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Best Interest Rule Rises from the DOL Rule’s Ashes

The DOL Fiduciary Rule, while officially dead, has been somewhat resurrected by New York State.

While the Obama-era regulation known as the Department of Labor (DOL) Fiduciary Rule officially died a silent death in June 2018, New York State took matters into their own hands on Wednesday, July 18, 2018, by issuing a final regulation that would raise the standard of care for life and annuity sales.

What does this mean for you if you do business in New York?

The New York State measure, which takes effect August 1, 2019 for annuities and February 1, 2020 for life insurance would require insurers to establish the proper policies and procedures that would ensure a ‘best interest’ definition as follows: “only the interests of the consumer shall be considered in making the recommendation. The producer’s receipt of compensation or other incentives permitted by the Insurance Law and the Insurance Regulations is permitted by this requirement provided that the amount of the compensation or the receipt of an incentive does not influence the recommendation.”

New language for Producer Duties include: “in making a recommendation, a producer, or an insurer where no producer is involved, may weigh multiple factors that are relevant to the best interests of the consumer including, but not limited to, the benefits provided by the policy, the price of the policy, the financial strength of the insurer, and other factors that differentiate products or insurers.”

Also, the new New York State best interest regulation contains a warning about using certain titles: “A producer shall not use a title or designation of financial planner, financial advisor or similar title unless the producer is properly licensed or certified and actually provides securities or other non-insurance financial services. Although a producer may state or imply that a sales recommendation is a component of a financial plan, a producer shall not state or imply to the consumer that a recommendation to enter into a sales transaction is comprehensive financial planning, comprehensive financial advice, investment management or related services unless the producer has a specific certification or professional designation in that area.”

The National Association of Insurance Commissioners (NAIC), which promulgates suggested legislation for states to approve on a more uniform basis, has an annuity working group that is looking at changing its annuity suitability rule to a best interest standard.

There is no current movement by the NAIC to work on a best interest standard for life insurance.

So, as a producer in New York, get ready to supply more suitability information to the carriers to satisfy the new best interest rule. While not onerous, it will be one more form to complete.

More importantly, be careful how you market yourself in New York.  Do not use a financial planner title if you’re not actually doing financial plans or are not licensed to sell securities or not providing other non-insurance financial services.

With the NAIC working on revised annuity suitability standards, expect, at the very least, that over time, new best interest annuity standards will be endorsed by other states. As for life insurance best interest standards outside of New York, we’re still in a wait-and-see mode.

For most of you, the upcoming changes in New York will be a non-event as you already follow a best interest rule. Now it will just need to be documented.

As always, if you have any further questions about the New York or proposed NAIC changes, feel free to reach out to Zenith Marketing Group at (800) 733-0054 at any time.

About Paul Seidel

Vice President of Marketing

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