The United States Securities and Exchange Commission, along with the Financial Industry Regulatory Authority issued an investor alert for Pension or Settlement Income Stream Investments.
This alert informs investors about the risks involved when selling rights to an income stream or when investing in another entity’s income stream. The alert cautions investors who are considering an investment in settlement income streams or pensions to proceed with extreme caution.
Any individual receiving regular distributions form a settlement following a personal injury suit or a monthly pension may be targeted by corrupt salespeople who offer an immediate lump sum in exchange for rights to some or all of the payments you would be entitled to receiving in the future. Typically, recipients of a structured settlement or a pension will sign over said rights to some or all of their monthly payments to a factoring institution in return for a lump-sum figure; this figure is typically much lower than the present value of the future income stream.
“Investors must always educate themselves before making an investment decision, and this is of course true with respect to investing in a structured settlement product or a pension,” said the Director of the SEC’s Investor Education and Advocacy Division. “This alert intends to help investors understand the risks and costs associated with these transactions.”
The investor alert is equipped with a checklist of questions that you should go over before selling away an income stream:
·Is the transaction I’m about to undertake legal?
·Is the transaction worth the cost? You should locate the discount rate that the factoring company has applied to the income stream and compare the rate to alternatives such as a bank loan.
·What is the reputation of the institution offer the lump sum?
·Will the underlying factoring company require life insurance?
· What are the tax consequences if you undertake this transaction? The lump-sum payout offered by the factoring company may be taxable.