Here are 5 of the players now involved with trying to structure your relationship with clients and prospects...

1. The U.S. Securities and Exchange Commission*

* If you sell products registered as securities.

2. The U.S. Department of Labor*

* Its first fiduciary rule proposal died; another proposal is in the works.

3. New York state and other individual states

4. States as a group

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5. The consumers

State insurance regulators have been working this week on an annuity suitability proposal that could add some red tape but could, possibly, shield you from the effects of other financial services sales standards projects.

(Related: Life Groups Back Quick Adoption of State Regulators’ Sales Standards Proposal)

One possible unexpected side effect of insurance regulators’ annuity suitability activity: You could end up with the equivalent of a new “milk carton label” that will summarize the nature of your relationship with your clients and prospects.

Members of the Annuity Suitability Working Group, an arm of the National Association of Insurance Commissioners (NAIC), plan to talk about the proposed “Producer Relationship Disclosure Form” template — and some producer groups’ concerns about the template — Dec. 19, during a conference call session.

The History

Members of the National Association of Insurance Commissioners talked about the NAIC’s Suitability in Annuity Transactions Model Regulation update effort earlier this week, in Austin, Texas, at the NAIC’s fall national meeting.

The NAIC is a group for state insurance regulators. It has no direct ability to change states’ sales rules. Many states, however, start with NAIC models when they’re developing their own insurance laws and regulations.

An NAIC team, the Annuity Suitability Working Group, began working on an NAIC annuity suitability model update in response to federal and single-state sales standards projects. Working group members hope to give consumers more protection, with rules that would apply in many (or even all) states. Many working group members appear to support the idea of letting commission-based agent and broker compensation systems stay in place.

Many insurance carrier and producer groups strongly support the working group’s latest draft, which was posted in November. They have asked the NAIC to adopt the working group’s suitability model update language as quickly as possible.

The Annuity Suitability Working Group is part of the NAIC’s Life Insurance and Annuities Committee.

Members of the Life Insurance and Annuities Committee approved the working group’s suitability model update language Sunday, during an in-person session.

The committee asked the working group to do more work on two model update add-ons: a form that a privacy-conscious consumer can use to refuse to provide suitability information, and a form that a producer can use to summarize the nature of the producer’s relationship with the consumer.

The Disclosure Form

 

In an appendix to the model update draft posted in November, the working group calls the relationship description form the “Producer Relationship Disclosure Form.

The one-page form includes fields for the date, a producer’s name, the agent’s business contact information and the client’s name.

The form also includes checkboxes to describe what the producer offers; to indicate whether the producer can offer products from just one carrier or many carriers; whether the producer sees the relationship as a one-time transaction relationship or an ongoing relationship; and whether the producer expects to get sales commissions, asset management fees, or other types of compensation.

A producer could use another area to show whether the producer would be paid by the insurer, by the consumer, or by other entities, such as an independent marketing organization.

The Critique

Wesley Bissett, senior counsel for government affairs at the Independent Insurance Agents & Brokers of America (IIABA), wrote to the NAIC in November to say that IIABA had concerns about the model update draft, and about the relationship disclosure form template.

“While we believe the template can be a helpful compliance tool, we note that the draft was not discussed in detail by the working group before its submission to your committee and believe a review of the document (by either the working group or full committee) would be helpful,” Bissett wrote in the comment letter. “The form will be very important to producers, and this critical piece of the puzzle should not be overlooked.”

Here are three of IIABA’s concerns about the disclosure template, drawn from the comment letter:

1. Title

“Referring to this form as the ‘Producer Relationship Disclosure Form’ is likely to leave consumers with the mistaken impression that it applies to all transactions performed by and all interactions with a producer,” Bissett writes.

The form should indicate that the form applies only to the particular annuity transaction in question (and not to any other past or future insurance transactions with the agent), Bisset writes

2. Insurance License Number

Bissett points out that an individual producer could have many separate “insurance license numbers” “We encourage the committee to replace this field with a more clearly defined identifier,” Bissett writes.

3. “My Relationship with You”

Bissett says requiring an agent to choose between “One-Time Transaction” and “On-Going Relationship” options could lead to confusion. One problem, he says, is that an agent might have an ongoing relationship with a client but might want to sell the client an annuity just one time.

One solution would be just to leave that part of the relationship description form out, Bissett writes.

Related

Links to many documents related to the work of the NAIC’s Annuity Suitability Working Group are available here.

—Read State Regulators Push Annuity Sales Standards Project One Step Forward, on ThinkAdvisor.

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