Investors wanting to sell their rights to an income stream or investing in one that belongs to someone else need to be aware of several risks, the SEC and FINRA warned.

In an alert issued Wednesday on what investors need to know before buying or selling pension or settlement income streams, both agencies said investors also need to know what conditions come with promised higher yields.

Anyone receiving a monthly pension or regular distributions from a settlement following a personal injury lawsuit may be targeted by salespeople offering an immediate lump sum in exchange for the rights to some or all of the payments the person would otherwise receive in the future, the SEC said.

Typically, recipients of a pension or structured settlement will sign over the rights to some or all of their monthly payments to a factoring company in return for a lump sum amount, which will almost always be significantly lower than the present value of that future income stream, according to the SEC.

The SEC and FINRA investor alert contains a checklist of questions before selling away an income stream such as asking if the transaction is legal and does federal law restrict or prohibit retirees from assigning their pension to someone else.

Investors should also check the factoring company's record with the Better Business Bureau, and research the firm on the Internet and with a financial professional, the SEC said.

The investor alert also warns investors who might be attracted to the yield offered by buying the rights to someone else's pension or structured settlement to be aware that they may encounter commissions of 7% or higher, according to the SEC.  

Pension and structured settlement income stream products may or may not be securities and likely are not registered with the SEC, the agency said. The products could also be difficult to sell if an investor needs money and wants to sell the product. Their rights to the income stream purchased could face legal challenges as well, the SEC added.

The SEC has posted additional information on what investors need to be aware of.