State insurance commissioners have been debating annuity regulation proposals for quite some time, and it appears that the conflict has yet to be resolved. According to a recent Financial Advisor Magazine article, the latest NAIC draft annuities regulation that was recently approved stopped short of creating a regulation that would require agents to put customers’ “best interests” first.
A reluctance to replace the word “suitability” with “best interest” is apparently to blame.
The conflict revolves around a lack of clarity in the Securities and Exchange Commission’s Regulation Best Interest and whether the term “best interest” confers a fiduciary duty or not, as described by seven state insurance commissioners in the “Suitability in Annuity Transactions Model Regulation” they sent to the National Association of Insurance Commissioners (NAIC).
“Until such time the NAIC can evaluate any distinction in the text of the SEC proposal between a ‘best interest’ recommendation and investment adviser fiduciary duties, and the SEC and Finra have finalized relevant terms, definitions and related requirement, the NAIC would opt to refrain from using the phrase ‘best interest’” in the proposal, the NAIC subcommittee said.
Other commissioners remained optimistic that the change will eventually come.
“I do think we’ll get there, sooner than later,” said Doug Ommen, Iowa Insurance Commissioner and chair of the full NAIC committee. He added that he remains committed to the idea that a best-interest approach to annuities regulation is important “to advance consumer understanding and harmonize insurance rules with the SEC’s Reg BI to avoid the cost of regulatory duplication that will be passed onto consumers.
“I’m persuaded that incorporating some of the significant guidance offered by the SEC into the text of our model regulation will elevate the professional responsibility in annuity recommendations to a true best interest obligation,” said Ommen. He continues to lobby for the insertion of all four Reg BI obligations into the annuities model: care, disclosure, conflict of interest and documentation.
“That doesn’t mean that every trade association is supporting the model. There are some that are still trying to push back on consumer protection,” Ommen continued.
Discussion of creating a safe harbor for RIAs that offer annuities is still being pushed by the group in an effort to avoid regulation duplication.
“We have a safe harbor for broker-dealers,” Ommen stated. “The question now is do we create one that extends to individuals in the investment advisor space. We’re evaluating whether it is OK for an insurer to rely on securities regulation to eliminate the need for insurer supervision and rules. We’re still not there yet. We’ll be talking about it.”
Written by Rachel Summit