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Ron DeSantis speaks during a rally in Hialeah, Florida, on Aug. 23 (Image: Bloomberg)

Life Health > Annuities

Florida Adopts Reg BI-Friendly Annuity Sales Rule Update

By Allison Bell

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What You Need to Know

  • Florida is the 37th state to adopt the rule update.
  • Some believe that lack of widespread state adoption could expand the role of the SEC in regulating fixed annuity sales.
  • California and New York are still holdouts.

Gov. Ron DeSantis of Florida officially started his campaign for the Republican presidential nomination Wednesday, and he also helped efforts to keep traditional annuity sales commissions alive, by signing state House Bill 1185.

House Bill 1185 includes the annuity sales rule model update developed by the National Association of Insurance Commissioners.

Florida became the 37th state to adopt the NAIC model update.

California and New York are now the only states that rank among the top five in terms of population that have not adopted the model.

What It Means

States may still have a chance to keep the Securities and Exchange Commission from regulating the sales of fixed annuities the same way it regulates sales of variable annuities.

The Background

Regulators and consumer advocates have been clashing for decades over the standards that should apply to financial services sales.

Under former President Barack Obama, the Labor Department tried to impose a strict fiduciary standard, which could have eliminated, or sharply restricted, use of volume-based sales incentives and could have pushed down sales of nonvariable indexed annuities.

The Labor Department gave up on the fiduciary rule effort during the administration of former President Donald Trump. Now, under President Joe Biden, it’s reviving the fiduciary rule effort.

During the Trump administration, the SEC developed Regulation Best Interest. Reg BI requires financial services product sellers to document that they understand a customer’s needs, have considered a wide range of potential solutions, and have tried to recommend the best solution. It appears to allow use of sales commissions.

The NAIC Update

The NAIC developed an annuity transactions model intended to protect older consumers in 2003, and it emphasized insurance company sales rep supervision responsibilities in a 2010 update.

The designers of the NAIC’s new suitability model update designed it to complement Reg BI, and to serve as an alternative to a strict fiduciary rule approach. The NAIC adopted the update in 2020.

In addition to Florida, the list of states that have adopted the NAIC model update in recent weeks includes Washington, West Virginia and Wyoming.

The Florida chapter of the National Association of Insurance and Financial Advisors noted that the adoption of the NAIC model update will replace a Florida customer information questionnaire with a national standard questionnaire that asks for similar information.

The SEC’s Authority

The SEC already has the authority to regulate the sales of variable annuities, which can expose holders to the risk of loss of principal.

Analysts at the NAIC have suggested that Section 989J of the Dodd-Frank Wall Street Reform and Consumer Protection Act may give the SEC authority to regulate the sale of fixed annuities if states fail to adopt the NAIC’s suitability model update by 2025.

Reactions

The American Council of Life Insurers and the National Association of Insurance and Financial Advisors have been leading efforts to promote state adoption of the NAIC suitability model update.

ACLI President Susan Neely and NAIFA-Florida President Jeff Chernoff welcomed passage of the bill.

They said in a joint statement that the best interest approach strengthens consumer protections without forcing all financial professionals to shift to a fee-based model.

“Unlike a fiduciary-only approach, these measures ensure that all savers, particularly financially vulnerable middle-income Americans, can access information about different choices for long-term security in retirement,” Neely and Chernoff said.

Pictured: Gov. Ron DeSantis speaks during a rally in Hialeah, Florida, in August 2022. (Photo: Eva Maria Uzcategui/Bloomberg)

Allison Bell

Think_Allison

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