Michael Abraham

  January 02, 2011 at 6:25 pm

As 2010 draws to a close and the dawn of a new year beckons, those in the life settlement industry look forward with renewed optimism. By most accounts, the life settlement industry’s bottom is behind it and the secondary life insurance market is now in the process of recovering. How much and how fast is still to be determined. However, below are the Top 10 Predictions For Life Settlements in 2011.

1) Secondary Market To See Increased Buying. As everyone knows, capital has been slowly reentering the life settlement market but it is still off the highs experienced prior to the Great Recession. Much of the activity in 2010 was focused on tertiary trades and investors looking for distressed policies or portfolios. As those opportunities become less available in 2011, capital will be redirected to secondary market activities and policy origination.

2) Private Equity Will Arrive: As the investment banks and other types of investors left the market in 2009 and 2010, everyone has been anxious to identify the next big player. Much attention has been paid to Private Equity and in 2011 it will arrive. Rumors have been swirling that PEG’s have been looking for acquisitions of established market players and have recently started funding some providers.

3) Higher Life Settlement Broker Utilization In the past, it has been relatively easy for producers to act as de facto life settlement brokers. However, new industry best practices suggest life settlement brokers are preferred as intermediaries for policy owners interested in a life settlement. Not only are brokers more able to source small pockets of capital, but more stringent licensing, regulatory and compliance requirements make it difficult for anyone but brokers to effectively navigate the landscape. 2011 will see producers more likely to refer cases to life settlement brokers than try to handle them autonomously as they may have in the past.

4) Small investors will make a splash: Many have been waiting for institutional investors to flood the life settlement market with capital, while forgetting that high net worth individuals and family offices in aggregate have the potential to play a serious role. With an eye towards diversification and predictable returns, expect accredited investors and family offices to be active buyers, as never before, in 2011.

5) Continued Push Towards Regulation While approximately 20% of the states remain unregulated, the writing is on the wall that change is imminent. Some of the key unregulated states already have legislation in the works and consumer protection is a hot button issue that resonates with legislators. Expect the trend of consumer friendly life settlement regulation to continue in 2011.

6) Agents and Advisors Will Have To Address Life Settlements Like Never Before In 2011 expect numerous states to adopt the new NCOIL model act requiring carriers to notify consumers of the life settlement option when policies are to be surrendered or allowed to lapse. Agents and financial advisors that previously didn’t consider life settlements in their practices will now be forced to address the issue as carriers drive policy holders with questions and inquiries to those on the insurance front lines.

7) Greater Focus On Information Security For too long, sensitive insured and policy owner information has been transmitted between agents, brokers and providers using insecure methods such as email. In 2011, as industry best practices demand secure data transfer, expect much higher utilization of specialized life settlement software such as Settlewerx and others.

Smaller Providers While the big players aren’t going anywhere, expect the trend of boutique providers serving smaller pockets of money and niche investors to continue into 2011.

9) Asian Investment US and European investors are the stalwarts of US life settlement investments. In 2011, expect to see more capital coming from Asia and the Middle East, which are relatively untapped sources of investment capital. Newly established offices and initiatives in that part of the world should begin to produce new funding sources in the coming year.

10) Broader Buying Parameters While cherry picking great policies at a discount was the name of the game in 2010, expect 2011 to bring a broader approach to buying. With increasing competition for policies, buyers will have to consider cases that might not have otherwise received bids in 2010.

With the broader economy improving and capital returning to the markets, 2011 promises to be an improved life settlement environment. For those that were able to survive the past two tumultuous years, they will hopefully be rewarded with a fruitful 2011.

Commentary by Michael Abraham:

As you know this commentator is always positive about the market and there is little above with which I would disagree.  However, there are a number of clouds on the horizon, particularly for the retail investor, not least the failure of the German fund managed by Berlin Atlantic.  As I point out in response to another article this is hardly their fault, nonetheless the wolves are massing and with the likelihood that there will be a 100% loss of investors’ and bond holders’ funds, for more than 8000 investors, the fallout will be tremendously damaging.

 http://technorati.com/business/article/top-10-life-settlement-predictions-of/#ixzz1CDnfLYIf

Story by: Julia Bradshaw

Advisers in the UK are calling for more guidance and education from the FSA on the life settlements asset class, according to research from PDL International.

