State Fiduciary and Best Interest Standard Developments

Alabama

The Alabama Department of Insurance has adopted a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers. The new rule requires a producer, “when making a recommendation of an annuity, [to] 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 interest.” The rule also requires the producer to satisfy certain duties regarding care, disclosure, conflict of interest, and documentation. To satisfy the duty of care, the producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial objectives and have a “reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objective[s] over the life of the product, as evaluated in light of the consumer profile information.” The duty of care does not mean the producer must necessarily recommend the annuity with the lowest one-time or multiple occurrence compensation structure, nor does it mean the producer has an ongoing duty to monitor. Prior to recommending an annuity, the producer must prominently disclose to the consumer the scope and terms of the relationship with the consumer and the role of the producer in the transaction, must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest” and must make a written record of any recommendation and the basis for the recommendation. The rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct. The new rule takes effect on January 1, 2022. Source: Chapter 482-1-137.

Arizona

The state has enacted a best interest standard for annuity producers in recommending an annuity to their customers. The new law (SB 1557) is based on the NAIC model suitability standard (discussed below) and the law recently enacted by Iowa. The law provides: Requires a producer to “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 interest.” Indicates that a producer has acted in the best interest of a consumer if it satisfies the law’s care, disclosure, conflict of interest and documentation requirements. To satisfy the “care” requirement, a producer must “exercise reasonable diligence, care and skill” to satisfy a number of requirements, including the duty to “know the consumer’s financial situation, insurance needs and financial objectives” and to understand the available product options. Does not create a fiduciary obligation or relationship with the consumer but only “a regulatory obligation,” does not require the lowest compensation for the producer and does not impose an ongoing monitoring obligation. Says recommendations that “comply with comparable standards satisfy the requirements” imposed by the Arizona statute. “Comparable standards” include the SEC’s Reg BI and fiduciary interpretation for RIAs and the ERISA fiduciary requirements. As with other state laws, the statute also makes clear that it does not “create or imply a private cause of action for violation of [the law] or subject a producer to civil liability under the best interest standard of care…or under standards that govern the conduct of a fiduciary or fiduciary relationship.” The new law took effect January 1, 2021. Source: Fact Sheet for S.B. 1557.

Arkansas

The Arkansas Insurance Department has amended its Suitability in Annuity Transactions Rule (“Rule 82”) to adopt the NAIC’s model suitability standard (discussed below). Although the amended Rule 82 took effect December 29, 2020, individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until June 29, 2021) to comply with the amended provisions. Source: Amended Final Rule 82.

Colorado

In February 2020, the National Association of Insurance Commissioners (NAIC) approved revisions to its Suitability in Annuity Transactions Model Regulation (#275). The revised regulation requires that all annuity recommendations by producers and insurers meet a "best interest" standard. The new regulations requires all veteran insurance agents who previously qualified to sell annuities under their state's version of the NAIC annuity suitability regulation may take a one-hour update course to qualify to sell annuities under the new NAIC best-interest standard. This course meets that requirement. This course details the standard of care agents must adhere to when recommending annuities to clients. It discusses the fact finding and analysis required to make a recommendation that is in the best interest of the client. It discusses conflicts of interests, disclosures to clients, and documentation. Source: 3 COLO. CODE REGS. § 702-4;4-1-11 (2004/2011) (PREVIOUS VERSION MODEL).

Connecticut

Connecticut HB 7161 “An Act Requiring Administrators of Certain Retirement Plans to Disclose Conflicts of Interest” went into effect on October 1, 2017. On January 1, 2019, any company that administers a retirement plan offered by a political subdivision of the state will have to disclose: “(1) The fee ratio and return, net of fees, for each investment under the retirement plan, and (2) the fees paid to any person who, for compensation, engages in the business of providing investment advice to participants in the retirement plan either directly or through publications or writings.” The law applies to any person that: (1) enters into a contract or agreement with a 403(b) plan not regulated under ERISA to provide services to the plan; and (2) reasonably expects to receive $1,000 or more in direct or indirect compensation for such services. Source: Substitute House Bill No. 7161.

