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Judge Madeline Singas. (Photo: Ryland West/ALM)

Life Health > Annuities > Fixed Annuities

Top State Court Revives New York Annuity Sales Standards

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What You Need to Know

  • The regulation requires annuity sellers to act in the best interest of the consumer when making recommendations.
  • Agent groups have argued that the terms in the regulation are vague.
  • The New York Court of Appeals see things differently.

New York state’s top court has put the state’s best-interest standard for annuity sales back in place.

The New York Department of Financial Services implemented the sales standard regulation amendment in 2019. An appeals court then blocked enforcement of the amended regulation in 2021, arguing that the update is too vague.

The New York State Court of Appeals held, in a ruling issued last week, that the best-interest standard is clear enough.

The court reinstated the standard and provided an interpretation of what it thinks the regulation means.

Meeting the best-interest standard “does not require producers and insurers to identify the single best policy for a consumer,” Judge Madeline Singas writes in an opinion explaining the court’s ruling. “It simply requires them to reasonably recommend a suitable policy that will benefit the consumer, while refraining from considering their own financial gain.”

The case is Independent Insurance Agents and Brokers of New York v. New York State Department of Financial Services (Case Number 2022-73).

What It Means

If the amended regulation takes effect as written, agents and brokers in New York state will have to tell consumers considering annuities about their compensation arrangements.

Annuity producers will also have to tell consumers about the possible benefits and possible negative consequences of proposed annuity purchases.

Annuity producers will be able to call themselves “financial planners” or “financial advisors” only if they have certifications allowing use of those titles, and only if they provide financial services other than insurance services.


Representatives for the New York department were not immediately available to comment on the new court ruling.

Lisa Lounsbury, CEO of the Independent Insurance Agents and Brokers of New York (Big I NY) said in a statement that her group respects the court’s position but strongly disagrees with the court and is disappointed that the court overturned the lower court decision.

“The court’s ruling leaves in place a regulation which lacks the clarity necessary for independent insurance agents and brokers to understand what is expected of them as they operate on a daily basis,” Lounsbury said.

Big I NY did not comment on the possibility of it continuing to fight the New York best-interest standard in federal court or through other means.

The History

The U.S. Securities and Exchange Commission, retirement plan regulators at the U.S. Department of Labor, state officials, financial services companies and financial professionals have sparred for decades over financial services product sales standards.

For years, the focus of state insurance regulators was on developing an annuity “suitability standard,” or rules requiring annuity producers to verify that the annuities offered to consumers suited the needs of those consumers.

The Labor Department’s Employee Benefits Security Administration adopted a fiduciary rule package that included a best-interest standard for annuities in 2016, while former President Barack Obama was in office.

A best-interest standard requires an annuity producer to put the interests of the consumer first.

Some annuity advisors now collect fees from consumers for helping the consumers buy annuities. In most cases, however, the agents and brokers who sell annuities to consumers earn sales commissions.

Some have questioned whether commission-based compensation is compatible with a best-interest standard.

The administration of former President Donald Trump declined to protect the Obama-era standard against legal attacks, and that standard died in federal court in 2018.

In 2019, during the Trump era, the SEC adopted a different sales standard update, Regulation Best Interest, and many states have updated their state-level annuity suitability standard regulations to implement Reg BI.

The Employee Benefits Security Administration is now trying to return to developing retirement services sales standards based on the agency’s Obama-era work.

Opinion Details

The New York department implemented the best-interest standard by adding an amendment to an existing regulation, Insurance Regulation 187.

The amended regulation requires annuity producers to consider suitability information when evaluating and making annuity purchase recommendations and determining whether a recommendation is in the best interest of a consumer.

Big I NY contended that terms such as “recommendation,” “suitability information” and “best interest” are vague, and that annuity producers trying to use the regulations won’t know what conduct is or is not permitted.

“‘A statute, or a regulation, is unconstitutionally vague if it fails to provide a person of ordinary intelligence with a reasonable opportunity to know what is prohibited, and it is written in a manner that permits or encourages arbitrary or discriminatory enforcement,’” Singas writes, quoting a 2001 New York State Court of Appeals opinion.

Singas says that terms such as “recommendation” have objective meanings, and that the updated version of Insurance Regulation 187 provides a detailed list of the kinds of suitability information an annuity recommender ought to consider, such as the consumer’s age, annual income, tax status, risk tolerance and liquidity needs.

“Petitioners have fallen woefully short of their burden to sustain a facial due process challenge on vagueness grounds,” Singas writes.

Judge Madeline Singas. (Photo: Ryland West/ALM)


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