WASHINGTON — The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) today issued an investor alert entitled Pension or Settlement Income Streams—What You Need to Know Before Buying or Selling Them.
The investor 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.
Gerri Walsh, FINRA's Senior Vice President for Investor Education, said, "Consumers should know that a series of potential pitfalls may greet anyone who is considering selling their rights to an income stream. And any investor who is tempted by the high yield offered by buying the rights to another person's income stream should know that yield comes with high fees and considerable risks."
"Investors should always learn as much as possible before making an investment decision, and this is certainly true with respect to investing in pension or structured settlement income-stream products," said Lori J. Schock, Director of the SEC's Office of Investor Education and Advocacy. "This alert will help investors understand the costs as well as the potentially significant risks of these transactions."
The investor alert contains a checklist of questions before selling away an income stream:
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:
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our website at www.finra.org.