The independent survey, carried out on PDL’s behalf by NMG Consulting with 353 investment IFAs, revealed that more than one-third of financial advisers wanted clearer guidance from the City watchdog.

The survey also revealed that 30 per cent would like increased transparency on how life settlements work and how risks can be mitigated. A further 27 per cent of those surveyed said they wanted more education and support from providers and industry trade bodies in dealing with life settlements.

Sven Kuhlbrodt, managing director of PDL International, said: “Advisers recognise that they have an obligation to their clients to possess a full understanding of life settlements so that they are in the best position possible to offer informed advice, whether they are recommending them or dismissing them.

“As an industry we have an equal duty to help advisers build up this understanding of life settlements. That includes the FSA, to whom IFAs are clearly looking for guidance. It also includes providers such as us.”

Since the FSA raised concerns about life settlements, the European Life Settlement Association has launched a code of conduct. PDL International is also using online guides, tests, microsites and presentations to fill the knowledge gap surrounding the life settlements asset class.

Mr Kuhlbrodt said: “With economic uncertainty set to continue into 2011, advisers are increasingly considering products that are uncorrelated to traditional markets. Life settlements are one such product. PDL International is committed to working with advisers, addressing their concerns over transparency and risk, and opening up this asset class to investors.”

PDL International recently launched a life settlements product, Cascade Portfolio, and investors can purchase interests in a range of life settlement policies, which the firm claims addresses many of the FSA’s concerns about transparency, longevity risk, counterparty insolvency and liquidity.

Christopher Wicks, director for Manchester-based Bridgewater Financial Services, said: “I am not an expert on life settlements and I do not use them, but I did investigate the asset class before I rejected it because there were too many uncertainties about the way life settlements work.

“There are also risks incurred when people invest that are too unpredictable and the asset class went badly wrong last year.”

In February last year, Peter Smith, head of investment policy in the FSA’s conduct policy division, said: “We are monitoring the provision, marketing and uptake of these products.

“Where we have discovered issues with the firms involved in the production or distribution of these products in the past they have been subject to supervisory actions and, where necessary, enforcement proceedings. This is an approach that we will continue to pursue in future.”

Commentary by Michael Abraham:

Education is definitely necessary but why oh why doesn’t  the FSA, rather than keep complaining and acting like spoiled head teachers, actually do something and insist that all IFAs take extra courses on products such as Life Settlements and furthermore ensure that they must pass the relevant exams in order to retain their licence.  It is so simple and if only the Life Assurance Association and Sir Mark Weinberg had been listened to in the early 80s licensing and continuing education  would have become mandatory and many errors and frauds avoided.

Life Partners Holdings Inc. ended its latest fiscal quarter with lower profits but more cash.

Life Partners, Waco, Texas (Nasdaq GS:LPHI), is reporting $7.1 million in net income for the quarter ending Nov. 30, 2010, on $26 million in revenue, compared with $8.4 million in net income on $31 million in revenue for the comparable period in 2009.

The amount of cash on hand increased to $28 million, from $23 million, and total current assets increased to $47 million, from $42 million.

“While revenues for this quarter were somewhat lower than expected, our balance sheet grew stronger, and investor interest in life settlements remains consistent,” says Life Partners Chief Executive Brian Pardo.

- Trevor Thomas

Source: Life and Health Insurance News

Commentary by Michael Abraham:

Let’s hope their financial success will be mirrored in their dealings with the SEC. We cannot do with another scandal!

Posted October 22, 2010 2:50PM PST

Fortress Investment Group has reached an exclusive agreement to buy the $6.2 billion KBC Financial Products distressed life settlements portfolio, beating out Apollo Global Management and provider Coventry First, according to a person associated with Apollo.

