State Insurance Regulators Could Set Their Own Best Interest Standard

The NAIC approved the current version of the annuity suitability model in 2010.

Thirty-nine states and the District of Columbia have adopted a complete version of that model, according to an NAIC staff report posted earlier this year.

The DOL rule would require sellers of retirement products to put the interests of the clients first.

The suitability standard requires the seller of an annuity to verify that the annuity suits the needs of the clients.

The New Draft

The suitability working group has included a copy of the draft model revision in a meeting session document packet.

Provisions in the draft model revision would:

• Change the name of the model to the "Suitability and Best Interest Standard of Conduct in Annuity Transactions Model Regulation."

• Add a definition of "best interest," and define "best interest" to mean that, "at the time the annuity is issued, acting with reasonable diligence, care, skill and prudence in a manner that puts the interest of the consumer first and foremost."

• Note that "best interest" does not "mean a resulting recommendation is the least expensive annuity product, or the annuity product with the highest stated interest rate.

• Add a new section on the duties of insurers and insurance producers, which would include consumer information collection and conflict disclosure requirements.

• Prohibit producers from receiving "more than reasonable cash compensation" in connection with making a recommendation.

—Read H.R. 4173: Senate Conferees Mull Fiduciary Standard Issue on ThinkAdvisor.

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