DOL Pushes Insurance Officials on Fiduciary Duty vs. Best Interest

Roberts said:  “That’s correct.”

Hansen then replied:  “— but they don’t have to act as a fiduciary.”

Roberts stated: “That’s correct.”

Hansen said she was “still trying to understand where the — what the action would be that would be both in the best interest — the thing that is best for their client, but is not a fiduciary act. I’m still trying to understand where that line is.”

Roberts then went on to explain that as an insurance producer, he tried to evaluate whether a potential client was “in a situation where their personal circumstances suggest that they would benefit or could benefit from the insurance protections embedded in these products,” including protections against market volatility, loss of principal and the risks of outliving their assets.

The best-interest standard “that’s embedded in the NAIC model is calibrated about aligning the needs of the client with the features of the product. It is not a fiduciary standard, but it is a best-interest sales standard,” Roberts explained.

Tim Hauser, deputy assistant secretary for program operations at Labor’s Employee Benefits Security Administration, then asked those testifiying on behalf of NAFA whether the advice given by an insurance produer was individualized.

“You get information from a customer about their individual circumstances, make an assessment of their needs. Is that right?” Hauser asked. “Is that how these transactions work?”

Roberts of Groom Law responded: “Yes.”

Added Heinrich: ”Yes.  You gather — you gather a host of information from the consumer, yes.”

Hauser went on to further probe Hansen’s line of questions.

“It appears to me as I understand the way this relationship works, the advice — there’s advice, it’s individualized,” Hauser stated. “It’s about a fairly complex set of products that ordinary investors can’t really understand without this expert assistance. And the people they’re dealing with hold themselves out as acting in the customer’s best interest. And so from all of that, what is the thing that makes this not a relationship of trust and confidence, at least in those circumstances where the advisor is making a recommendation.”

Responded Roberts: “There is a difference, and we all know there’s a difference between a fiduciary relationship of trust and confidence and a professional sales interaction. A professional sales interaction is one where the transaction-based producer seeks to understand the individual circumstances and seeks to determine whether or not a product that, that individual has available for sale meets the customer’s needs. That is a best-interest interaction that is short of a fiduciary interaction.”