The number of fiduciary and best-interest investment advice regulations continued to advance at both the federal and state levels in 2020.
As 2021 takes hold, “firms subject to these regulations face challenges in dealing with rules that impose a host of new obligations, and that at times overlap and conflict with one another,” attorneys at Eversheds Sutherland note.
The law firm has compiled an evolving framework to help advisory and broker-dealer firms stay up to speed on the various rules.
Historically, according to Valerie Mirko, partner at Baker McKenzie in Washington, models developed by the National Association of Insurance Commissioners “move comparatively swiftly” to adoption at the state level.
“I am not surprised that the NAIC Model for suitability in annuity transactions is following this pattern, with about a dozen states out of the gate in 2020/2021,” Mirko said.
While the process for adoption varies among states, and may be legislative or through rulemaking, “we are seeing insurance regulators in those early states speak in unison about the benefits of the model and its harmonization with federal standards,” Mirko said.
The NAIC model does contain a Regulation Best Interest safe harbor, Mirko explained, “allowing firms and reps subject to both Reg BI and insurance regulation to be in compliance with both by complying with Reg BI. This should help maintain the NAIC model’s evergreen nature, should there be any changes to Reg BI.”
That said, she continued, “given the SEC’s work in getting Reg BI over the finish line, and the heavy lift that the industry has undertaken to implement and comply with Reg BI, I don’t expect a wholesale repeal of or significant revisions to Reg BI.”
More assertive enforcement of Reg BI, however, will likely ensue “with the SEC focusing on the conflicts and care obligations,” she predicts.
In contrast, the Labor Department’s ERISA prohibited fiduciary transactions exemption “is far more vulnerable to change with the new administration,” Mirko opined. “Looking ahead, I expect the NAIC and insurance regulators to continue both tracking federal developments and following a path focused on harmonization.”
See the gallery above for the states that have adopted the NAIC model for best-interest regulation in the insurance industry.
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