Feature: is 'shopping' settlement brokers a good idea?

Shopping for better rates is a common practice when purchasing insurance, to the point that one major auto insurer even offers to provide consumers with their competitors’ rates. But is shopping around for a life settlement broker a good idea for a consumer looking to hit the secondary market as a seller? The question drew a mixed response from a panel of life settlement brokers at a recent Life Settlement Summit in Philadelphia sponsored by the National Underwriter Company, Cincinnati, Ohio. Some on the panel arguing strongly for exclusivity while others appeared more willing to accept the notion of being “shopped” as policyowners try to find a higher bid. A difference of opinion exists on the issue, even among brokers, acknowledged Rob Haynie, managing director of Ft. Lauderdale-based Life Insurance Settlements, Inc. “The bottom line is you’re going to have different philosophies” between those who are willing to accept another broker shopping the same policy and those who require exclusivity, he said. Among those strongly in favor of exclusivity was Robert Finfer, president and chief executive officer of Integrity Capital Partners LLC in Bethesda, Md. Integrity, he said, has even made a policy of requiring exclusivity for the cases it brings to market to ensure that other brokers aren’t working on the same policy. Exclusivity can actually be a benefit for the client, creating a “much cleaner and clearer” transaction, said Jon Mendelsohn, president and CEO of Ashar group, LLC, in Orlando. When a case is brought through two different brokers, he said, it can become a circumstance where “two different stories” are being told to providers about the same policy, creating confusion and making the policy less attractive to buyers. While pitting brokers against one another will likely create confusion, the goal should instead be trying to get providers, who represent the purchasers on the secondary market to compete against each other. “The key,” Mendelsohn said, “is provider competition, not broker competition.” But shopping a broker can be different from shopping for a broker. “It comes down to ‘what does the broker offer?’” said Scott Kirby, co-president of Orlando-based Advanced Settlements Inc. One of the challenges facing the life settlement brokerage industry, Kirby said, is that the business is not overwhelmingly difficult to get into, and that a broker entering the business just recently may know the same funders that a broker in the business 10 years knows. What the decision comes down, to, he said, is the needs of the advisor or agent, and if the broker has what the advisor needs in terms of staffing, errors and omissions coverage and compliance issues. “A lot comes down to what brokers will charge you, transparency, and what services they can provide,” Kirby added.
“It’s fair to ask, ‘how long have you been in business?’” he said. “I wouldn’t trust my policy with (a firm that) has been in business for 10 days.”
While Kirby was not necessarily a big fan of shopping a policy through different brokers, he said that an advisor or agent should at least keep it reasonable. Going through more than two or at worst three brokers gets “kind of sloppy,” he noted. But he also acknowledged that, to some degree, shopping brokers is part of the business. “The reality is, you’re going to get shopped,” he said, adding that the situation may be no different for those bringing the policy to a broker. The agent or advisor bringing the policy, he observed, “may be getting shopped, too.” If an agent or advisor is looking to shop a policy, however, J. Russel Dorsett, co-managing director at Northport, New York-based Select Life Settlements Corporation and the moderator of the panel, advised at least giving both brokers an even shot. “If you’re being shopped, and you’re the second guy starting a month behind, there’s almost no point,” he said. Most providers, he added, operate on a “first in complete” basis, meaning that they work with the first broker to submit a complete file and that’s it. “If you’re going to use two brokers, don’t bring somebody in six weeks into the process,” Dorsett said.