seemed my only companions. Yet with each passing dark hour when the world seemed bereft of any positive possibilities, I summoned all my strength to force myself into believing that maybe, just maybe, next week would be different and success would eventually arrive.

But then again, nobody ever said being a Browns fan would be easy.

Never Give Up.

No Tricks Today! All Treats!

Treat One: According to data collected, compiled and analyzed by the authors of the recently published SuperFreakonomics, there are three ways a person can extend their life span:

1. Win a Nobel Prize.
2. Get inducted into the Baseball Hall of Fame.
3. Buy Annuities!

Since prospects of Ponce de Leon-ing our way to a longer life through the first two options are dim for most of us, we’re left with little choice than to take charge of our own longevity forecast by engaging in the choice we have most control over: Buying Annuities! After all, it only takes one vote (yours) to accomplish an annuity purchase. The SuperFreakonomics authors concluded that . . .

“People who buy annuities, it turns out, live longer than people who don’t, and not because people who buy annuities are healthier to start with. The evidence suggests that an annuity’s steady payout provides a little extra incentive to keep chugging along.”

So throw away those diet books and cancel that gym membership! Buy an annuity instead and pass the donuts, please! Who knew living longer could be so easy?

But the good news about annuities doesn’t stop there!

Treat Two: In their scholarly paper Rational Decumulation, economists and professors David F. Babbel and Craig B. Merrill (Fellows, Wharton Financial Institutions Center) conclude that lifetime annuities are also the most cost-effective and least risky asset class for generating guaranteed retirement income for life.

Click HERE to view the research paper itself.

Click HERE to request a 2-page summary I wrote on this subject instead.

But wait! There’s more . . .

Treat Three: Even Money Magazine senior editor Walter Updegrave seems to be warming to the notion of lifetime annuities. For years, nary a kind word about annuities ever appeared in one of his many articles. But on October 20, 2009 he confessed:

“If I wanted to know exactly how much income I would have each month and also minimize the chances of running out of money during retirement, I’d buy a fixed-income immediate annuity.”

Click HERE to view Walter Updegrave’s column on lifetime income.

Remember, too, that annuities used to fund personal, physical injury structured settlements are 100% income tax-free if set up properly. With taxes certain to rise, all the more reason to consider these specialty annuities if available to you.

So now that you have three good reasons to buy annuities, please call anytime I can be of service to you or anyone you know. I won’t be much good at helping you win a Nobel prize or achieve Hall of Fame immortality. But if you are considering purchasing an annuity, I hope you’ll let me help you decide if an annuity is right for you.

Let’s face it! Plaintiff attorneys ride a roller coaster when it comes to cash flow. When cases settle, the money can be very rewarding. When a dry spell hits, the cash flow stinks! Especially when handling class action and similar cases where the costs associated with developing and trying the case can be high and the time until settlement long.

When cases do settle, attorneys get paid an appropriate contingency fee. Quite often though, they end up giving a bunch of it, unnecessarily, to Uncle Sam. Proper planning can help mitigate this tax bite ensuring attorneys pay no more in taxes than they need to and keep more of what they earn.

The Los Angeles Daily Journal recently featured an excellent article on the subject of Structured Attorney Fees written by a nationally recognized expert in the field. Robert W. Wood, Esq. literally “wrote the book” on this particular topic. As author of “Taxation of Damage Awards and Settlement Payments” and many other articles relating to this subject matter, Rob frequently consults for clients who need legal guidance on tax matters involving pending settlements. His article, attached here for your convenience, can serve as a primer for plaintiff attorneys seeking to add a level of financial certainty to their otherwise feast-or-famine practice.

Click HERE to read the Daily Journal article

The popularity of Structuring Attorney Fees has increased dramatically in recent years. So much so that it now constitutes nearly 25% of my personal practice. Many plaintiff attorneys for whom I helped structure portions of their fees years ago consider this choice to have been one of the smartest financial decisions they’ve ever made. And who can blame them for feeling so satisfied? After all, a tax dollar not-paid that earns interest over time can end up being much more than a dollar earned.

So as the rest of us wait for the return of the $11 trillion of wealth we collectively lost in our 401(k) and home equity accounts, attorneys who structured their fees are secure in the knowledge they are benefiting from wise decisions made years ago. They earned guaranteed interest on pre-tax money they otherwise would have paid out in taxes long ago.

With year-end tax planning just around the corner, practitioners are invited to call anytime I can answer any questions about structured attorney fees and show you how valuable this tax advantage can be.

Interest rates got you down?

Are you holding off making financial commitments that are tied to long-term interest rates (i.e. structured settlements) because you believe rates are certain to bounce higher in the near future?

While it may seem sensible to stash your cash in liquid, low interest bearing accounts because you believe brighter days are just around the corner, history suggests you may be waiting for awhile.

According to data extrapolated from Irrational Exuberance, (Princeton, 2005), only three times since 1871 have long-term interest rates dipped below 4% and remained there for longer than a year. Most of us were not alive in 1880 and 1924 when those first two situations occurred. But 2008 delivered a dizzying reality check to all of us. In October, 2008, long-term interest rates fell below 4% and have remained there since.

So using the past 138 years as a reference point, how long might we expect these rates to stay at these levels if history repeats itself?

Let’s have a look:

• 1880: Rates remained below 4% until 1911 – 31 years
• 1924: Rates remained below 4% until 1959 – 35 years
• 2008: Rates may remain below 4% until (gulp) 2041? – 33 years ?!?!

Since no one can accurately predict the future, no one knows for sure how long interest rates will remain at these levels. Sure, they could and very well may head higher. But some historical precedent exists that leaves open the possibility we may need to get used to this new financial reality.

When Neil Young sang “Now that you found yourself losing your mind are you here again? Finding that what you once thought was real is gone and changing?” he likely wasn’t imagining the state of interest rates in 2009. But he may as well have been. Certainly what we all thought was real just a few short months ago is indeed gone and changing. And if we are to keep from losing our own minds, the sooner we all adjust to the new reality, the better off we’ll certainly be.

As part of our commitment to keeping you abreast of developments affecting your lives and careers, we plan to periodically feature videos that we hope you find insightful.

If “a picture is worth a thousand words” then thousands of pictures moving really fast should be worth a billion words! I hope you’ll take the time to check out this and all the videos we feature on our website.

Today’s featured video highlights the comments of Sen. Dick Durbin (D-IL) whose endorsement of structured settlements could not be stronger! This brief video highlights comments he made recently when addressing the National Structured Settlements Trade Association.

“Structured Settlements work and should be protected.”

Sen. Dick Durbin (D-IL)

As the Assistant Majority Leader in the United States Senate, Sen. Durbin’s words carry a great deal of weight in Washington. In addition to his work as a legislator to improve the lives of all Americans, he speaks from personal experience as a former plaintiff attorney who represented clients suffering personal, physical injuries.

I hope you enjoy hearing Sen. Durbin’s positive views on structured settlements as much as I did. Some of the points he emphasizes could not be more appropriate in light of today’s struggling economy.