Arizona Tees Up Best-Interest Annuity Sales Rules

By John Hilton

Arizona might be the next state to approve a best-interest annuity sales standard via legislation.

Titled “Annuity Transactions; Requirements,” the bill was introduced Feb. 4 by state Sen. David Livingston, R-22. It passed the Arizona Senate Feb. 20 by a 26-0 vote, with four senators not voting, and is now in the House.

The bill would change Arizona's suitability requirements to be consistent with the annuity sales model approved by the National Association of Insurance Commissioners Feb. 13. This includes a best interest standard based on the following four obligations: care, disclosure, conflict of interest and documentation.

In many states around the country, officials are busy deciding how to proceed with financial regulation. While New York and Massachusetts opted to ignore the NAIC and adopt tougher, fiduciary like regulations, other states are taking their cue from the association.

Iowa advertised best-interest regulations Thursday that closely align with the NAIC model. The process is often different from state to state. While states like Arizona legislate financial rules, regulators in other states are independent and can publish rules on their own.

Sen. Livingston has a bachelor's degree in finance from Arizona State University and was a financial advisor and franchise owner of Ameriprise Financial in Peoria, Ariz. from 1992 to 2012. He is a Lifetime Member of the Million Dollar Round Table.

Bill Details

According to comments received by the Arizona Senate, the bill is widely supported by industry. Here are some things the bill would require if it makes it to Gov. Doug Ducey's desk:

Establishes a best-interest standard. The bill "requires a producer, when making a recommendation of an annuity, to act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's financial interest ahead of the consumer's interest."
Supervision system. Requires each producer to establish and maintain a supervision system that is "reasonably designed to achieve the insurer's and its producers' statutory compliance."
Conflicts of interest. Requires a producer to "identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest."
Training. Before selling, soliciting or negotiating an annuity, an insurance producer with a life
insurance life of authority must complete an annuity training. The training must include: 1) types of annuities and various classifications of annuities; 2) identification of the parties to an annuity; 3) how product-specific annuity contract features affect consumers; 4) the application of income taxation of qualified and nonqualified annuities; 5) the primary uses of annuities; and 6) appropriate sales practices, replacement requirements and disclosure requirements.
Annuity costs. Producers do not have to recommend the annuity with the lowest cost, or ongoing costs. And producers are considered fiduciaries or in a fiduciary relationship at any time.
No private right of action. The bill does not "create or imply a private cause of action for a violation of annuity statutes or subject a producer to civil liability under the best interest standard of care or under standards that govern the conduct of a fiduciary or fiduciary relationship."
Sanctions. Vests the director of the Arizona Department of Financial Institutions with the authority to "order appropriate penalties and sanctions" for violations.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.