Delaware

The Delaware Department of Insurance has amended its Suitability in Annuity Transactions Regulation (“Regulation 1214”) to adopt the NAIC’s model suitability standard (discussed below). The amended regulation takes effect on August 1, 2021. Source: Amended Regulation 1214.

Hawaii

The state of HI has adopted the NAIC Best Interest Standards. Effective December 31st, 2022, Licensees who have already completed a 4-hour annuity course prior to 12/31/2022 will need to complete either a 1-hour annuity best interest course or a 4-hour annuity best interest course by 7/01/2023. Licensees who obtain a life or variable annuity products line of authority after December 31st, 2022, shall not engage in the sale of annuities until the producer has completed a four-hour annuity best interest training course. Source: HAW. REV.STAT. §§ 431:10D-621 to 431:10D-626 (2008/2012) (previous version of model): MEMORANDUM 2011-2(LC) (2011).

Idaho

The Idaho legislature has amended its Annuity Consumer Protections Act to adopt the NAIC’s model suitability standard (discussed below). The amended provisions take effect July 1, 2021. Source: House Bill No. 79.

Iowa

On February 27, 2020, the Iowa Insurance Division proposed a best interest standard for annuity producers and securities sales representatives to act in the best interest of their customers in recommending an annuity. In finalizing the rule, the Division indicated that, in response to comments, it was postponing the securities portion of the standard but proceeding with the insurance portion of the rule without change from the proposal. The Division indicated that it “anticipates publishing a new Notice of Intended Action related to the securities portion of the rulemaking this summer”, though no proposal has been published as of July 10, 2020. The final rule, which is similar to the NAIC model suitability standard (discussed below) and is intended to be consistent with the SEC’s Regulation Best Interest, will require financial professionals to “always put the consumer’s interest first” and to only make recommendations that match the customer’s needs, objectives and personal situation. The final rule specifically provides that it is not intended to give consumers a private right of action to enforce the new standard or to create a fiduciary relationship between a producer and a consumer. The insurance portion of the rule took effect January 1, 2021. Source: Proposed Rulemaking Related to Best Interest Standard in annuity sales.

Kentucky

Kentucky requires agents to act in the best interest of the consumer when recommending an annuity. The training requirement has been expanded to include the new standard of conduct. Agents licensed before 1/1/2022 must complete the training by 6/30/2022. Agents who have completed the original annuity training course under the old rule, must complete either a new one-time 4 hour course or an additional one-time 1 hour course. Agents who obtain a life insurance license on or after 1/1/2022 must complete the new one-time 4 hour course before selling annuities. Compliance with another state’s training requirements that are substantially similar to this requirement will be deemed in compliance with Kentucky’s requirement. The new regulation took effect January 1, 2022. Source: Proposed Regulation 12:120.

Maine

The Maine Bureau of Insurance has finalized a rule amending its Suitability in Annuity Transactions Regulation (“Chapter 917”) to adopt the NAIC’s model suitability standard (discussed below). The new rule takes effect January 1, 2022. Source: Proposed Rule Chapter 917.

Maryland

On March 31, 2022, the Maryland Insurance Administration (MIA) adopted changes to COMAR 31.09.12, Suitability in Annuity Transactions. The changes include specific training requirements for producers selling annuity products. The regulation becomes effective on October 8, 2022, and this notification provides information to education providers about the changes. Licensed producers who hold a life insurance line of authority as of October 8, 2022, engage in the sale of annuity products in Maryland, and have already completed the required 4-hour Annuity Suitability training, must complete additional training which includes the new best interest standard as defined in COMAR 31.09.12 by April 8, 2023 (six months after the effective date of this regulation). The producer may choose to complete a one-time Annuity Best Interest 1-hour training course to supplement the previously taken 4-hour Annuity Suitability training or complete a one-time Annuity Best Interest 4-hour training course. Licensed producers who obtain the life insurance line of authority on or after October 8, 2022, and desire to sell annuity products must complete a one-time Annuity Best Interest 4-hour training course which includes the best interest standard as defined in COMAR 31.09.12 prior to engaging in the sale of annuity products in Maryland. Source: MD Regulation Code: §§ 31.09.12.01 to 31.09.12.11 (2007/2011) (previous version of model); BULLETIN 2011-28(2011).

