SEC, FINRA Issue Investor Alert On Pension or Settlement Income Streams
The SEC and FINRA issued a warning that investors face significant risks—including steep discount rates, unregistered products, high fees, and legal uncertainty—when buying or selling pension or structured settlement income streams, with sellers often receiving far less than the present value of future payments and buyers exposed to illiquidity and potential ownership challenges.
The SEC and FINRA jointly alerted investors to the dangers of transactions involving pension or structured settlement income streams, where factoring companies typically offer lump sums far below the present value of future payments, often applying discount rates that result in substantial financial loss. Buyers are lured by high yields but face commissions of 7% or more, unregistered and illiquid products, potential legal challenges to ownership, and unexpected tax consequences. The alert emphasizes that these transactions may violate federal law, require costly life insurance, and lack SEC oversight, urging consumers to verify company reputations and consult financial professionals before proceeding.
The SEC and FINRA issued a joint investor alert cautioning against the risks of buying or selling pension or structured settlement income streams, highlighting that factoring companies routinely offer sellers lump sums significantly lower than the present value of their future payments, often through steep discount rates. Sellers may be pressured into transactions that require them to purchase expensive life insurance policies, further reducing their payout, while also facing potential tax liabilities and possible violations of federal laws restricting pension assignments. Buyers, attracted by high yields, are warned that these products are frequently unregistered with the SEC, lack liquidity, and may be legally contested, making them difficult to resell or enforce. Commissions of 7% or higher are common, and many factoring companies operate without transparent records or regulatory oversight. The alert provides a checklist for consumers to evaluate the legality, cost, reputation of the company, insurance requirements, and tax implications before proceeding. Neither the SEC nor FINRA has registered these income-stream products, and no enforcement actions are described—this is purely an educational effort to prevent exploitation. Investors are strongly advised to compare discount rates to bank loans, research companies via the Better Business Bureau, and consult independent financial professionals to avoid financial harm.
Exhibits & Attached Documents (1)
Extracted insights
- agency director of the sec's office of investor education and advocacy
- company factoring company
- agency Finra
- agency finra's senior vice president for investor education
- person gerri walsh
- person life insurance policy
- person lori j. schock
- agency registered with the sec
- agency Securities and Exchange Commission
- SEC issued investor alert entitled Pension or Settlement Income Streams – What You Need to Know Before Buying or Selling Them
- FINRA issued investor alert entitled Pension or Settlement Income Streams – What You Need to Know Before Buying or Selling Them
- Lori J. Schock is Director of the SEC's Office of Investor Education and Advocacy
- Gerri Walsh is FINRA's Senior Vice President for Investor Education
- Factoring Company charges commissions of seven percent or higher
- Pension or Structured Settlement Income-Stream Products may not be registered with the SEC
- Factoring Company may require life insurance policy
- Lump-Sum Payment may be taxable
The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) 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. “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.” 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.” The investor alert contains a checklist of questions before selling away an income stream: Is the transaction legal? Federal law may restrict or prohibit retirees from “assigning” their pension to someone else. Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan. What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional. Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout. What are the tax consequences? The lump-sum payment you collect may be taxable. 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 could be difficult to sell if you need money and want to sell the product. Your “rights” to the income stream you purchased could face legal challenges.
The Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) 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. “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.” 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.” The investor alert contains a checklist of questions before selling away an income stream: Is the transaction legal? Federal law may restrict or prohibit retirees from “assigning” their pension to someone else. Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan. What is the reputation of the company offering the lump sum? Check the factoring company’s record with the Better Business Bureau, and research the firm on the Internet and with a financial professional. Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout. What are the tax consequences? The lump-sum payment you collect may be taxable. 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 could be difficult to sell if you need money and want to sell the product. Your “rights” to the income stream you purchased could face legal challenges.