The deal was signed yesterday with the global investment management firm based in New York, according to another person familiar with the situation.

The sales price was not immediately known.

“Apollo was informed last night or this morning. KBC called and basically said that they’ve entered an exclusive intent to move to purchase and sale,” a person said.

“It now gives Fortress two weeks to come to an agreement with KBC. Exactly what will be in the purchase and sales agreement has to be negotiated in two weeks. If it doesn’t get an agreement, then there’s a breakup fee,” the person added.

“That tells me KBC feels it will come to an agreement,” the person said, adding KBC is working with “a formidable law firm.” The law firm is said to be O’Melveny & Myers.

Apollo is said to be eligible for a significant breakup fee.

“Apollo is very disappointed, especially our team. Apollo is prepared to raise our bid substantially if [the deal] comes back,” the person added. “There is a slim chance it could come back.”

However, the person said that Apollo is likely to remain in the market and look for other opportunities.

The person speculated that perhaps Fortress offered a cleaner deal. The deal with Apollo required KBC to work with it on a liquidity facility. The Oregon Investment Council, which committed $100 million to invest in the deal with Apollo, said in a staff report that the portfolio expected a 15% to 22% internal rate of return with a leveraged 5x multiple of investment capital.

Apollo planned to raise $525 million and its partners expected to invest $37 million in the portfolio of just less than 1,000 policies.

Fortress in New York did not return emails or phone calls from The Life Settlements Wire.

David Taieb, executive vice president of insurance derivatives for KBC in New York, declined to comment, saying the firm’s spokesperson in Brussels could be reached on Monday.

Alan Buerger, chief executive of Coventry First, a Fort Washington, Pa.-based provider, declined to comment.

Commentary by Michael Abraham:

As we do not know what they paid it is difficult to comment, other than I am pleased that this portfolio is out of the market.  In this writer’s opinion it is the apparent availability of portfolios that is depressing the new purchase market.  Why apparent? The portfolios out there are being promoted by many different advisers and the impression given is that there are many to buy.  This is not the case and of the ones that are out there many have little, or no, value!  They do however look good to people who are new to the industry.  It is after all much easier to have a credit committee understand the value of a portfolio that they can see, rather than one that has yet to be obtained!  And therein lies the rub.

http://lifesettlements.dealflowmedia.com/wires/article.cfm?title=Fortress-Winner-KBC-62B-Portfolio-Auction&id=xrtrsyngapzdxoy

Submitted by Steven Meyerowitz on Fri, 10/22/2010 – 11:13am

A life settlement is an investment in which a person sells his or her life insurance policy for a cash payment, which is a percentage of the policy’s face value or death benefit. When they work properly, these transactions can provide needed cash to the insured, and a profit to an investor. They don’t always work properly. Consider the case of Eric M. Kurz.

Kurz has just pleaded guilty to conspiracy to commit mail fraud and money laundering in conjunction with his actions as a wholesaler of investment products for A&O, a group of businesses that acquired and marketed life settlements to investors.
 
Three principals of A&O were charged last month in an 18 count indictment for their alleged roles in the scheme. They are awaiting trial.
 
According to the government, A&O was founded in November 2004, and obtained life settlements from a wholesale life settlement company, then marketed and sold whole and partial interests in those life settlements to investors. In the statement of facts filed with his plea agreement, Kurz admitted that from September 2005 to November 2007, he was affiliated with A&O, creating marketing materials for A&O’s sales agents to distribute to potential investors. He also admitted that with his co-conspirators, he published information on an A&O website. Kurz knew that the website and marketing materials contained specific misrepresentations about A&O’s management and past success. According to the statement of facts, A&O obtained approximately $100 million from investors in 38 states and in Canada from 2005 to January 2008, based on the material misrepresentations and omission by Kurz and his co-conspirators.
 
