Law Times

Law Times • November 28, 2016 Page 13 www.lawtimesnews.com Low interest rates mean challenging sales environment BY MICHAEL MCKIERNAN For Law Times W ith interest rates hovering around all-time lows in Canada and around the world, structured settlement brokers face a tough selling environment, according to brokers. The products, which divide large court settlements into regular tax-free installments, have established themselves as a popular alternative to lump sum payouts over more than 30 years in this country, particularly in cases involving catastrophic in- juries. Still, with the double-digit interest rates of the 1980s still within living memory for most Canadians, Laura Mullin, a principal at Guelph, Ont.-headquartered McKellar Structured Settlements, says the products have gained an undeserved reputation as a low- return investment option. "One of the things you hear people saying is that 'it's too bad rates are so low,'" she says. "But when you compare it to other guaranteed investments, there is nothing else that can provide a better return at today's rates." The Government of Canada's long-term bond rate has hov- ered around the two-per-cent level for the last year, while a 20- year structured settlement can achieve a return of around three per cent. But even that doesn't tell the full story, according to Mullin. "If you look at a return of three per cent, where you don't pay tax, there are no management fees and no risk, that's something any financial planner is going to have a hard time trying to match. Once you take those things into account, you would have to get a pretty significant return just to match it," she says. In addition to their tax-free status, payments from struc- tured settlements do not show up at all as income on recipients' tax returns, which means the injured party may be able to re- ceive other types of benefits from which their income level would normally disqualify them. "That's something people of- ten overlook," Mullin says. Kyla Baxter, president of To- ronto's Baxter Structures, ac- knowledges that interest rates are not as high as she would like, but she says it's all relative. "Yes, the rates are not great in the structure market, but they are also not great in the outside market," she says. Even if people are able to find an investment opportunity with a potentially higher rate of return, Baxter says they need to consider the f lip side of the coin: the risk of losing their capital. "Our clients are unique with unique needs. They have a very different risk-tolerance level than the average investor and often that is, unfortunately, overlooked. The majority of our clients need the protections in place; they can- not afford any risk. Most are not able to work and rely on the struc- ture as income, and often for their care," she says. "People often get hung up on the internal rate of re- turn. Sure it's great to get the best return, but the focus should be on whether this is the best plan for the claimant." According to Mullin, the firm's success rate when they get to explain the product is relative- ly high. The problem is getting to that point, she says. Despite their relatively long history in the legal system in Ontario, knowledge of structured settlements does not extend far into the general popu- lation, meaning accident victims are unlikely to know about them as an option. "It all takes a bit of explaining, but when we sit down either with an injured person or their rep- resentative, I think we're good at getting across the benefits. It can be a revelation to them," she says. "Part of the problem is that many clients we don't get to meet at all, because of the perception that it's not a good investment. In a low-interest environment, it's an idea that gets dismissed a little too quickly, I think." Russ Howe, a partner at Au- rora, Ont. personal injury bou- tique Boland Howe LLP, says he takes care to talk his clients through their options when it comes to structured settlements and tries to tailor his descrip- tions depending on their level of financial sophistication. "I have clients who work in the corporate world and at banks, who can do the calcula- tions better than I can," Howe says. "You have to invest some more time with people who don't have that kind of understanding. When people see the low interest rates and a low monthly payout, they can get anxious and think they just want the full amount in their pocket. But when you spend the time and go through the payments, you can show them that it's worth having some patience." Barry Chobotar, managing partner at Henderson Struc- tured Settlements in Hamil- ton, Ont., says that, despite his best efforts, there will always be people who think they can beat a structure's returns. "No matter what the interest rate is, there will be people like that. I remember in 1988 when structures were paying 13.5 per cent net of tax for life, and there was always someone they knew who could get them 15 or 20 per cent," Chobotar says. LT STRUCTURED SETTLEMENTS Russ Howe says he takes care to talk his cli- ents through their options when it comes to structured settlements. CANADA & USA 1.800.265.8381 | EMAIL info@mckellar.com | www.mckellar.com The reason why we are Canada's largest and most comprehensive structured settlement firm has everything to do with our passion for service and performance— without exaggeration, we make life easier for you. The world's most popular website is visited over 3.5 billion times per day. Almost as accessible as McKellar. Untitled-5 1 2016-11-22 9:08 AM The majority of our clients need the protections in place; they cannot afford any risk. Kyla Baxter

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