The Growing Compliance Risks of Neglecting Life Settlement Discussions

Posted on June 23rd, 2023 at 1:58 PM
The Growing Compliance Risks of Neglecting Life Settlement Discussions

From the Desk of Jim Eccleston at Eccleston Law.

According to a recent article in Wealth Solutions Report, broker-dealers should consider enhanced oversight pertaining to suitability, recommendations, and the use of funds obtained from life settlement transactions. How advisors reallocate the proceeds and select investments, especially when they earn fees from those investments, could raise concerns about conflicts of interest and whether they prioritize the client's best interests.

Life settlements are gaining renewed attention. Recent demographic, regulatory, and economic shifts have contributed to the renewed interest in this alternative option for policy cancellation.

According to Jamie L. Mendelsohn, an expert in the field, 87 percent of life settlement transactions involve seniors aged 70 to 100, highlighting a vulnerable population with limited knowledge about life settlements beyond what they see in commercials or on social media.  Mendelsohn reports that financial advisors often face client inquiries regarding their family or business-owned life insurance policies. However, advisors may find themselves on a precarious path without the necessary expertise in valuing policies or access to reliable, comparable data. It is not uncommon for policies to be surrendered at a fraction of their true life settlement value, resulting in missed opportunities for clients. Mendelsohn claims that, on average, clients could receive five times more than the cash surrender value through life settlements.

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: Eccleston, Eccleston Law, Life Settlement, Broker-Dealers

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