Massachusetts

A provider of an annuity training course intended to comply with 211 CMR 96.06 shall register as a CE provider in this Commonwealth and comply with the rules and guidelines applicable to producer continuing education courses as set forth in M.G.L. c. 175, § 177E, and 211 CMR 50.00: Continuing Education for Insurance Producers. A producer who has completed an annuity training course approved by the Commissioner shall, by June 1, 2023, complete either: (a) A new four-credit training course approved by the Commissioner; or (b) An additional one time one credit course approved by the Commissioner and provided by a continuing education provider on appropriate sales practices, replacement, and disclosure requirements under 211 CMR 96.00. The satisfaction of training requirements of another State that are substantially similar to the provisions of 211 CMR 96.06 shall be deemed to satisfy the training requirements of 211 CMR 96.06. Source: THE INSURANCE CODE OF 1956 (EXCERPT) Act 218 of 1956.

Michigan

The Michigan legislature has amended Chapter 41A of its insurance code (entitled “Annuity Recommendation to Consumers”) to adopt the NAIC’s model suitability standard (discussed below). The bill would have imposed a fiduciary standard on brokers and insurance representatives, including “to act in the best interest of the customer without regard to the financial or other interest of the person or firm providing the advice.” The amended provisions take effect June 29, 2021. Source: Public Act No. 266 (2020).

Minnesota

On May 23, 2022, Minnesota’s training requirements for insurance producers who wish to engage in the sale of annuity products changed. The training requirement for an individual producer depends on when that person became licensed and whether they previously completed the annuity suitability and disclosure training required by Minnesota law. An insurance producer who sells annuity products must complete a onetime four-credit training course approved by the Commerce Department before being involved in an annuity transaction. Insurance producers who hold a life insurance line of authority on December 31, 2022, and who want to sell annuities, must complete the training requirements no later than June 30, 2023. Individuals who obtain a life insurance line of authority on or after January 1, 2023, may not engage in the sale of annuities until the required annuity training course has been completed. Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with Minn. Stat. Chapter 45. Option for producers with prior training: An insurance producer licensed by December 31, 2022, who holds a life insurance line of authority and previously completed the annuity suitability and disclosure training required by Minnesota law must complete either: (1) a new four-credit training course approved by the Department of Commerce after July 1, 2022; or (2) an additional onetime one-credit training course approved by the Department of Commerce after July 1, 2022. The course must be provided by a Department of Commerce-approved education provider on appropriate sales practices and replacement and disclosure requirements under Minn. Stat. §§ 72A.203 to 72A.2036. Source: MINN. STAT. ANN. §§ 72A.20 to 72A.2036 (2012/2014) (portions of previous version of model); §§ 60K.46 to 60K.56 (2012/2017)(portions of previous version of model); § 61A.021 (1985) (tying prohibited).

Nebraska

On April 7, 2021, the Nebraska legislature passed a law amending the Nebraska Protection in Annuity Transactions Act to adopt the NAIC’s model suitability standard (discussed below). The amended provisions take effect January 1, 2022. Source: Legislative Bill 22.

New Mexico

Effect October 1, 2022, licensees who sell annuity products will need to complete an annuity course covering the NAIC Best Interest Standards. Licensees who have already completed a 4-hour annuity course prior to 10/1/2022 may complete a 1-hour annuity best interest course or complete the new 4-hour annuity best interest course. Licensees will only have until 3/31/2023 to be able to take the 1-hour course. Licensees who have not completed an annuity course must take the 4-hour annuity best interests course prior to selling annuities. Source: New Mexico Office of the Superintendent of Insurance.

North Carolina

Effective January 1st, 2023, licensees who sell annuity products will need to complete an annuity course covering the NAIC Best Interest Standards. Licensees who have already completed a 4-hour annuity course prior to 1/01/2023 may complete a 1-hour annuity best interest course or complete the new 4-hour annuity best interest course. Licensees will only have until 6/30/2023 to be able to take the 1-hour course. Licensees who have not completed an annuity course must take the 4-hour annuity best interests course prior to selling annuities. Residents and non-residents who have completed training including the NAIC Best Interest Standards in another state with laws similar to North Carolina law will be deemed compliant with this requirement. Source: N.C. GEN. STAT. §§ 58-60-150 to 58-60-180 (2007/2009) (previous version of model); 11 N.C. ADMIN. CODE 12.0420 (1976/1992) (submit suitability form).

