Comparing a Structured Settlement Proposal to Other Investments?

September 5, 2018

When considering whether a structured settlement is the best choice for part of your personal injury settlement, it is natural to wonder how a structure might compare with other investments.  Often, before making a decision, people take our structure illustrations to a financial planner or advisor at their bank for a second opinion.

All too often, we are subsequently told “my financial advisor said he or she could do better” and, in the end, none of the settlement funds are structured.

The truth is that achieving a better result than a structured settlement, even in the current interest rate environment, is much harder than you might think.  Even the most experienced and capable financial advisor would be hard-pressed to achieve a net return that matches the returns available from a structured settlement, much less outperforms them.

While seeking a second opinion is generally a good idea, bear in mind that traditional financial planners or advisors cannot implement structured settlements and, accordingly, their understanding of how structured settlements work is limited at best.

When comparing structured settlements to other investments, it is important to compare apples to apples, not apples to bananas!  The Financial Planning Standards Council (FPSC) can be of assistance with this.

The FPSC recommends that prudent financial planners, when they are providing illustrations of projected gross returns for conservative investors, assume returns of no more than 4.48%, before fees and taxes.  The FPSC guidelines can be accessed by clicking here.  A return of 4.48% (which is a projection only, and not guaranteed) will then be reduced by fees and taxes and may also affect the plaintiff’s eligibility for various means or income-tested Government Benefits.  When these often overlooked factors are taken into account, these other investments simply cannot compete with the “in your pocket” returns from a structured settlement.

Bear in mind that projected returns from financial planners or advisors are not guaranteed and are subject to market pressures and volatility (past results are no guarantee of future performance…).

The same FPSC Guidelines suggest an assumed projected gross return of just 6%, before fees and taxes, for even the most aggressive investor.  When even nominal fees and taxes are considered, that return hardly seems worth the increased risk!

In the end, no matter the interest rate environment, structured settlements continue to offer higher guaranteed rates of return than the FPSC guidelines, because they carry no fees, are tax free, and do not affect income-tested Government Benefits.

For more information, please contact us.