Kurz pleaded guilty before U.S. Magistrate Judge M. Hannah Lauck to a one count criminal information alleging conspiracy to commit mail fraud and money laundering. At sentencing, he faces a maximum penalty of five years in prison and a $250,000 fine.

Commentary by Michael Abraham:

Fraud is an unacceptable aspect of most, if not all, emerging businesses.  The unscrupulous will take advantage of the lack of knowledge of the public and the regulators. How bad was this misrepresentation, did it actually affect the purchaser? Without reviewing the case papers it is difficult to say.  But what will be interesting to see will be the severity of the sentence, this will surely indicate the seriousness of the transgressions.  I await the release of that information with interest.

http://www.financialfraudlaw.com/lawblog/guilty-plea-100-million-financial-fraud-involving-life-settlements/1614

By ARTHUR D. POSTAL

Published 10/20/2010 

WASHINGTON BUREAU — A top life settlement industry official this week said that despite current opposition from some underwriters, he believes the life settlement business will soon become an integral part of the life insurance industry.

Calling integration of the life settlement business  into the life industry “Act III,” Alan Buerger, co-founder and chief executive officer of Coventry First L.L.C., Fort Washington, Pa., said, “We are about there; that is self-evident.

“Carriers will invest in the business,” Buerger said. “Carriers will learn about our industry; we are already working with carriers who are investing in one way or another or participating in the industry.”

Buerger said the life insurance industry will see longevity insurance “where people in our industry will participate in, along with the carriers, and help the carriers design the new products.”

The shift is being generated, he said, by the fact that people are living longer. “There is a real concern about people living too long and outliving their ability to maintain their needs in their retirement,” he said. “So Act III will be very vibrant; we will see the industry coming alive. We have a great, great, future.”

Buerger made his comments at a life settlement conference sponsored by Fasano Associates, Washington.

He said he believes life settlements will become an integral part of the life insurance industry even though some carriers engage in

“numerous tactics to delay, interfere, and suppress the competition created by life settlement transactions.”

He said this interference “includes, but is not limited to,” delaying or failing to provide illustrations, policy validations, verifications in coverage, and changes of ownership documents involved in life settlement transactions.

Buerger also talked about what he says are cases of some carriers delaying paying claims for life settlement transactions, refusing to reinstate or reissue policies, “engaging in scare tactics by sending alarming letters to policyholders loaded with warnings about life settlements in general,” and suing matured policy owners and agents.

Buerger said some carriers have added language to their agreements with agents and brokers to try to keep producers from discussing life settlements with policyowners or helping policyowners with life settlements.

But “I do not want to fight the life insurance industry,” Buerger said. “I don’t believe anyone in this [industry] wants to have such a fight.”

Calling the current battles with certain carriers “Act II” of the effort by the life settlement industry to become accepted by carriers, Buerger said, “We want Act II to end. We want to get on to Act III. As I said before, the purpose is not to fight for the sake of fighting but to protect consumers, investors and our right to compete.”

Buerger added, “I believe without any hesitation or reservation that by fighting back we will accelerate the beginning of Act III, and we are already seeing signs of that.”

Buerger said a truce between carriers and the life settlement industry will generate new products that will benefit carriers, and that the current situation is similar to the battle over borrowing from life policies that took place 100 years ago.

Buerger said he believes the life settlement industry “will just become another part of the life insurance industry.”

In the future, Buerger said, “[we] will increasingly see programs where instead of a cash benefit, there will there a sharing of the death benefit, with the investor taking over premiums.”

WASHINGTON BUREAU — A top life settlement industry official this week said that despite current opposition from some underwriters, he believes the life settlement business will soon become an integral part of the life insurance industry.

Calling integration of the life settlement business  into the life industry “Act III,” Alan Buerger, co-founder and chief executive officer of Coventry First L.L.C., Fort Washington, Pa., said, “We are about there; that is self-evident.

“Carriers will invest in the business,” Buerger said. “Carriers will learn about our industry; we are already working with carriers who are investing in one way or another or participating in the industry.”

