On May 9, 2013, FINRA and the SEC issued an investor alert entitled, “Pension or Settlement Income Streams – What You Need to Know Before Buying or Selling Them.”

The alert informs investors about the risks involved when selling their rights to an income stream or investing in someone else’s income stream. The alert urges investors considering an investment in pension or settlement income streams to proceed with caution.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in future. Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump-sum amount, which will almost always be significantly lower than the present value of that future income stream.

The alert contains a checklist of questions before selling away an income stream:

  • Is the transaction legal?
  • Is the transaction worth the cost?
  • What is the reputation of the company offering the lump sum?
  • Will the factoring company require life insurance?
  • What are the tax consequences?
  • Does the sale fit your longer-term financial goals?

The investor alert also warns investors who might be attracted to the yield offered by buying the rights to someone else’s pension or structured settlement to be aware that:

  • Investors may encounter commissions of seven percent or higher.
  • Pension and structured settlement income-stream products may or may not be securities and likely are not registered with the SEC.
  • These products are illiquid, which means they can be difficult to sell. In the event you need money and want to sell the product you may not be able to do so or you may only be able to do so at a loss.
  • Your “rights” to the income steam you purchased could face legal challenges.

A direct link to the alert can be found here.

Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.