As in the primary life insurance market, an advisor can work with a broker to shop around a life policy for settlement in the secondary market. Or, an advisor can try working directly with a life settlement provider. Which is best?
Working with a broker on a life settlement transaction will provide a representative for the seller’s interest, says Patrick Duke, managing principal of Chesapeake Financial Settlements LLC in Rockville, Md.
“By using a broker instead of going directly to the funders, you’re engaging someone to act as a fiduciary on your behalf,” he says. By comparison, when an advisor works with funders or providers, they are working with entities that are seeking to meet the goals of their investors. “They’re in the business of buying it for as little as possible,” he said.
Then again, while brokers provide a “valuable service” to their clients, they also add another layer to the process, and another party that must be compensated, points out Alan Buerger, chief executive officer of Philadelphia-based Coventry.
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“They are another intermediary in the chain,” he says, “and they’ve got to get paid.”
Buerger says he has received e-mails from agents asking about money going to a broker, money he notes that could either be used to increase the agent’s compensation or be passed along to the policyholder.
As an example, he points to a recent case in which an agent was asking about $25,000 being taken by a broker that would have made a $250,000 offer to the policyholder a $275,000 offer. “That is a material amount,” he says.
Of course, many professionals helping clients find an appropriate life settlement have experience with the insurance industry, and they may not want to share their commission with someone slse. However, Duke says that life settlements are a distinct type of transaction, and “that’s not the business they’re in.” Working with a life settlements broker, he says, is just the same as a producer going to a brokerage general agent.
Brokers, Duke notes, are also capable of meeting the needs of a client within the process itself. Going through a broker does not slow the transaction and in fact gives the client the opportunity to seek out the best possible deal, he adds. “It depends on the client,” he contineus. “We’ve had clients who say ‘I need this money now’ and we’ve had others who are more interested in getting top dollar.”