Lobbyists race to make best interest a blanket standard in final few states

Image shows the words, "NAIC annuity sales rules" against a map of the U.S. — Forty-one states have adopted NAIC best-interest annuity sales rules.

By John Hilton

Forty-one states operate under new best-interest annuity sales standards based off a model put forth by the National Association of Insurance Commissioners.

It is a standard favored and pushed by industry lobbyists who say it will cause the least disruption to business models. Meanwhile, the Department of Labor is behind closed doors putting the finishing touches on its fourth attempt to establish a fiduciary standard for 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. Last month, Utah became the 41st state to pass a best-interest annuity sales rule.

“Unlike the Department of Labor’s ill-advised fiduciary-only proposal, these measures ensure savers, particularly financially vulnerable lower and middle-income Americans, can access information about different options for long-term security throughout retirement," said Susan Neely, president and CEO of the American Council of Life Insurers and Dori Phillips, government relations chair for the Utah chapter of the National Association of Insurance and Financial Advisors.

Indiana, New Hampshire and Vermont are all in final stages of their own respective rules, said a spokesman for the Insured Retirement Institute.

While insurance is regulated by state insurance departments, Congress gave the Department of Labor the authority to regulate workplace retirement plans. Whether that right extends to individual retirement accounts will be one of the many issues a court will likely decide.

The fiduciary proposal is 494 pages and would add significant liability to producers, while eliminating many compensation streams. The DOL received more than 20,000 comments on the proposal, which is expected to be finalized by the spring.

Best interest criticism 'Simply misplaced'

In February 2020, the NAIC adopted a best-interest standard requiring the following four obligations: care, disclosure, conflict of interest and documentation. The best-interest model was designed to harmonize with the Securities and Exchange Commission's Regulation Best Interest.

The best-interest standard requires extra work and documentation to establish the consumer's profile. Producers need to find out and document things like a consumer's financial situation, insurance needs and financial objectives.

The rule specifically does not establish a fiduciary duty, nor does it ban agents from recommending products with a higher compensation structure. But the agent must be able to show that such a recommendation is in the consumer's best interest.

Supporters say it protects consumers while preserving choice and allowing producers to do their jobs.

"The NIAC best interest model establishes high standards for the responsible sale of annuity products by trained insurance professionals subject to oversight by state insurance departments," Pam Heinrich, general counsel and director of government affairs for the National Association for Fixed Annuities, told a DOL panel during a public hearing last month. "Criticism that the model of regulation falls short of a fiduciary standard is simply misplaced."

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.

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.