More and more planners, according to the latest surveys, want to be wealth managers, the type of advisor who helps high-net-worth individuals preserve their wealth and become even wealthier by providing a range of family-office-like services. Joe DiGangi’s business model is based on serving an entirely different type of client. Most of the people who seek out his services are heavily in debt and although they, like everyone else, wouldn’t mind being rich, they usually have more pressing problems.
What separates DiGangi, a sole practitioner based in Easton, Pennsylvania, from most other planners is his specific client niche–recipients of large personal injury settlements. In addition to being a CFP, DiGangi is a certified structured settlement consultant (CSSC). He also stands apart from most other structured settlement specialists, he claims, since he can create a multifaceted plan that allows his clients to make the payout last the rest of their lives, or at least as long as the settlement agreement intended.
Some of the specialized skills DiGangi brings to his advisory business were developed in the early years of his career when he worked as an insurance claims adjuster and on the insurance side of the structured settlement business.
“One of the things I learned working on the insurance side was that our job was to make the plaintiff whole, not to make him rich,” DiGangi explains. “The goal was just to get him to where he was one second before that accident. Now that I’m working on this from the plaintiff’s perspective, I realize that going in. They’re not going to be rich. We have to get as much value from those bottom-line dollars as possible.”
When he received his CFP in 1991, DiGangi set up a consulting business that he ran on the side while still keeping his full-time job with a structured settlement company. During that period, with the blessing of his employer he would often work with plaintiffs’ attorneys with whom he had a good relationship to help their clients make the most of the settlements they received. By the time the firm he worked for was acquired by another entity, he had decided that he not only wanted to approach the business from the client’s side, but that he’d have to go out on his own to reach that goal. In 2002 he renamed his advisory business– which he operates with the help of a single assistant–Everest Financial and Settlement Consulting.
“If you turned your ankle and broke it and you’re coming into a settlement of $3,000 to $10,000, you don’t need me. It’s not going to change your life; It’s just bonus money,” he says. “The types of people I work with are usually catastrophic cases where the people have lifetime medical issues, a change of lifestyle, emotional issues, and potential bankruptcy. A lot of times I’m getting called in on a case where people have been run through the system, there’s little or no negligence on their part, and they’re thrown into a situation where they have emotional and financial issues unlike any other type of client.
“I help them on the road of what to do with the money,” he continues. “Then when the settlement or verdict comes in, we implement the plan. I manage the money and furnish the products that they need to get on with their life.”
DiGangi points out that these people need the help. “Nine out of 10 of the recipients of ‘large’ settlements have nothing left within five years,” he explains. According to DiGangi, the three most financially vulnerable groups are lottery winners, retirees taking large lump-sum payments from employer retirement plans, and recipients of personal injury settlements. Moreover, these are not people who are familiar with large sums of money, explains DiGangi of his typical client. “I’m not taking a high-wealth individual and moving [their accounts] from their broker/dealer to my broker/dealer because this product’s better than that product. I’m taking somebody who’s probably been an average earner or less who’s now coming into a multimillion-dollar settlement. They don’t have that kind of experience, they don’t have that kind of knowledge, they don’t have that kind of network of advisors that can help them. Usually, they don’t know anyone else who has that kind of money.”
Victimized a Second Time
“The unique clients that I now serve have had a life-altering incident and many times they are in bad shape emotionally and financially. They’ve been victims once and they’re heading toward being victims twice. The first time is the accident, and the other is being successful in their life after settlement. People just aren’t ready for it.”
DiGangi has observed that for many people just getting to the point of settlement is such an arduous process that they are unprepared to deal with the aftermath of the settlement. If they make just a few mistakes with the settlement proceeds, “things can go down hill real fast. That’s why so many people go down the tubes after they’ve settled.”
Another thing that makes DiGangi’s practice different than the typical advisor’s is that his clients aren’t coming to see him with 401(k)s or pensions or portfolios of mutual funds and equities that they want his help managing. “Debt rules at this point,” he says of his initial meetings with most clients. “The first thing that we look at is to just get back to ground zero as far as paying off their debt. Then we look at placing some money in a savings account, investing, and creating an income flow.”
DiGangi says he does get called in on the occasional case where it’s a wrongful death suit filed by the surviving spouse, and the couple has financial assets and there was no extended illness or catastrophic medical bills. In those cases, his approach is much like that of any traditional financial planner, but such clients are the exception rather than the rule. He also has a stable of some 75 clients for whom he does provide advice and asset management, but they are not the bulk of his business.
