An Evolving Standard of Conduct for Annuity Transactions
Over the past several years and across multiple regulatory regimes, the standard of conduct required of financial professionals when making a security or annuity recommendation to a retail consumer has evolved beyond a “suitability” obligation to one of “best interest”. NAFA continues to engage with policy makers to protect fixed annuity manufacturers, marketers, distributors and consumers.
June 30, 2020
SEC Regulation Best Interest
Reg. BI goes into effect, requiring broker-dealers (and associated persons of B-Ds) to act in the best interest of a retail customer when making a recommendation of any securities transaction or other investment strategy involving securities, enhancing the broker-dealer standard of conduct beyond suitability obligations and making it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations.
A joint meeting of the NAIC Executive Committee and Plenary approves and adopts an amended Suitability in Annuity Transactions Model Regulation (#275), requiring annuity agents to act in the best interest of their clients and requiring insurers to supervise recommendations so that the clients’ insurance needs and financial objectives are effectively addressed.
Feb. 16, 2021
DOL “Fiduciary Rule 3.0”
On February 16, 2021 the Department of Labor allows a Trump-era fiduciary rule (PTE 2020-02) to go into effect, establishing a new prohibited transaction exemption applicable to rollover recommendations and reinterpreting the 1975 ERISA five-part test to determine who is an investment advice fiduciary. The new PTE requires investment advice fiduciaries to give advice that is in the best interest of the retirement investor.
The Department issued additional guidance in April 2021.
NAFA Encourages Uniform State Adoption of 2020 NAIC Model Regulation #275
In addition to the work being done at the federal level in response to and in support of various retirement reform measures, NAFA was heavily involved in the nearly three-year effort by the NAIC to modify the Suitability in Annuity Transactions Model Regulation (#275), working to ensure that a new best interest standard would be objective and reasonable for independent distribution. In support of enhancing consumer protection — without harming consumers’ access to fixed annuity products and the professionals that will help them secure guaranteed retirement income — NAFA is now working to encourage uniform adoption of the amended version of the regulation adopted by the NAIC on February 13, 2020.
NAFA’s newest educational series seeks to break down specific features and benefits of these annuities in a way that anyone — regulator, legislator, journalist, agent or consumer — can understand. For our latest installment, we illustrate how a fixed index annuity differs from a registered index-linked annuity and examine the risk and reward offered by each product.