Regulation Best Interest: Suitability in Annuity Transactions

byRob Wick

On June 30th, 2020, the SEC implemented Regulation Best Interest (Reg BI). This applies to broker-dealers and registered investment advisers (RIAs). To compliment Reg BI, the NAIC created Model 275 for licensed agents. NAIC Model 275 rule is subject to state oversight and approval.

For licensed-only agents, there is a new NAIC BI 1 hour training course *that needs to be completed. As of today, *Arizona, Arkansas, Delaware, Idaho, Michigan, Montana, Nebraska, North Dakota, Ohio and Rhode Island have all implemented the new NAIC rule. Depending on what state you are in, there are different timelines in which to complete the course. Call me to get the specifics on your state, where and how to complete the course. Below is a very brief overview of NAIC Model 275:

NAIC Regulation Model 275 – Suitability In Annuity Transactions Model Regulation

Purpose: The purpose of this regulation is to require producers, as defined in this regulation, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.

Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation or to subject a producer to civil liability under the best interest standard of care outlined in Section 6 of this regulation or under standards governing the conduct of a fiduciary or a fiduciary relationship.

Section 6 – Duties of Insurers and Producers Best Interest Obligations. A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest. A producer has acted in the best interest of the consumer if they have satisfied the following obligations regarding care, disclosure, conflict of interest and documentation:

Care Obligation. The producer, in making a recommendation shall exercise reasonable diligence, care and skill

Disclosure obligation. Prior to the recommendation or sale of an annuity, the producer shall prominently disclose to the consumer on a form.

Conflict of interest obligation. A producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

*Documentation obligation. *Application of the best interest obligation. Any requirement applicable to a producer under this subsection shall apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.

For more details, please visit the NAIC's Annuity Suitability and Best Interest Standard page.