Let’s Talk About: Suitability and Settlement Planning

The Society of Settlement Planners (SSP) will host its virtual 2021 Annual Conference for February 23-25 and has already announced the session topics and most of the speakers.

One session which should provoke considerable discussion is titled “Suitability and Settlement Planning.” It appears to reference language in SSP’s Practice Standard #9 within the Settlement Planning Practice Standards (Practice Standards) which were adopted by the SSP Board of Directors on August 8, 2017 with the intended purpose to:

  1. Benefit consumers of settlement planning services;
  2. “Assure that settlement planning is practiced by professionals and based on established norms of practice;
  3. “Advance professionalism in settlement planning; and
  4. “Enhance the value of the settlement planning process.

Practice Standard #9 reads in full (with emphasis added): “The settlement planner shall recommend appropriate products and services that are consistent with the client’s goals, needs and priorities.”

The Explanation to Practice Standard #9 reads in full: “The settlement planner shall investigate products or services that reasonably address the client’s needs. The products or services selected to implement the recommendation(s) must be suitable to the client’s financial situation and consistent with the client’s goals, needs and priorities. The settlement planner uses professional judgment in recommending the products and services that are in the client’s interest. Professional judgment incorporates both qualitative and quantitative information. Products and services recommended by the settlement planner may differ from those of other settlement planners or advisers. More than one product or service may exist that can reasonably meet the client’s goals, needs and priorities. The settlement planner shall make all disclosures required by applicable regulations.”

Why is the topic of “Suitability and Settlement Planning” important? And why should it provoke considerable discussion among SSP members?

The most important reason is that the standard to evaluate financial and annuity sales has evolved since SSP adopted its Practice Standards in 2017 from “suitability” to the higher standard of “best interest.” Arguably, therefore, both the product standard in the SSP Practice Standards (whether “appropriate” or “suitable”) and the topic title for the SSP Conference is outdated and inappropriate.

Many SSP members and an increasing number of NSSTA members already sell securities products in addition to structured settlement annuities. Therefore, they are subject to the Securities and Exchange Commission’s “Regulation Best Interest” which the SEC adopted on June 5, 2019.

This regulation “establishes a new standard of conduct under the Securities Exchange Act of 1934 (“Exchange Act”) for broker-dealers and natural persons who are associated persons of a broker-dealer (“associated persons”) (unless otherwise indicated, together referred to as “broker-dealer” or “you”) when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer.” (emphasis added)

Similarly, in February of 2020, the National Association of Insurance Commissioners (NAIC) approved revisions to Model Regulation #275 (Suitability in Annuity Transactions)“clarifying that all recommendations by agents and insurers must be in the best interest of the consumer and that agents and carriers may not place their financial interest ahead of the consumers’ interest in making a recommendation.”

Significantly for structured settlements, the 2020 Revised Model Regulation, like its 2010 predecessor, exempts from its application, requirements and penalties: “settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.”

Perhaps this continuing NAIC exemption is one reason NSSTA has heretofore avoided addressing “product sales standards” in its Code of Ethics or educational programs. With both NSSTA and SSP members now selling non-structured settlement products, including post-settlement annuities, “product standards” would appear to have greater educational priority – which SSP recognizes even if wrongly titled.

Of course, SSP should have already been aware of two additional arguments favoring a “best interest” product standard in 2017 when SSP adopted its Practice Standards.

In his February 13, 2006 Opinion Letter written to the Academy of Catastrophic Injury Lawyers titled “Use of Structured Settlement Experts by Plaintiff Counsel”, Professor Stephen A. Saltzburg wrote: “… the [structured settlement] expert retained by the plaintiff’s counsel to represent the interests of the client owes a fiduciary duty to the client,” citing Burdett v. Miller 957 F. 2nd 1375, 1381 (7th Cir. 1992). (emphasis added)

A fiduciary duty, by definition, incorporates a “best interest” standard of conduct which arguably applies to, among other applications, product recommendations.

In 2009, when Texas attorney Phillip McCrury addressed the topic “What Judges Look for When Approving a Minor’s Settlement” during the 2009 SSP Annual Conference, he identified “best interest” as the primary standard for judicial approval of minors’ settlements.

Also note: a recent update of “Structured Settlements and Periodic Payment Judgments” addressed questions of “best interest” as they apply to state and federal court judges when sitting in review of petitions to approve a settlement affecting the interests of a minor or other protected person, and ruling on whether a settlement plan is in the “best interest” of the protected person.

Because judges and trustees both apply (or should apply) a “best interest” standard in evaluating proposed settlement plans and/or products, it makes increasing sense for structured settlement professionals and settlement planners to utilize the same standard themselves.

For these reasons, SSP’s “Suitability and Settlement Planning” discussion could become one of the highlights of its 2021 Annual Conference – especially if the speaker(s) also address related issues such as the differences, as applied to settlement planners and their clients, among and between:

  1. suitability and best interest;
  2. legal standards; industry standards; and best practices; and
  3. standards and duties.