Ohio

The Ohio Department of Insurance has amended its Suitability in Annuity Transactions Rule (“Rule 3901-6-13”) to adopt the NAIC’s model suitability standard (discussed below). The amended regulation took effect February 14, 2021, although individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until August 14, 2021) to comply with the amended provisions. Source: Final Rule 3901-6-13.

Pennsylvania

The Pennsylvania Department of Insurance has amended its Suitability in Annuity Transactions Rule (“40 PA. CONS. STAT. §§ 627-1 to 627-8 (2010/2018) (previous version of model).”) to adopt the NAIC’s model suitability standard (discussed below). The amended regulation took effect February 14, 2021, although individuals and entities subject to the rule will be allowed six months from its effective date (i.e., until August 14, 2021) to comply with the amended provisions. Source: Rule 627-1 to 627-8 (2010/2018).

Rhode Island

The Rhode Island Department of Insurance has finalized a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers. The final rule requires a producer, “when making a recommendation of an annuity, [to] 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 interest.” The rule also requires the producer to satisfy certain duties regarding care, disclosure, conflict of interest, and documentation. Under the rule, a producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial objectives. The producer must also understand the available recommendation options after making a reasonable inquiry into the options available to the producer and have a “reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information.” This duty does not mean the producer must necessarily recommend the annuity with the lowest one-time or multiple occurrence compensation structure, nor does it mean the producer has an ongoing duty to monitor. Prior to recommending an annuity, the producer must prominently disclose the scope and terms of the relationship with the consumer, the role of the producer in the transaction, the sources and types of cash compensation and non-cash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services. The producer must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest” and make a written record of any recommendation and the basis for the recommendation. The final rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct. The final rule took effect on April 1, 2021. Source: Final Regulation 230-RICR-20-25-1.

South Carolina

The South Carolina Department of Insurance has amended its Suitability in Annuity Transactions Rule (“Rule 1976rdquo;) to adopt the NAIC’s model suitability standard (discussed below). The amended regulation took effect May 27, 2022. Source: Rule 1976 Code Sections 1-23-110, 38-3-110, and 38-69-330 69'29.

South Dakota

Effective January 1st, 2023, licensees who sell annuity products will need to complete an annuity course covering the NAIC Best Interest Standards. Licensees who have already completed a 4-hour annuity course prior to 1/1/2023 may complete a 1-hour annuity best interest course or complete the new 4-hour annuity best interest course. Licensees will only have until 6/30/2023 to be able to take the 1-hour course. Licensees who have not completed an annuity course must take the 4-hour annuity best interests course prior to selling annuities. One-time training must be complete prior to selling annuity products. *Residents who satisfy the training requirements of another state that are similar to the South Dakota law will be deemed compliant for the South Dakota requirement. (cannot use 1 hour until 1/01/23)

Texas

On June 4, 2021, the Texas legislature passed a law amending the state’s Suitability of Certain Annuity Transactions statute to adopt the NAIC’s model suitability standard (discussed below). The amended provisions take effect September 1, 2021. Source: HB1777.

Virginia

The Virginia Bureau of Insurance has amended its Rules Governing Suitability in Annuity Transactions to adopt the NAIC’s model suitability standard (discussed below). The amended provisions took effect May 1, 2021. Source: Rule Governing Suitability in Annuity Transactions.

Wisconsin

Wisconsin Best Interest Law (2021 Wis. Act 260) requires an intermediary who engages in the sale of annuities to complete updated annuity training which includes the best interest standard. Producers that completed an approved annuities training course prior to October 1, 2022, must complete either a one-time, 4-hour annuity training best interest course or a one-time, 1-hour refresher annuity training-best interest course within six months of the effective date of the Act. The deadline line for intermediaries to complete this updated training is April 1, 2023. Producers obtaining a new life license after October 1, 2022 must complete a one-time, 4-hour Annuity Training-Best Interest training course before selling annuities. Source: Rule 628.347.