First, regulators, developed a model regulation. Now, they're
drafting answers to questions about the model.
State insurance regulators have expanded the
long-running U.S. financial services sales standards fight, by
trying to answer frequently asked questions (FAQs) about their own
new annuity sales standards model.
The Annuity Suitability Working Working —
an arm of the National Association of Insurance Commissioners (NAIC) — has
put the FAQ answer drafting project on the agenda for a web conference meeting
scheduled for July 29.
The working group has included a draft of the
FAQ answers in a meeting packet.
Here are three things to know about the
drafting effort, and the draft.
1. The History
The current effort descends from efforts
by the Obama-era U.S. Department of Labor to impose a fiduciary rule on all
sales of products that could be used in retirement, and separate rules that
could have put tight restrictions on the indexed annuity market.
The administration of President Donald Trump
let the Obama-era fiduciary rule die in court.
The U.S. Securities and Exchange Commission
developed an alternative, Regulation Best Interest, that’s friendlier to use of
sales commissions, and annuities
The NAIC developed an update of an existing
annuity sales standard model, the Suitability in Annuity Transaction Model
Regulation (Model Number 275), in an effort to beef up requirements for annuity
sellers to act in the interests of the clients, and to tell clients about
potential conflicts of interest.
Trump’s Labor Department recently unveiled an
“Impartial Conduct Standards” regulation draft that, like the NAIC’s model
update, is supposed to wrap around Reg BI. The new Labor Department draft would
apply solely to rollovers of assets from workers’ retirement accounts into
other arrangements.
2. The Recurring
Themes
In most rounds of the sales standards debate,
life insurers and life and annuity producer groups have favored provisions
requiring product sellers to disclose potential conflicts of interest.
Financial planner groups and groups like the
Center for Economic Justice have argued that the government needs to do more to
prohibit activities that could lead to conflicts of interest, not simply
increase disclosure requirements.
3. Open
FAQ Questions
In the current answer draft, officials have
sketched out possible answers to some questions, such as a question about,
“What types of recommendations fall under the best interest standard of
conduct?” included in the NAIC model regulation update.
“All recommendations made by a producer or
insurer to purchase, exchange or replace an annuity product must comply with
the best interest standard of conduct,” according to the current draft. “A
recommendation does not include general communication to the public,
generalized customer services assistance or administrative support, general
educational information and tools, prospectuses, or other product and sales
material.”
Regulators have not even tried to put answers
to some of the other questions in the draft.
In other answers, regulators state that
companies do have to provide more training for producers to meet the standards
but do not have to set up entirely new supervision systems.
Here are a few of the questions with a “to be
discussed” notation under the question:
·
“[If] a material
conflict of interest does not include cash compensation or non-cash
compensation, what other type of financial interest would be considered a
material conflict of interest?”
·
“To satisfy the
conflict of interest obligation, what must a producer do to identify and avoid
or reasonably manage a material conflict of interest? Examples?”
·
“DOCUMENTATION
OBLIGATION”
·
“ENFORCEMENT”
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