Buerger said the life insurance industry will see longevity insurance “where people in our industry will participate in, along with the carriers, and help the carriers design the new products.”

The shift is being generated, he said, by the fact that people are living longer. “There is a real concern about people living too long and outliving their ability to maintain their needs in their retirement,” he said. “So Act III will be very vibrant; we will see the industry coming alive. We have a great, great, future.”

Buerger made his comments at a life settlement conference sponsored by Fasano Associates, Washington.

He said he believes life settlements will become an integral part of the life insurance industry even though some carriers engage in

He said this interference “includes, but is not limited to,” delaying or failing to provide illustrations, policy validations, verifications in coverage, and changes of ownership documents involved in life settlement transactions.

Buerger also talked about what he says are cases of some carriers delaying paying claims for life settlement transactions, refusing to reinstate or reissue policies, “engaging in scare tactics by sending alarming letters to policyholders loaded with warnings about life settlements in general,” and suing matured policy owners and agents.

Buerger said some carriers have added language to their agreements with agents and brokers to try to keep producers from discussing life settlements with policyowners or helping policyowners with life settlements.

But “I do not want to fight the life insurance industry,” Buerger said. “I don’t believe anyone in this [industry] wants to have such a fight.”

Calling the current battles with certain carriers “Act II” of the effort by the life settlement industry to become accepted by carriers, Buerger said, “We want Act II to end. We want to get on to Act III. As I said before, the purpose is not to fight for the sake of fighting but to protect consumers, investors and our right to compete.”

Buerger added, “I believe without any hesitation or reservation that by fighting back we will accelerate the beginning of Act III, and we are already seeing signs of that.”

Buerger said a truce between carriers and the life settlement industry will generate new products that will benefit carriers, and that the current situation is similar to the battle over borrowing from life policies that took place 100 years ago.

Buerger said he believes the life settlement industry “will just become another part of the life insurance industry.”

In the future, Buerger said, “[we] will increasingly see programs where instead of a cash benefit, there will there a sharing of the death benefit, with the investor taking over premiums.”

Page 2 of 2

Commentary by Michael Abraham:

While I applaud the message provided by Alan Buerger, and hope that he is correct,,I do have difficulty understanding how companies deal with paying more than the surrender value that they would normally offer; and in fact how  they can justify paying more than the market.  I suppose one way would be that they offered the buy backs as a life settlement fund investment, the profit from which would offset the book loss created by paying more than surrender value.  Interesting!

http://www.lifeandhealthinsurancenews.com/News/2010/10/Pages/Life-Settlements-Buerger-Eager-to-See-Next-Act.aspx

by Iain Martin on Oct 20, 2010 at 08:30

IFAs have criticised the new voluntary code of conduct for life settlement funds for failing to address crucial issues, against the backdrop of another fund in trouble.

Advisers say a new code of conduct for life settlement funds fails to address the main problems with the asset class, as a fresh fund in the sector hits liquidity issues.

The European Life Settlement Association (Elsa) has created a 68-point code of conduct for the sector, which follows strong criticism of the sector from the Financial Services Authority (FSA).

The code sets out a minimum standard of conduct for life settlement funds and providers, and rules for the management and promotion of the asset class, but it is only voluntary.

Crucial issues ignored

Jason Butler, partner at London-based Bloomsbury Financial Planning, said he was not convinced the code of conduct would provide more protection for investors. He said it did not address the crucial issues affecting the sector, such as how life expectancy is estimated, how transparent the funds are for investors and how many charges are levied on them.

‘Estimating life expectancy is something that major insurance companies try to do and get wrong. So why should you trust someone sitting in the Cayman Islands who says they know better?’ said Butler (pictured). ‘There are so many hands in the till and there is nothing left for the client.’

Addressing ‘Keydata’ problem

Elsa chairman Patrick McAdams said the code had been launched to prevent the recurrence of problems like the collapse of Keydata Investment Services, which had heavy exposure to life settlements.

