In a move that indicates the secondary market for structured settlements is not only necessary but also growing, Allstate announced that it will be sending written information to all of its payees with information about its Allstate Advanced Funding Exchange (AFEN) program. The program offers payees who are interested in selling their future structured payments a discount rate of 8% on qualified transactions (plus fees and costs).
This is good news for Allstate payees, as it gives them an alternative to typical mass media factoring companies who are known to charge exorbitant discount rates. But payees, whether with Allstate or other companies, have had access to secondary market companies that meet or beat this rate all along. The key is that payees must be educated about their options and savvy enough to seek multiple bids, not to fall prey to the persuasive tactics of J.G. Wentworth and other big entities.
As far as Allstate’s program goes, it’s worth noting that up to $2,500 in fees and costs will be passed along to the seller, which will make the effective discount rate higher than 8%. This is where bid comparison really benefits the consumer because they will see that some companies pay all the fees and costs associated with the transaction. Thus, the net payout for the payee may be lower even if the discount rate used is higher.
For example, a typical factoring transaction will incur fees and costs ranging from $3,500-$4,500. A transaction using an 8% discount rate can easily become a 12% discount rate once the fees and costs are added to the picture. An even smaller deal will be impacted even more by the inclusion of fees and costs into the analysis. Vantage Capital Consultants offers, wherever possible, discount rates in the single digits (8%) and pays all fees and costs. This is an example of the type of education payees must be given in order to protect them. Dialogue at settlement time with their settlement consultant or attorney about the realities of the secondary market has become a necessary step because more and more structured settlements are being sold.
Jay Fisher is co-founder of Vantage Capital Consultants, a purchaser of structured settlements and annuities.