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3 Things to Know About the New Next Annuity Sales Standards Fight

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State insurance regulators have expanded the long-running U.S. financial services sales standards fight, by trying to answer frequently asked questions (FAQs) about their own new annuity sales standards model.

The Annuity Suitability Working Group — an arm of the National Association of Insurance Commissioners (NAIC) — has put the FAQ answer drafting project on the agenda for a web conference meeting scheduled for July 29.


  • Links to documents related to the Annuity Suitability Working Group’s activities are available here.
  • An article about NAIC approval of the Suitability in Annuity Transactions Model Regulation update is available here.

The working group has included a draft of the FAQ answers in a meeting packet.

Here are three things to know about the drafting effort, and the draft.

1. The History

The current effort descends from efforts by the Obama-era U.S. Department of Labor to impose a fiduciary rule on all sales of products that could be used in retirement, and separate rules that could have put tight restrictions on the indexed annuity market.

The administration of President Donald Trump let the Obama-era fiduciary rule die in court.

The U.S. Securities and Exchange Commission developed an alternative, Regulation Best Interest, that’s friendlier to use of sales commissions, and annuities.

The NAIC developed an update of an existing annuity sales standard model, the Suitability in Annuity Transaction Model Regulation (Model Number 275), in an effort to beef up requirements for annuity sellers to act in the interests of the clients, and to tell clients about potential conflicts of interest.

Trump’s Labor Department recently unveiled an “Impartial Conduct Standards” regulation draft that, like the NAIC’s model update, is supposed to wrap around Reg BI. The new Labor Department draft would apply solely to rollovers of assets from workers’ retirement accounts into other arrangements.

2. The Recurring Themes

In most rounds of the sales standards debate, life insurers and life and annuity producer groups have favored provisions requiring product sellers to disclose potential conflicts of interest.

Financial planner groups and groups like the Center for Economic Justice have argued that the government needs to do more to prohibit activities that could lead to conflicts of interest, not simply increase disclosure requirements.

3. Open FAQ Questions

In the current answer draft, officials have sketched out possible answers to some questions, such as a question about, “What types of recommendations fall under the best interest standard of conduct?” included in the NAIC model regulation update.

“All recommendations made by a producer or insurer to purchase, exchange or replace an annuity product must comply with the best interest standard of conduct,” according to the current draft. “A recommendation does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.”

Regulators have not even tried to put answers to some of the other questions in the draft.

In other answers, regulators state that companies do have to provide more training for producers to meet the standards but do not have to set up entirely new supervision systems.

Here are a few of the questions with a “to be discussed” notation under the question:

  • “[If] a material conflict of interest does not include cash compensation or non-cash compensation, what other type of financial interest would be considered a material conflict of interest?”
  • “To satisfy the conflict of interest obligation, what must a producer do to identify and avoid or reasonably manage a material conflict of interest? Examples?”

— Read 7 Things to Know About the New DOL Annuity Sales Standard Proposalon ThinkAdvisor.

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© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.