‘As is often the case with new asset classes, teething problems, some of them serious, have occurred within life settlements,’ he said. ‘Sadly the better known of these problems have wrought painful damage on both investors’ pockets and the reputation of the asset class. They have also taught us some important lessons, however, and these lessons form the foundations of this code,’ said McAdams, who is investment director of life settlement fund group SL Investment Management.

The code includes a requirement to inform investors whether companies connected to funds are rewarded through commission or performance fees. Keydata founder and director Stewart Ford’s arrangement to receive 10% of all assets invested in life settlement vehicle Lifemark would have had to be disclosed under the rule.

Commentary by Michael Abraham:

How interesting that Patrick McAdams would comment on this when he, as a Director of SL, is himself supplier and investment manager to a fund that has just stated:  (the fund) “has experienced a surprisingly low rate of maturities’’. SL also advises the doomed Avon Fund.  Investors have every right to ask ‘do these guys really know what they are doing?!’  As a voluble critic of mine I might ask him to consider that while my own troubles resulted from the fraud of others his could appear to be rank stupidity

http://citywire.co.uk/new-model-adviser/life-settlement-code-falls-short-of-expectations/a441091 

October 19, 2010 10:00 AM Eastern Daylight Time 

WASHINGTON–(BUSINESS WIRE)–In his opening remarks to over 200 industry participants attending Fasano’s 7^th Annual Life Settlement Conference, Michael Fasano, President of Fasano Associates, called for more transparency from life settlement intermediaries.

“We should not minimize the real differences that continue to exist among Life Expectancy underwriters and we should be willing to present Actual to Expected experience based on the actual life expectancy estimates given to our clients, and not limit our disclosures to hypothetical results based on adjusted estimates.”

Fasano described the industry as being at a crossroads as new sources of capital evaluate historically high rates of return. Said Fasano: “We should not minimize the real differences that continue to exist among Life Expectancy underwriters and we should be willing to present Actual to Expected experience based on the actual life expectancy estimates given to our clients, and not limit our disclosures to hypothetical results based on adjusted estimates.”

Fasano added: “Most importantly, intermediaries must stop the practice of only sharing shorter LEs with their clients or, as bad, only ordering LEs from those underwriters who are known to produce shorter LEs. LEs should be ordered and disclosed based on who is believed to be most accurate, not who is the shortest.”

Fasano was followed by Coventry CEO, Alan Buerger, who predicted that, ultimately, life settlements would be accepted by the life insurance industry, but that in the meantime, the industry needs to fight back against those in the life insurance industry who have tried to thwart legitimate secondary market transactions.

Tim Roberts, CEO of Catalyst Investments, talked about the need for transparency, accountability and good regulations for life settlements and argued that life settlements were no more complex than equity investments and, if done properly, appropriate for retail investors.

Cormac Treanor of Wilton Re explained the reasons for the Absence of a Developed Market in Extension Risk Protection, while Pricewaterhouse Coopers’ partner, Larry Rubin, covered the elements of valuing life settlements in portfolio audits.

Additional presentations were made by Tom Weinberger, Partner of Strook & Strook & Lavan, Franz Schmidpeter, Managing Director of Augur Capital, Hasham Malik, Chief Capital Markets Officer of Peachtree Settlement Funding, and Dr. David Vaughan, Chief Medical Director of Fasano Associates.

Fox News Analyst, Michael Barone, ended the Conference with his views on the likely impact on financial markets of the upcoming mid-term elections.

About Fasano Associates:

Fasano Associates is a leading underwriting consulting firm serving the life, health and life settlement industries

Commentary by Michael Abraham:

Mike Fasano makes a fair point, but, who is more accurate? When the bulk of the policies have been bought since 2005 and with LEs out as long as 15 years, how can anyone swear to the efficacy of their evaluations?  Numbers, spread and dynamic valuation is what is needed!

http://www.businesswire.com/news/home/20101019006472/en/Fasano-Calls-Transparency-7th-Annual-Life-Settlement

by Iain Martin on Oct 15, 2010 at 14:36

Investors in the Jersey-based life settlement fund Preferred Asset Allocator have been warned they have been hit by liquidity issues as one of holdings is wound up.

