The Iowa Insurance Division on May 11 finalized a rule requiring annuity agents to act in the best interest of their customers.
First proposed in February, the rulemaking follows efforts by the National Association of Insurance Commissioners to develop a model “Suitability in Annuity Transactions Model Regulation” that is harmonized with the Securities and Exchange Commission’s Regulation Best Interest.
“Iowans expect their financial professional to act in the consumer’s best interest when recommending an annuity. Iowa not only expects it, but we will require it,” says Iowa Insurance Commissioner Doug Ommen, who is also the state’s securities regulator.
Ommen noted that the division decided to delay a proposed best interest standard in its securities regulations, following several comments received requesting a delay due to the COVID-19 pandemic. The Division anticipates publishing a new Notice of Intended Action related to the securities portion of the rulemaking this summer.
Notably, the final rule does not alter the section in the existing rule specifying that these rules do not apply to transactions involving:
- an employee pension or welfare benefit plan that is covered by ERISA;
- a plan described in Code Sections 401(a), 401(k), 403(b), 408(k) or 408(p) if established or maintained by an employer; or
- a nonqualified deferred compensation arrangement.
The Division expects the amendments to have additional implementation costs as firms update their internal systems to comply with the new requirements, but believes those costs will be mitigated in that the insurance rule provides a safe harbor for financial professionals who comply with the SEC’s Reg BI standards.
As for the best interest obligation, the amended rule includes language specifying that an insurer or producer when making a recommendation of an annuity “shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s.” The rule also defines the specific obligations with respect to care, disclosure, conflict of interest and documentation.
Among other things, the rule specifies that, prior to the recommendation or sale of an annuity, the producer shall “prominently disclose” to the consumer on a form substantially similar to one provided in the rule’s appendix a description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction; and an affirmative statement on whether the producer is licensed and authorized to sell annuities and similar products.
The rule will apply to any sale or recommendation to purchase, exchange or replace an annuity on or after Jan. 1, 2021.
