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Life insurance and annuity trade groups are urging the National Association of Insurance Commissioners to “strive for consistency” with the Securities and Exchange Commission’s Regulation Best Interest as the NAIC pushes ahead to revise its Suitability in Annuity Transactions Model Regulation.

The comment period for a draft of a proposed NAIC model rule revision expired Friday. The NAIC’s current annuity suitability model regulation is the basis for regulations currently in effect in 49 U.S. jurisdictions.

The NAIC is a group for insurance regulators in all 50 states, the District of Columbia and U.S. territories. The group develops model laws and regulations, and the member jurisdictions decide whether to adopt the models.

(Related: NY Best Interest Reg for BDs Selling Annuities Is Coming)

The Insured Retirement Institute, along with the American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA) and the Association for Advanced Life Underwriting (AALU), submitted comments on the NAIC model rule, stating that they support adoption of a “best interest” standard.

Will It Be a ‘Best Interest’ Standard?

In a drafting note, the authors of the current revision draft say that, for now, at least, the NAIC would prefer to stick with the term “suitability” in the model revision.

“Until such time the NAIC can evaluate any distinction in the text of the SEC proposal between a ‘best interest’ recommendation and investment adviser fiduciary duties, and the SEC and FINRA have finalized relevant terms, definitions and related requirements, the NAIC would opt to refrain from using the phrase ‘best interest,’” according to the text of the drafting note.

IRI Calls for Uniformity

In its comment letter, IRI stated that if the SEC’s final rule continues to use the phrase “best interest” to describe the standard the securities regulator adopts and the NAIC opts to use its “the interest of the consumer” label, the result “will be significant confusion and uncertainty among consumers, producers, carriers and regulators.”

Said IRI: “We think you will agree that this would not be a positive outcome. Introducing new terminology into the suitability model also raises the risk of inconsistent interpretations across the states.”

It remains unclear, IRI said, how the term “the interest of the consumer” differs from the SEC’s “best interest” language “and creates a fog of uncertainty around the duties of insurers and producers. We urge the NAIC to strive for consistency with the SEC, both in substance and terminology.”

One of the important benefits of the suitability model over the years, IRI wrote, “has been its readily understandable formulation, which has allowed states to implement largely uniform regulatory structures to protect consumers fairly and equitably regardless of their locality. If the NAIC introduces new terminology into the suitability model that is left unrecognized by other regulators, state regulators will likely formulate divergent views on how to apply the new suitability model.”

In contrast, IRI continued, “incorporating a uniform ‘best interest’ requirement into the suitability model would increase the likelihood that it will be applied consistently across state lines.”

While the SEC’s “best interest” terminology is left undefined in the SEC’s proposal, “IRI believes the SEC’s principles-based regime provides a clear and straightforward compliance road map for firms and financial professionals.”

No clear timeline has been set for completion of the NAIC’s plan, but its model rule is being used “to continue discussions” with the SEC “to drive toward regulatory consistency,” according to an IRI spokesman.

ACLI, NAIFA and AALU Also Seek Uniformity

The “NAIC and SEC are communicating” regarding Reg BI, Jack Dolan, spokesman for ACLI, told ThinkAdvisor on Tuesday.

In its model regulation, the NAIC stated that until it “can evaluate any distinction in the text of the SEC proposal between a ‘best interest’ recommendation and investment adviser fiduciary duties, and the SEC and FINRA have finalized relevant terms, definitions and related requirements, the NAIC would opt to refrain from using the phrase ‘best interest.’”

ACLI, NAIFA and the AALU said in a joint statement that life insurance companies and the financial professionals who distribute their products “are committed to a uniform, harmonized best-interest standard of care for annuity and securities transactions across all state and federal regulatory platforms for financial services firms and financial professionals” as it “would benefit retirement savers and, indeed, all consumers planning and saving for the future.”

In its comment letter, ACLI told the NAIC that it’s “concerned that failure to expressly require a ‘best interest’ standard of care in connection with the sale of annuities in the model regulation may cause it to be viewed as weaker than the SEC Regulation Best Interest proposal and unlikely to be an effective counter to individual state proposals seeking to impose a fiduciary standard of care in connection with the sale of annuities.”

‘Best Interest’ Standard v. Fiduciary Standard

Another change, ACLI suggested, is “to clarify that the model regulation does not, nor is intended to, impose a fiduciary standard of care in connection with the sale of annuities” by stating that the regulation “shall apply to any sale or recommendation of an annuity regardless of whether the person making the recommendation is a fiduciary under state law.”

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