In a move contrary to the wishes of consumer groups, the governor of California has signed a bill to adopt a standard that seeks to harmonize Regulation Best Interest with the sales of annuities.
On Thursday, California Gov. Gavin Newsom signed state Senate Bill 263, authored by Sen. Bill Dodd, making the state the 44th to adopt the National Association of Insurance Commissioners’ controversial annuity sales model update.
Under the NAIC’s update, which is based on the SEC’s Regulation Best Interest rule, sellers of annuities must act in the best interest of consumers and use disclosures to address potential conflicts of interest. However, the measure does not obligate sellers to act as fiduciaries or to abandon commission-based sales models.
As it stands, under California rules annuities sellers have to meet a suitability standard, with only a requirement to verify the guaranteed income products they sell meet consumers’ needs.
The NAIC’s model falls short of the proposed fiduciary definition by the Department of Labor, where any individual or company providing investment advice to consumers rolling assets over from retirement accounts like 401(k)s or IRAs would be held to a fiduciary standard of care.
The signing of SB 263 in California comes on the heels of New Hampshire officially adopting the NAIC’s annuity transactions model update.
“These bipartisan consumer protections stand in stark contrast to the misguided fiduciary-only regulation proposed U.S. Department of Labor,” the American Council of Life Insurers said in a joint statement applauding the development in New Hampshire.
“With more than 4.1 million Americans turning 65 each year through 2027, now is not the time to limit people’s options for retirement,” ACLI said.
In the days leading up to his decision, Newsom had been facing pressure from advocacy groups to veto the bill, with the groups arguing that the draft legislation undermined a federal stance to protect consumers and seniors.
“Although SB 263 started out last year as a strong consumer protection bill … amendments pushed by the insurance industry weakened the SB 263 so much that the coalition has been forced to oppose the bill,” the Life Insurance Consumer Advocacy Center said in a statement. “The end result works one of the biggest frauds ever perpetrated on California consumers with the consent of their Legislature.”
For its part, the National Association of Insurance and Financial Advisors hailed the approval of SB 263 in California as a "monumental win for consumers.
"NAIFA’s efforts, including grassroots work by our members, were instrumental in assuring that financial professionals work in consumers’ best interests in California and the other states where the model is in effect," said NAIFA CEO Kevin Mayeux in a statement reacting to the news.
"Together with the Securities and Exchange Commission’s Regulation Best Interest ... the NAIC model offers robust protections and promotes retirement security for American families," Mayeux said.
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