After the implementation of the DOL fiduciary rule earlier this month, state insurance regulators are starting to evaluate annuity sales standards that they oversee. The new rule requires advisers to act in the best interest of their clients when investing in retirement accounts. This means that for professionals selling annuities, they need to take into account a client’s risk tolerance, age, liquidity needs and other factors. According to a recent InvestmentNews article, the National Association of Insurance Commissioners recently formed a working group to take a look at annuity suitability, considering making it a best-interest standard.
“If that makes some sense, and we can model by our existing suitability rules to reflect something along the lines of a best interest, we should do that,” said Ted Nickel, Wisconsin insurance commissioner and NAIC president. “We’ve seen what’s happened nationally, and we want to make sure we have uniformity and consistency at the state level.”
The new rule hasn’t been implemented without adversity. The IRI and other insurance industry groups have opposed the regulation, claiming that the rule will cause an unfair curtail in annuity sales. While the products give investors a steady stream of income in retirement, they have been heavily criticized for their complexity and cost.
“We have always supported a best-interest standard of care,” said Lee Covington, IRI senior vice president and general counsel. “The problem has been the totality of the DOL rule.”
Barbara Roper, director of investor protection at the Consumer Federation of America, explained that disclosures and other steps must be taken to reduce conflicts of interest. “It’s not just a little step from suitability to best interest,” she said. “It’s a complete transformation to a standard that mitigates conflicts. If they would achieve that, it would be a great step forward, not just for retirement savers but all investors.”
Mr. Nickel added that the NAIC “will take a look at the wording of the best-interest standard in the DOL fiduciary rule, look at some of the other requirements in the DOL rule and see if there’s some areas that we could adjust or modernize our existing suitability language to more mirror some of this current thought that was put into the [DOL] best-interest standard.”
Supporters of the DOL rule site the inappropriate sales of variable and fixed annuities as reason for stricter regulation. However, Mr. Covington pointed out that since the existing suitability standard has been in place, the number of complaints have dropped significantly.
Currently, the DOL fiduciary rule is under a presidentially mandated review that could lead to its modification or repeal.
Written by Rachel Summit