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Retirement Planning > Retirement Investing > Annuity Investing

California Enacts Annuity Suitability Law

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This month, California Gov. Jerry Brown signed into law a bill that governs the selling of annuities and imposes fines and sanctions on agents who violate the requirements outlined in the legislation.

The bill, A.B. 689, was backed by the California Department of Insurance and unanimously passed both the State Senate and Assembly this spring and summer. The law is patterned on one approved by the National Association of Insurance Commissioners (NAIC). The Dodd-Frank Wall Street Reform and Consumer Protection Act advocated that states enact annuity legislation similar to that outlined in NAIC’s “Suitability in Annuity Transactions” model.

In essence, the law, which goes into effect on Jan. 1, 2012, mandates that agents verify that an annuity purchase is appropriate for a consumer based on age, income, financial objectives and other factors. Such suitability information shall be provided by the consumer. It further stipulates that an insurance producer must receive training from an insurance commission-approved entity before he or she can sell annuities.

Annuity sales by FINRA-governed broker-dealers that comply with the suitability and supervision conditions of FINRA are “deemed to satisfy” the requirements of the law.

According to supporters, the bill was aimed at protecting consumers, particularly seniors, from buying a product that could potential harm their financial status.

“For far too long, seniors have been victimized by insurance agents who aggressively market and sell annuity products that are simply unsuitable for them,” said California’s insurance commissioner Dave Jones in a statement. “Many people unwittingly buy these products not realizing that their invested funds won’t be available to them or they’re terribly expensive to recover if they want to withdraw their money to pay for immediate expenses. It can be financially devastating to seniors on a fixed income.”

Under the law, the producer must inform the consumer of any potential surrender period and surrender charge as well as any possible tax penalty if the buyers sells, exchanges, surrenders or annuitizes the annuity.

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