New York state's top court has put the state's best-interest standard for annuity sales back in place.
The New York Department of Financial Services implemented the sales standard regulation amendment in 2019. An appeals court then blocked enforcement of the amended regulation in 2021, arguing that the update is too vague.
The New York State Court of Appeals held, in a ruling issued last week, that the best-interest standard is clear enough.
The court reinstated the standard and provided an interpretation of what it thinks the regulation means.
Meeting the best-interest standard "does not require producers and insurers to identify the single best policy for a consumer," Judge Madeline Singas writes in an opinion explaining the court's ruling. "It simply requires them to reasonably recommend a suitable policy that will benefit the consumer, while refraining from considering their own financial gain."
The case is Independent Insurance Agents and Brokers of New York v. New York State Department of Financial Services (Case Number 2022-73).
What It Means
If the amended regulation takes effect as written, agents and brokers in New York state will have to tell consumers considering annuities about their compensation arrangements.
Annuity producers will also have to tell consumers about the possible benefits and possible negative consequences of proposed annuity purchases.
Annuity producers will be able to call themselves "financial planners" or "financial advisors" only if they have certifications allowing use of those titles, and only if they provide financial services other than insurance services.
Reactions
Representatives for the New York department were not immediately available to comment on the new court ruling.
Lisa Lounsbury, CEO of the Independent Insurance Agents and Brokers of New York (Big I NY) said in a statement that her group respects the court's position but strongly disagrees with the court and is disappointed that the court overturned the lower court decision.
"The court's ruling leaves in place a regulation which lacks the clarity necessary for independent insurance agents and brokers to understand what is expected of them as they operate on a daily basis," Lounsbury said.
Big I NY did not comment on the possibility of it continuing to fight the New York best-interest standard in federal court or through other means.
The History
The U.S. Securities and Exchange Commission, retirement plan regulators at the U.S. Department of Labor, state officials, financial services companies and financial professionals have sparred for decades over financial services product sales standards.
For years, the focus of state insurance regulators was on developing an annuity "suitability standard," or rules requiring annuity producers to verify that the annuities offered to consumers suited the needs of those consumers.
