Hi there. J.G. Wentworth here.
Over the years, I’ve been approached many times by individuals wanting to know if they could buy, as an investment, the structured settlement payment streams we buy from our customers.
Though it would be quite easy for us to sell the stream of payments we buy to any number of individuals, I have always politely but firmly said “no”.
This is anything but a flip answer. In the 20 years since we created a market for structured settlement payments, I’ve had plenty of time to consider this question. Early on, I reached the conclusion that structured settlement payment streams were not appropriate for individual investors. Time has only increased my conviction.
Conceptually, structured settlement payment streams are simple. In reality, these so called “cash flows” are quite complex, and present risks that I feel are difficult for individual investors to fully appreciate.
Testimony to these complexities and risks is aptly demonstrated by the tremendous effort on our part to make bonds backed by structured settlements appropriate even for institutional investors.
First we must buy payment streams where our right to receive the payments is indisputable. For instance, outstanding tax liens and child support obligations against the seller could interfere with our rights to receive future payments we’ve purchased. We must find out about these things before we put out a lot of money to buy payments.
Next, we must offer the bonds in layers – I believe the word on Wall Street is “tranches” – where we hold onto the first layer. That’s because in the event there are any losses in the pool of structured payments, they are absorbed first by the “tranche” that is owned by J.G. Wentworth. Another way to say this is we have to eat our own cooking!
Finally, once we create the bonds backed by structured settlement payments, we engage a third party, a bond rating agency like Moody’s, to review and rate the bond offering. This helps sophisticated institutional investors further assess the creditworthiness of the bonds.
Mind you, this is what we do to make the bonds appropriate for sophisticated institutional investors. I can’t imagine what else we would have to do to even asses whether they could be made appropriate for individuals.
The question of risk and complexity aside, we’re simply not in the business of selling investments or insurance products to individuals. It doesn’t matter which label you use, insurance or investments, the fact is, these industries are regulated for a reason- to protect consumers.
Don’t get me wrong. I like to help people with their finances. That’s why we started this business in the first place. But the assistance we offer is focused on helping folks get back on their feet to pay off bills, buy a car to get to work, get the medical attention they need, or buy the house they want.
So if someone approaches you with an investment “opportunity” in structured settlements, the first thought that comes to mind is “If it sounds too good to be true, it probably is.”