One Too Many Life Settlement Brokers
On occasion, consumers or advisers try to hedge their bets by utilizing multiple life settlement brokers simultaneously in the sale of an in force life insurance policy. However, life settlement brokers will often decline the business if they know they are the second or even third broker offered a potential case. The simple reason is that choosing multiple life settlement brokers don't serve anyone's best interests.
A life settlement broker is by definition a fiduciary, who represents only the policy seller. They are a representative tasked with negotiating the best settlement price possible for their clients. The role is analogous to a real estate agent or an attorney that fights on behalf of their client to secure the most advantageous outcome. While counter intuitive in those situations to have multiple representatives, many policy sellers readily assume utilizing more than one life settlement broker will equate to a more lucrative sale of their life insurance policy. Unfortunately, the opposite is most likely true.
Policy sellers sometimes believe they are creating competition by submitting their policy through multiple life settlement brokers. However, the competition that ultimately drives the price of a policy is between the buyers, not the brokers representing the sellers.
Policy sellers also assume that different life settlement brokers will have access to different buyers. Therefore using more brokers equates to more potential funding sources. This is true, but to a very limited extent. Established life settlement brokers usually submit policies to the same overlapping group of institutional buyers. While each broker might have a few buyers that another might not, the benefit gained by using multiple brokers is miniscule compared with the complications the situation inherently creates.
As part of the life settlement process, brokers must first pay for records and underwriting services that are required by most prospective buyers. This capital outlay can sometimes exceed $1,000 to third party vendors. When policy sellers hire multiple brokers, that expense is duplicated by all brokers involved with the policy, while only one will be able to generate revenue from the transaction. The cost of acquiring the requisite information for each case must ultimately get passed along in the form of life settlement broker commissions. The more unnecessary expenses that are incurred with a muddled case, the more a broker must collect in other cases that do close successfully.Continued on the next page