Annuity rule likely won't include a fiduciary standard, NAIC says

The new language, which is still subject to change, explicitly states what had largely been assumed

Jul 24, 2018 @ 2:23 pm

By Greg Iacurci

The National Association of Insurance Commissioners indicated it would not impose a fiduciary standard on insurers and insurance producers as part of its overhaul of annuity sales rules, according to draft language of the group's model regulation released Tuesday.

The NAIC, a body that helps set U.S. insurance standards, has been working to establish more stringent annuity rules in the wake of greater attention to stricter investment advice standards created by the Department of Labor's fiduciary rule, which went into effect last June but was struck down in court. The NAIC rule would cover non-securities annuities, such as fixed and indexed annuities.

The group said in its most recent draft that the required duties of insurers and producers would not "cause [them] to be treated as a fiduciary, or impose a duty of loyalty on [them]," under any regulation or federal, state or common law.

That language is likely unwelcome news for investor advocates — who have been pushing for a strong sales standard approaching that of the DOL fiduciary rule — and cheered by the insurance industry.

According to the draft, which incorporated feedback from a comment period that concluded in April, the fiduciary language was suggested by an industry coalition and is subject to further discussion by the NAIC.

Annuity sales are currently governed by a "suitability" standard, which dictates that a product must be suitable for a particular consumer. To have mandated a fiduciary standard would have been a "large jump" from where things currently stand, said William Mandia, partner at Stradley Ronon Stevens & Young.

At the same time, the NAIC draft states that an annuity recommendation must be made without placing the insurer's or producer's financial interest ahead of the consumer's. It also lists additional requirements around disclosures.

The draft release comes on the heels of New York issuing a final regulation to set tougher standards around annuity as well as life insurance sales, which observers say is stronger — both in the scope of products covered and in the standard of care — than the NAIC proposal. The Securities and Exchange Commission also is working on a rule for more stringent standards around investment recommendations made by brokers.

The NAIC working group putting the annuity proposal together plans to finish it by the end of the year, according to an NAIC official speaking on background. It would then go to the group's Life Insurance Committee for consideration, and then to the full NAIC membership, according to the individual.

States, which set and enforce insurance rules, could choose to incorporate the NAIC model regulation, amend it or not adopt any parts of it.

Brokers selling annuities in states adopting the NAIC rule would comply with both the state law and the Financial Industry Regulatory Authority Inc., the body regulating brokerage firms and their representatives, said Jamie Hopkins, an insurance expert at The American College of Financial Services.

There are rarely conflicts between the state and Finra rules, but they can be different in some cases, he said.

Mr. Hopkins doesn't believe the NAIC's most recent additions would have a meaningful impact on the conduct of insurance producers.

"It is really more of a statement that the NAIC commissioners and members are still not on board with broad-based fiduciary requirements or too many restrictions on compensation," Mr. Hopkins said.


What do you think?

View comments

Recommended for you

Featured video


Financial therapy fills the gap between money and emotions

Most clients have complicated relationships with their finances, according to Rick Kahler, founder of Kahler Financial Group, and financial advisers can help.

Latest news & opinion

Finra suspends former star LPL rep who borrowed client cash

Regulator says James E. 'Jeb' Bashaw borrowed $200,000 from a client in 2013 without telling LPL.

Higher tax bills following reform surprise clients

Lower withholding and the loss of state and local deductions throw many for loop.

Centerbridge said to be in talks to buy Advisor Group

Advisor Group's independent broker-dealer network in the U.S. has more than 7,000 advisers.

The drawback of Richard Thaler's 401(k)-Social Security idea? Social Security itself

Observers think Congress would need to address Social Security's funding levels and offer enhanced protections for the concept to work

Social Security funding outlook improves slightly

Retirement reserves extended one year; disability fund by 20 years


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print