Joining other states that are proposing various fiduciary standards, the Hawkeye State has proposed a regulation that would require annuity agents and securities agents to act in the best interest of their customers.
The proposed rule issued February 27 by the Iowa Insurance Division tracks closely with the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation that is harmonized with the SEC’s Regulation Best Interest.
“I was proud to help lead the NAIC’s effort as we worked toward a harmonized ‘best interest’ standard with the SEC for broker-dealers and agents that makes sure the consumer’s interests are put first,” noted Iowa Insurance Commissioner Doug Ommen, who is also the state’s securities regulator. “Our experience in Iowa has proven that varied advisory models offer incredibly valuable consumer access to retirement education and security.”
According to a summary, the proposed amendments are necessary to coordinate Iowa law with federal law in the wake of the SEC’s Regulation Best Interest. To that end, it explains that the proposed amendments will “materially increase” the Division’s regulatory responsibilities by adding a new state level best interest obligation to the existing suitability standards.
Notably, the proposed amendment 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.
As for the best interest obligation, the proposal adds 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 proposal then goes on to define the specific obligations with respect to care, disclosure, conflict of interest and documentation.
The proposed rulemaking would also require insurers to have a supervision system and to provide training. The Division notes that neither of these are new requirements, but the rulemaking could result in the industry’s having to expend resources to refine or update its supervision system and training programs.
Moreover, the Division says that it expects the proposed amendments to have additional implementation costs as firms update their internal systems to comply with the new requirements, but adds that these one-time costs will be somewhat mitigated in that the insurance rule provides a safe harbor for financial professionals who comply with comparable federal standards.
Comments on the proposed rulemaking are due by April 28 and a hearing is also scheduled the same day.
