NAIC Revised Suitability in Annuity Transactions Model Regulation with Best Interest Standard

by Anne Shropshire, CLU | Apr 01, 2021

If you or your firm need annuity training that includes the revised NAIC Best Interest standards, WebCE offers annuity suitability training courses and our team can create a customized annuity training program specifically for your firm's needs.

NAIC's Revised Suitability in Annuity Transactions Model Regulation

In , the National Association of Insurance Commissioners (NAIC) approved an extensive update to its long-standing Suitability in Annuity Transactions Model Regulation. The result is a revised, consumer-focused set of standards and practices that elevate consumers’ best interests as the core component of any and all annuity recommendations and sales.

NAIC Revised Model Regulation

In , the National Association of Insurance Commissioners established a working group to review and, if necessary, revise its long-standing Suitability in Annuity Transactions Model Regulation. This was partly in response to significant changes that were taking place in the financial services industry at that time with regard to product suitability standards and efforts to enhance the ways and means by which financial professionals could better meet consumer needs, goals, and expectations.

Earlier, the Department of Labor had redefined its definition of retirement plan investment advice which, in turn, extended the formal obligation of fiduciary duty to many insurance producers. Though this rule was vacated in 2018, the die was cast and market expectations for enhanced consumer-oriented standards in the financial industry grew. Around the same time, the Securities and Exchange Commission had begun efforts to heighten standards of conduct specifically for broker-dealers and associated persons.

The result of the SEC’s efforts was Regulation Best Interest which was adopted in . Essentially, this regulation requires broker-dealers and their registered representatives to act in the best of the customer when recommending product purchases or investment strategies.

The Model Regulation with Consumer Needs and Expectations

Many types of financial professionals, including insurance producers, have recognized a trend that is a demonstrable shift from the role of “salesperson” to advisor or consultant. This is in keeping with many changes in the market:

  • Greater consumer service and personalization expectations
  • Increased specialization in the financial services industry
  • Changing financial needs and goals as more and more consumers step into retirement
  • The introduction of more sophisticated — and complex — financial products
  • Growing consumer reliance on outside financial advice and guidance
  • More options to address consumer financial requirements and objectives (not all of which would be appropriate for a given consumer)

It was in recognition of these changes and trends that the NAIC decided to raise the bar on the standards by which annuity products are recommended and sold. Accordingly, the Suitability in Annuity Transactions Model Regulation was thoroughly revised to better reflect the needs of today’s consumers, expanding the suitability and best interest requirements annuity agents must abide by.

Changes in Revised Suitability in Annuity Transactions Model Regulation

The biggest changes in the revised Suitability in Annuity Transactions Model Regulation are about upgrades in practice standards and requirements. These upgrades revolve around the new best interest standard for annuity agents, meaning new requirements like ensuring the suitability of an annuity recommendation or sale and ensuring that an annuity recommendation or sale is in the best interest of the consumer.

How do producers meet the consumer's best interst? The revised NAIC model sets forth the following to meet the best interest standard:

  • Put the consumer’s interest first
  • Meet specific duties and obligations concerning care, disclosure, documentation and conflicts of interest

These upgraded suitability and best interest standards in the new Model Regulation are more encompassing than the NAIC's prior suitability standard. However, this is NOT a fiduciary standard.

State Adoptions of the NAIC Model Regulation Best Interest Standard

As for when the new best standard requirements go into effect, it depends on your state. Each state must formally adopt the revised regulation in accordance with that state's laws, regulations, and rule-making practices. Several states have adopted the new Model Regulation, and many others are in the process of adopting the new standards.

WebCE can help you stay updated on which states have adopted or are considering adopting the revised Suitability in Annuity Transactions Model Regulation and best interest standards for annuity and life insurance professionals.

To see a map highlighting the states that have adopted these new standards as well as those who are currently in the process or are considering adopting the new revised NAIC Model Regulation, click the button at the bottom of this article or visit the NAIC Model Regulation State Adoption section of the WebCE Annuity Training page.

Best Interest Annuity Training

To stay in compliance with the new Best Interest Model Regulation annuity training requirements in your state, you can complete WebCE's best interest annuity training courses online.

To order the newly-required 4-hour annuity training course for your state, use the buttons below to visit the WebCE course catalog or the page for Annuity Training solutions. You can also call our world-class support team at 877-488-9308 to order courses or with any questions you may have about annuity training requirements in your state.

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