State insurance regulators look to DOL fiduciary rule as they mull changes to annuity sales standard

The National Association of Insurance Commissioners is taking a fresh look at the suitability standard for annuities and considering making it a best-interests standard.
JUN 13, 2017

State insurance regulators are using the Labor Department's fiduciary rule as a benchmark as they begin to mull changes to the annuity sales standard they oversee. The DOL rule, part of which was implemented last week, requires advisers to act in the best interests of their clients in retirement accounts. Annuity sales are governed by a suitability standard that has been adopted by almost every state. Similar to the suitability rule for brokers that Finra regulates, the one for annuities requires sales professionals to take into account a client's risk tolerance, age, liquidity needs and other factors, but is less stringent than the DOL rule. Recently, the National Association of Insurance Commissioners formed a working group to take a fresh look at annuity suitability and consider making it a best-interests standard. "If that makes some sense, and we can model by our existing suitability rules to reflect something along the lines of a best interest, we should do that," Ted Nickel, Wisconsin insurance commissioner and NAIC president said Tuesday at an Insured Retirement Institute conference in Washington. "We've seen what's happened nationally, and we want to make sure we have uniformity and consistency at the state level." The IRI and other groups representing the insurance industry have opposed the DOL regulation, which is under a presidentially mandated review that could lead to its modification or repeal. Insurance opponents have filed suits claiming that rule will curtail annuity sales. The products give investors an income stream in retirement but also have been criticized for their complexity and cost. Lee Covington, IRI senior vice president and general counsel, said the organization has resisted some provisions of the DOL rule but not the best-interest requirement. "We have always supported a best-interest standard of care," Mr. Covington said on the sidelines of the conference. "The problem has been the totality of the DOL rule." But it's the disclosures and other steps that must be taken to reduce conflicts of interest that are at the heart of the DOL rule, said Barbara Roper, director of investor protection at the Consumer Federation of America. The NAIC has to be prepared to make a "dramatic" overhaul of its annuity rule. "It's not just a little step from suitability to best interest," Ms. Roper said. "It's a complete transformation to a standard that mitigates conflicts. If they would achieve that, it would be a great step forward, not just for retirement savers but all investors." The NAIC "will take a look at the wording of the best-interest standard in the DOL fiduciary rule, look at some of the other requirements in the DOL rule and see if there's some areas that we could adjust or modernize our exisiting suitability language to more mirror some of this current thought that was put into the [DOL] best-interest standard," Mr. Nickel said. Inappropriate sales of variable and fixed annuities have been cited by supporters of the DOL rule as reasons the measure is needed. But Mr. Covington said that the existing suitability standard has worked well. "State regulators have seen complaints drop significantly since adoption of the suitability standard across the country," Mr. Covington said.

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