Best Interest Revisions to the Annuity Suitability Model and DOL Rule

Overview

On February 13, 2020, the National Association of Insurance Commissioners (“NAIC”) adopted revisions to its Suitability in Annuity Transactions Model Regulation (#275) that impose a higher best interest standard of care for annuity sales. Similar to the Security and Exchange Commission’s (“SEC”) Regulation Best Interest (“Reg BI”), it requires financial professionals to act in the best interest of the consumer without putting the financial professional’s or insurer’s financial interest ahead of the consumer.  Best interest means setting aside any personal beliefs or biases and working for the good of the consumer at all times. It goes beyond recommending what may meet a consumer’s stated needs and objectives (suitability).  The new rule consists of four core obligations: Care, Disclosure, Conflict of Interest and Documentation.

Care Obligation

A financial professional must use “Reasonable Diligence, Care and Skill” when making a recommendation by:

 

  • Knowing the customer’s financial situation, insurance needs and financial objectives;
  • Understanding all product and investment options available to sell;
  • Having a reasonable basis to believe the recommendation addresses the consumer’s financial situation, objectives, and insurance needs;
  • Clearly communicating the basis of the recommendation.

 

You must gather and consider additional information when completing a “consumer profile” form. At a minimum, you must collect:

 

  • age
  • annual income
  • financial situation and needs including debts and other obligations
  • financial experience
  • insurance needs
  • financial objectives
  • intended use of the annuity
  • financial time horizon
  • existing assets
  • liquidity needs
  • liquid net worth
  • risk tolerance - including a willingness to accept non-guaranteed elements in the annuity
  • financial resources used to fund the annuity
  • tax status

 

To enable Global Atlantic to review recommendations to determine if the product would effectively address the consumer’s needs and objectives, we have added additional data fields to our Annuity Suitability Questionnaire and Acknowledgement form in order to ensure relevant data elements required under the revised regulation are collected at the time of solicitation. While the revised regulation enhances the financial professional’s obligations to consumers, the financial professional is not required to consider products outside the scope of his/her authority and license, nor does it create a fiduciary duty.

Disclosure Obligation

Under the revised regulation, you must take extra care to disclose your role in recommending the purchase of a Global Atlantic annuity including:

 

  • A description of the scope and terms of the relationship you have with the consumer and your role in the transaction;
  • An affirmative statement on whether you are licensed and authorized to sell fixed annuities, fixed indexed annuities, life insurance, mutual funds, stocks and bonds, and CDs;
  • An affirmative statement describing the insurers that you are appointed with;
  • A description of how you will be paid as a result of a contract purchase including any non-cash compensation (trips, material rewards);
  • Notice of the consumer's right to request additional information regarding your compensation.

 

You can use this form below (or use one of your own) to provide these important disclosures.

 

Appendix A Disclosure Form

Conflict of Interest Obligation

Under the revised NAIC model regulation, the financial professional must identify and avoid or reasonably manage and disclose material conflicts of interest. Material conflicts of interest include a financial interest that a reasonable person would expect to influence the impartiality of a recommendation but does not include cash or non-cash compensation.

Documentation Obligation

At the time of solicitation, the financial professional must document any recommendation and its basis in writing. If the consumer refuses to provide consumer profile information, the financial professional must obtain a statement signed by the consumer that documents their refusal. Furthermore, if the consumer decides to buy an annuity that is not based on the financial professional's recommendation, the financial professional must obtain a statement signed by the consumer acknowledging this. Please note that Global Atlantic will not accept an application for annuity purchase absent consumer profile information.

State Adoption Grid

State

Effective Date

Alabama

1/1/2022

Alaska

11/23/2022

Arizona

1/1/2021

Arkansas

7/8/2021

Colorado 11/1/2022

Connecticut

3/1/2022

Delaware

8/1/2021

Hawaii 1/1/2023

Idaho

7/1/2021

Iowa

1/1/2021

Kentucky

1/4/2022

Maine

1/1/2022

Maryland 10/8/2022

Michigan

6/29/2021

Minnesota 1/1/2023

Mississippi

1/1/2022

Montana

10/1/2021

Nebraska

1/1/2022

New Mexico 10/1/2022

North Dakota

1/1/2022

Ohio

8/14/2021

Pennsylvania 6/20/2022

Rhode Island

4/1/2021

South Carolina 1/1/2023
South Dakota 1/1/2023

Texas

9/1/2021

Virginia

9/1/2021

Wisconsin 10/1/2022

Training

  • Financial professionals who engage in the sale of annuity products shall complete insurer product-specific training prior to the solicitation or recommendation of an annuity.
  • New annuity producers who have not met previous suitability general annuity training requirements, must complete a one-time four-hour best interest general annuity training course prior to being able to sell/solicit annuities.
  • Those who previously met the state’s NAIC suitability general annuity training requirements have the option to complete a one-hour update course in order to comply with the new NAIC best-interest model requirements. In general, completion of the optional one-hour update course must be done within six months of the state’s effective date of the amended regulation. Failure to meet the six-month requirement will require the completion of the four-hour best interest general annuity training course mentioned in the previous point.

 

To learn more about state requirements including required training dates, please visit these suggested training vendors or the vendor of your choice.

 

Sales Contests and Incentives

Insurers and financial professionals must identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation based on sales of specific annuities that could create a conflict of interest. The insurer is not required to make its compensation system incentive-neutral with those of other carriers that may have different system. (But differences between carriers are still subject to the rule that prohibits placing the producer’s or insurer’s interests ahead of the consumer’s.) Any sales contests sponsored by a financial professional involving Global Atlantic products must be submitted for review and approval.