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Arizona Adopts Best-Interest Standard for Annuity Sales

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Arizona Gov. Doug Ducey last week signed state Senate Bill 1557, a bill that sets a “best interest” interest for the sale of annuities in Arizona.

The new standard, which is set to take effect Jan. 1, 2021, is based on the same National Association of Insurance Commissioners model law that Iowa has used as the basis for its new annuity sales standard law.

(Related: The Reg BI Battle Comes to a Head)

The new law requires an agent or broker who sells an annuity to “act in the interest of the consumer under the circumstances known at the time of recommendation is made and without placing the producer’s financial interest ahead of the consumers,” according to the official state legislature bill summary.

The new law also requires a producer to satisfy “obligations regarding care, disclosure, conflict of interest and documentation”; to “know  the consumer’s financial situation, insurance needs and financial objectives”; and to “understand the available recommended options.”

A producer who sells an annuity must try to verify that “the recommended option effectively addresses the consumer’s situation over the life of the product,” and that “the consumer would benefit from features of an annuity, such as annuitization, death or living benefits or other insurance-related features.”

The producer must “make a reasonable effort to obtain consumer profile information from the consumer before recommending an annuity.”

The NAIC model drafters said they were trying to make their model compatible with the U.S. Securities and Exchange Commission’s Regulation Best Interest.

The SEC developed its Reg BI regulation after the administration of President Donald Trump let the U.S. Department of Labor’s original fiduciary rule proposal die in court.

Officials in California, New York state and other states that have supported the DOL fiduciary rule approach have gone to court to try to block Reg BI. Reg BI critics argue that the standards imposed on broker-dealers are now too weak. The SEC says it believes its approach balances the need for increased consumer protection with the need to provide a regulatory system that continues to give people access to commission-based brokerage services.

Insurance industry groups have welcomed Ducey’s signing of SB1557.

Susan Neely, the president of the American Council of Life Insurers, said in a statement that Arizona’s new law that requires financial professionals in Arizona to act in consumers’ best interest when recommending an annuity.”

Jason Berkowitz, the chief legal and regulatory affairs officer at the Insured Retirement Institute, also issued a statement praising the signing of SB1557.

“The law gives retirement savers confidence that the financial guidance they receive will be in their interest,” Berkowitz said. “This is another victory for consumer protection and choice.”

The Financial Planning Association of Greater Phoenix is one of the FPA chapters that has been fighting the bill.

“Our Arizona consumers deserve better than a false promise of ‘Best Interest,’” the chapter said in a post on its LinkedIn page. “What good is a standard that allows disclaimers and disclosures — the fine print — to undo the small amount of good the bill’s title and sponsors purport it provides?”

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