The Other Client
Besides the recipient of the personal injury settlement, DiGangi’s business model also recognizes another client–the plaintiff’s attorney. “My company offers litigation support,” he explains. “In other words, we evaluate the case value by looking at the economic damages and the non-economic damages because I’m trained in evaluating liability positions. I always work with the plaintiff’s attorney to see how he views the case and then I’ll put an economic analysis together which can create an environment for negotiations.”
In his specialized area of planning, professional referrals are even more important for DiGangi than for the average advisor. Not surprisingly, many of his advisory clients are referrals from attorneys satisfied with the services he’s been able to provide in previous cases. He also gets the occasional referral from a contact from his days in the insurance business. DiGangi points out that for the most part, insurers want to settle claims and clear them off the books, and he can help achieve that. He also gets cold calls from accident victims who know somebody else he helped.
Regardless of how he and the client get together, DiGangi’s first order of business is always helping them separate what they need from what they want. “A person needs a home to live in,” he explains. “What you need is handicap accessible; what you want is a mansion and servants to carry you. I know when it comes to the insurance company, they’re going to be adjusting to the needs–not the wants. I have to anticipate that.”
For DiGangi to do his best work, he feels that it’s extremely important that he be called into the case as early as possible so that he and the client can get to know each other. “When I worked on the insurance side, sometimes I’d first meet the plaintiff on the courthouse steps,” he says. Establishing a relationship with the client allows DiGangi to better assess the individual’s wants and needs and their risk tolerance. He always asks clients about their expectations for the settlement–what it will do for them, how it will change their lives–since the answers provide a great deal of data that in invaluable in the planning process.
“These people need guarantees,” he says. “They need to know that no matter what the market does, regardless of what happens in their life, that they’re going to have enough to sustain them.”
The primary way that DiGangi and other structured settlement specialists help provide those guarantees is with structured settlement annuities, a specialized product not available to the traditional financial planner following the wealth manager model. The annuities offer some serious advantages to the settlement recipient. In addition to a guaranteed regular income stream, the annuity can be structured to provide lump-sum payments at various intervals.
The IRS allows the recipient of a personal injury settlement to take part of the settlement in cash and future benefits. Those future benefits–in the form of income from an annuity purchased at the time of the settlement–are 100% federal tax-free. Income from any other investments purchased with a lump cash settlement would be taxed at the taxpayer’s regular rates.
Without the aid of a professional planner such as DiGangi, most successful plaintiffs are liable to wind up with a long-term annuity and a large cash payment, but little idea of how to make the most of their new situation.
To help plot out the future for his clients, DiGangi draws up a full financial plan that includes the settlement annuity, other insurance products to provide medical coverage, and a range of appropriate investment options. He also works to coordinate settlements with public benefits such as Medicare and where necessary work with an attorney to set up a special needs trust. Like any other commissioned rep, in this case his revenue stream comes in the form of commissions on the products the client chooses.
Alternately, if the clients just want his advice but choose to invest the rest of their money aside from the settlement annuity through some other advisor, he charges an hourly rate for his advice. “My business model is set up so that I have no axe to grind,” he says. “I have no conflicts in what you decide to do. If it’s settlement annuities, investments, insurance sales, advice, my business model is set up so I can help you with it. It’s really a blending of the best of both worlds. I can use the settlement annuities to the extent necessary and I can use all the other products and services to the extent necessary. I look at it from a total needs-based evaluation for the plaintiff.”
The point that DiGangi continually returns to is the importance of stressing to his clients that while it may seem like they’ve come into a large amount of money, that money has to last a long time and pay for years of necessities. “They can’t just stick the money under their mattress,” he asserts. “There’s a definite need for products and services based on what they’re going through and what they have to set up for the rest of their life.”
He also stresses the importance of balancing the need for income guarantees with enough flexibility to allow the client to react to any future crises. “Oftentimes people will commit to the structured settlement without really thinking it through, and then life throws them a curveball. Now they go back and sell their settlement annuities for pennies on the dollar.”
DiGangi also mentions that most states have adopted rules that mandate court approval before all or part of a structured settlement annuity may be liquidated. “But my goal is to make sure that these people have enough flexibility so that they don’t have to break their annuity, but enough of an annuity that they don’t have to dip into the investment side for living expenses. If a settlement is supposed to last a lifetime, I want to put a plan together that will help them insure that it will, as long as they stay with the program.”
Managing editor Robert F. Keane can be reached at [email protected]