The insurance industry has secured another stronghold in its push to adopt a best interest standard, rather than the Department of Labor's stricter fiduciary rule, for consumers seeking lifetime income.
The Louisiana Department of Insurance has officially adopted the best interest rule for annuity transactions, which is based on the National Association of Insurance Commissioners’ Suitability in Annuity Transactions Model Regulation.
The move follows through on an earlier promise issued in May by the Louisiana Department of Insurance, led by Commissioner Tim Temple, to adopt the regulation in the Pelican State.
In a joint statement, the American Council of Life Insurers and the Louisiana chapter of the National Association of Insurance and Financial Advisors, praised the state’s adoption of the rule.
“Louisiana is the latest example of how states are taking the lead on a nationwide effort to protect retirement savers.,” said ACLI president and Blake Gillies, who president of NAIFA's Louisiana constituency.
The NAIC model regulation adopted by Louisiana now has support from 47 states, covering more than 95 percent of Americans. The best interest standard aligns closely with the SEC's Regulation Best Interest standard, which governs recommendations made by brokers and dealers, creating a cohesive regulatory environment at both the state and federal levels.
The joint statement also took aim at the DOL’s fiduciary-only approach, which it painted as an overly restrictive measure that would be particularly harmful for middle-income American households.
The labor department has sought to impose a fiduciary standard on professionals providing retirement investment advice, particularly in cases involving IRA and 401(k) rollovers. Its fiduciary rule, which would require advisors to act solely in their clients’ best interests and avoid conflicts of interest such as commission-based compensation, has faced stiff opposition from some industry groups saying it would limit consumer access to financial advice.
Read more: Investing for retirement: why we need it
In July, a federal district court in Texas temporarily blocked the DOL’s new fiduciary rule and its accompanying prohibited transaction exemptions, citing concerns that the regulation was likely unlawful and would cause irreparable harm to the insurance industry. The court order, issued by the Northern District of Texas Fort Worth Division, stated that “plaintiffs are virtually certain to succeed on the merits,” halting the rule's implementation just months before its phased-in rollout was set to begin.
The legal action was launched by a coalition of industry groups including the ACLI, NAIFA, and the Insured Retirement Institute, who have repeatedly argued that the DOL's proposed changes mirror its failed 2016 regulation, which was ultimately struck down by a federal court.
Critics of the fiduciary rule contend that it would escalate compliance costs for financial professionals and burden insurance agents who would have to act as fiduciaries in one-time annuity sales involving IRA rollovers. The blocked rule was initially scheduled to take effect in September 2023, with further aspects phased in until April 2025.
Proponents for the best interest standard argue it strikes the right balance, providing essential consumer safeguards while ensuring access to a wide range of financial products and guidance.
“The best interest standard adopted in Louisiana and other states ensures that retirement savers, particularly financially vulnerable middle-income Americans, can access information about different choices for long-term security in retirement,” the statement from ACLI and NAIFA said.
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