When it comes to major life choices—physical, financial or otherwise—it never hurts to get a second opinion. Another unbiased review by an informed professional could give you more options to consider.
Independent Professional Advisors are able to do just that. They’re a third party, available to help structured settlement recipients determine if they should sell payments by evaluating whether a deal is fair and in the best interest of the seller.
Some state laws, courts and payment purchasing companies require, or at least strongly advise, using the services of an IPA. Making sure you do not skip this part of the selling process, even when it’s optional, helps safe-guard your financial welfare.
How Do IPAs Work?
Independent Professional Advisors (IPAs) are certified financial services experts. The Structured Settlement Act of 2002 defines the qualification for this role as professionals working as certified public accountants, actuaries or licensed professional advisors. Their expertise enables them to consider the pros and cons of a major financial decision and to provide you with a written recommendation.
Structured settlement recipients pursuing the sale of payments can meet with an IPA and receive a recommendation in favor of or in opposition to selling payments.
The cost will depend on which type of professional you turn to and their rates. Consultations (which include formal documents) can range from $500 to $1,500. Some buyers will reimburse sellers for this cost, but will not directly choose and pay for the IPA as this could result in a conflict of interest. Federal law prohibits the IPA from being affiliated with or employed by the settlement buying company. This protects the seller and ensures advice is impartial.
Sellers then bring the recommendation to court—if the letter endorses the transfer—when attending the required hearing that is part of the selling process. A judge considers the IPA’s recommendation as a factor in deciding whether or not to give approval.
Which Factors Do IPAs Consider?
IPAs serve sellers by evaluating individual circumstances and the possible benefits and disadvantages of selling payments. An IPA doesn’t work for the annuity buyer, but gives advice using their professional background to weigh the unique details of each situation.
Find a competitive settlement offer you are interested in pursuing before consulting an IPA. An IPA can better evaluate the fairness of a transaction when there are hard numbers to consider.
IPAs look at financial, legal and tax implications of transactions. They ask questions, as they consider your reasons for selling why it might be in your best interest to pursue selling. In examining finances, the IPA may look at monthly income and expenses, other major investments and economic hardships.
In order to offer a positive recommendation an IPA uses the following criteria:
- Fairness of the discount rate, i.e. any loss of settlement value
- Overall financial situation of the seller
- Welfare of dependents
The IPA often includes a statement of the federal and state income tax repercussions of selling payments. Once you’ve met with an IPA, you will sign documents acknowledging that you understand the transaction.
Is an IPA Letter Required by Law?
In some cases an IPA letter is required by law. State laws, court orders and buying companies may require sellers to consult an IPA. You, as the seller, always have the option of seeking independent financial advice in assessing your situation.
Ohio, Delaware, Maryland, Maine, Minnesota, Missouri, North Carolina, Alaska, and Louisiana require an IPA letter before a judge can approve a transfer. Some states strongly encourage consultation, even if a letter of recommendation is not obtained, and others require buying companies to advise sellers in writing of their option to consult an IPA.
All states require sellers to receive or waive the right to receive independent financial advice. Some states require written notice of the waived right. When a transfer looks as though it will put the seller at risk, courts and buying companies may recommend a consultation.
Certain buying companies, such as Annuity.org partner CBC Settlement Funding, recommend sellers get an IPA letter even if it is not required in that state. If you work with a buying company that does not encourage you to get a third party opinion, or worse, discourages you from consulting outside sources, consider working with another company.
Keep in mind that you don’t want a buyer, seller or stakeholder telling you what to do. You want an independent source to consider your situation and what is in your best interest. All sellers are permitted to meet with an IPA—it’s your right to get an honest evaluation of the situation.
If you had a clear way to avoid buyer’s remorse, would you pass it up?