Gov. Gavin Newsom pressured to veto best interest standard in California

California could become the 45th state to adopt best-interest annuity sales rules if Gov. Gavin Newsom signs the bill.

Consumer groups are pressuring the progressive Newsom to align with the Department of Labor on a tougher fiduciary standard. Newsom has until March 6 to sign the measure.

A spokeswoman for the governor's press office said they do not comment on pending bills.

Based on a model passed in 2020 by the National Association of Insurance Commissioners, the best-interest rules are favored and pushed by industry lobbyists who say it will cause the least disruption to business models.

Meanwhile, the DOL is expected to publish its fourth attempt at a fiduciary rule this spring. The DOL rule would establish a fiduciary standard for virtually all retirement plan rollovers transactions.

Best-interest backers are working hard to make sure as close to 50 states as possible have best-interest rules on the books before the DOL publishes its rule. Earlier this month, Indiana and New Hampshire became the 43rd and 44th states to pass a best-interest annuity sales rule.

Consumer groups opposed

Sponsored by state Sen. Bill Dodd, D, the California legislation endured a roller-coaster year in 2023. The bill seemed on the way to passage during the spring of 2023 – sailing through the California Senate in May with no opposing votes at the committee level or from the floor – but industry associations objected to some sections.

For example, the initial version of the California rule would have required a producer to obtain specific personal information from a client before making a life insurance recommendation.

After weeks of discussion with Dodd's office, the Independent Insurance Agents and Brokers of California and the National Association of Insurance and Financial Advisors agreed on language that will "enhance and update the existing Annuity Suitability law and make it the strongest suitability law in the country," according to a June 22 letter from the trade groups.

Now its consumer groups such as The Life Insurance Consumer Advocacy Center, Consumer Federation of America and AARP California who are rallying opposition. The groups called the bill "works one of the biggest frauds ever perpetrated on California consumers with the consent of their Legislature" in a news release.

“The passing of SB 263 would be a tragedy for California consumers, specifically those in vulnerable positions trying to plan for their futures,” said Life Insurance Consumer Advocacy Center Executive Director Brian Brosnahan. “We urge Governor Newsom to veto SB 263 because our coalition believes that no bill at all would be better than SB 263 in its current form.”

Newsom faces tough decision

The groups say the best-interest model "directly undermines" the Biden administration's attempt to establish the fiduciary standard.

The fiduciary proposal is 494 pages and would add significant liability to producers, while eliminating many compensation streams. The DOL received more than 19,000 comments on the proposal, which is expected to be finalized by the spring.

Meanwhile, the NAIC best-interest model aligns with the Securities and Exchange Commission’s Regulation Best Interest, noted the Insured Retirement Institute in a news release.

“IRI is working closely with states and other industry groups to extend the reach of the NAIC best interest model regulation to all 50 states as quickly as possible,” said Sarah Wood, director of state policy & regulatory affairs. “Strong, consistent regulation is important to protect consumers and to preserve consumers’ choice of financial advice and products that meet their financial and retirement planning needs.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.