Preferred has asked investors to defer settlement of liabilities due to the ‘significant difficulties’ caused by the winding up of Avon Fund PCC, in which it has a stake.

Preferred, which started a merger with the Jersey-based Avon Fund PCC in February 2009, told investors it had been able to recover sufficient funds from Avon to settle with creditors.

Hong Kong-based Avon Capital began winding up the fund, which stood at $64.2 million in December 2008, in April after experiencing serious liquidity issues, according to Preferred. The official accounts for the Avon Fund up to December 2008 show the life expectancy of the portfolio jumped 12%, causing a 4.2% drop in the internal rate of return.

Avon has already sold 107 of its policies and has now entered an agreement to sell a further 48 for $7 million to an unnamed purchaser, which has lowered its bid from $8.5 million. Avon Fund investors faced at least a 30% discount to their investment following the restructuring, claimed a senior life settlement fund provider, who did not want to be named.

‘Since Preferred merged with Avon things have gone wrong,’ said an adviser with clients invested in Preferred, who did not want to be named. ‘There is no clear information about what is going on and I’m not sure how much they will be able to recover.’

The directors of Preferred have informed investors they had sought advice over possible legal action against SL Investment Management, investment adviser to both Preferred and Avon.

Avon Capital chief executive Stephen McIsaac and Preferred director Mike Rumbold both declined to comment.

Commentary by Michael Abraham:

It wouldappear that we have another fund with Patrick McAdams as the investment adviser/manager where there have not been enough maturities to pay premiums and expenses.  This is a major issue for all portfolios, they have been predicated on the purchase of large ‘healthy wealthy’ policies with a mortality curve that was too aggressive.  Buy small, be conservative!

http://www.citywire.co.uk/new-model-adviser/preferred-life-settlement-fund-hits-liquidity-issues/a439557?ref=iain-martin 

By Dave Lieber, Star Telegram

Sharon Brady realizes that she will never see the 16 percent annual return she was promised on her $50,000 investment. Worse, she realizes she may have lost most of her money.

“This actually makes you physically ill,” she says.

The retired Tarrant County sheriff’s deputy invested in what regulators describe as an alternative investment: life settlements. Her money was used to buy insurance policies of older adults who want to cash out and sell their benefits to investors. When the original policyholder dies, investors, who pay the premiums, reap the death benefits. The quicker the person dies, the greater the payoff.

As I reported in the spring, the company she invested with, Retirement Value Llc. of New Braunfels, has been shut down by the state. Now comes word from the court-appointed receiver that commissions paid to financial advisers and company officials were 30 percent.

Of $77 million raised in a year from 900 investors like Brady, about $10 million went to Retirement Value and $13 million went to sellers of the program. Brady says nobody told her commissions would be that high.

Fraud happens in all businesses at one time or another as do the incidence of high commissions.  The question of what is a high commission is open to debate but 30%+ is certainly way over the top, but it is the norm!  The real issue is that the regulations are not in place in all states but even where they are this level of cost /commission prevails and in most cases mistaken regulation actually legitimises it!  What do I mean? Well there are so many regulated levels, a referral agent, a life settlement agent, a broker and a provider and each of these requires to be paid and because of this chain of individuals the process is slowed  giving  more people more work to do and they therefore convince themselves they deserve the cash!

Commentary by Michael Abraham:

This is a case where the UK regulation of the secondary policy business really scores.  It´s a simple model and it creates transparency and competition and the broker/adviser earns 3 to 4% of invested dollars with the provider earning an average gross of circa 15% also of invested dollars a figure that creates a net profit of circa 5 – 7%. Still 20% but if you are not prepared to pay such amounts the market will not exist and then everybody loses – except of course the life insurance companies!

http://www.star-telegram.com/2010/08/26/2428028/grim-news-for-investors-in-some.html