NAIFA files suit against New York for mandating best-interest insurance sales

Interest group chapter argues the state's Department of Financial Services exceeded its authority with the rule

Nov 26, 2018 @ 2:20 pm

By Mark Schoeff Jr.

An insurance industry trade association has gone to court to stop a New York regulation requiring insurance agents and brokers to act in the best interests of their clients when selling life insurance and annuity products.

The National Association of Insurance and Financial Advisors – New York State Inc. filed a lawsuit Nov. 16 in the New York Supreme Court against the measure, arguing the state's Department of Financial Services overstepped its bounds by promulgating the rule without legislative or constitutional authorization.

The suit also asserts the insurance sales standard contradicts existing New York insurance law by requiring insurance sales professionals to prioritize their customers ahead of their firms.

"This rule puts me in an impossible situation because as a licensed life insurance agent I am required by New York [insurance law] and by my contractual obligations to act as an agent of the insurer, not customers or insureds," Donald Damick,agent with Nationwide Insurance Companies and past president of NAIFA New York State, said in an affidavit accompanying the lawsuit. "In fact, I can lose my NYDFS license — and thus my livelihood — if I do not follow the state's insurance statutes. And now I can also face penalties under [the regulation's] best-interest standard."

The New York Department of Financial Services issued a final regulation in July that is set to go into effect in August 2019. The rule requires that "only the interests of the consumer" be taken into account when making an insurance sales pitch, and compensation to the agent or broker is only permitted if it "does not influence the recommendation."

In a Nov. 16 statement, New York Financial Services Superintendent Maria T. Vullo said the insurance industry agrees that the regulation "is prudent, fair and reasonable — and just simply the right thing to do."

Ms. Vullo added: "Given the vital role that insurance products play in providing financial security to New Yorkers, it is essential that providers not be influenced by a producer's financial incentives, adhere to a higher standard of care, and only recommend insurance and annuity products that are in the consumer's best interest."

But Mr. Damick asserted the regulation would implement a standard of conduct that goes beyond acting in the customer's best interests.

"The regulation imposes a duty on the agent to recommend products based solely on what is suitable for the consumer, and mandating that no other interest, including an agent's compensation, may be considered by the agent when providing that recommendation," he said in the affidavit. "Thus, this regulation effectively requires the agent to become a fiduciary to the consumer."

In addition to NAIFA, the Independent Insurance Agents and Brokers of New York Inc. and the Professional Insurance Agents of New York State Inc. filed a lawsuit against the insurance sales rule.

The arguments against the rule echoed those made in a lawsuit against the Department of Labor's fiduciary rule for advice on retirement accounts. Earlier this year, the U.S. Court of Appeals for the 5th Circuit vacated the DOL rule in a split decision, finding that the agency exceeded its authority in promulgating the measure.

The National Association of Insurance Commissioners is updating its annuity suitability rule in parallel to the Securities and Exchange Commission's consideration of an investment-advice reform package.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

How are broker-dealers helping 401(k) advisers adapt to a changing market?

Bryan Hodgens, co-head of LPL Financial's Retirement Partners group, says the industry is getting much better at connecting advisers to wealth management opportunities and helping scale their businesses.

Latest news & opinion

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

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

X

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 investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

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

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print