New Best Interest Rule on Annuity Sales Raises Standards for Producers*
By Julie Harrison, Government Affairs – State Chapter Director, National Association of Insurance and Financial Advisors (NAIFA)
Recently, an insurance carrier in California was fined $150,000 stemming from an accusation that an 86-year-old woman purchased an annuity she did not understand. Annuities are complex insurance products. That is why NAIFA (National Association of Insurance and Financial Advisors) has prioritized working with states to adopt the enhanced best interest standard that was recently incorporated into the NAIC (National Association of Insurance Commissioners) Suitability in Annuity Transaction Model Regulation.
The best interest standard simply states that insurance producers must put the interest of their clients in front of their own. The following states have adopted the enhanced standard: Alabama, Arkansas, Arizona, Connecticut, Delaware, Iowa, Idaho, Maine, Michigan, Montana, Nebraska, North Dakota, Rhode Island, Texas, Virginia, and Connecticut. States with pending proposals include Nevada, Pennsylvania, and Kentucky.
Some states are adopting the enhanced standard with updated regulations, while others are pursuing it legislatively. Lawmakers in states that have not started considering their own best interest standard in annuity transactions should be made aware of the benefits it provides. This enhanced measure strikes the appropriate balance between protecting consumers, promoting market competition, and avoiding over-regulation. The standard rejects a fiduciary-only approach, thus safeguarding the ability of working-class savers to access the financial guidance to plan for their financial futures. It protects consumer choices, choices in competitive products, and choices in trustworthy options for retirement planning. Further, it aligns well with its federal counterpart – SEC’s Regulation Best Interest. Together these two initiatives will significantly enhance protections for consumers across the country who seek guaranteed lifetime income in retirement through annuities.
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