CFPs who sell annuities are subject to a tougher fiduciary standard, as well as the National Association of Insurance Commissioners (NAIC) suitability model regulation, the CFP Board said in new guide published today.

“The CFP Board Code imposes a fiduciary duty. The Model Regulation does not,” the guide said, adding that advisors who sell insurance products must follow both.

“The foundation of the Code and Standards is its fiduciary duty,” CFP Board CEO Kevin R. Keller said in a statement.

“As this guide makes clear, a CFP professional makes a commitment to CFP Board to act as a fiduciary and, therefore, to act in the best interests of the client at all times when providing financial advice,” Keller added.

While the NAIC’s model regulation states that a “best interest” standard applies, “it then explicitly provides that the ‘best interest’ standard is not a fiduciary duty,” according to the guide.

The purpose of the new guide is to help CFPs who are subject to both the CFP Board standards and the Model Regulation identify some important similarities and differences, the board said. ​

The CFP Board’s said other key differences between the CFP board’s code and the NAIC model regulation include the following:

• The code treats compensation as a material conflict of interest. The model regulation does not.
• The code and standards applies a prudent professional standard. The model regulation does not.
• The scope of the code is broader than the model regulation, for instance, covering covering sales and replacements or rollovers in workplace retirement plans.

The differences in the way the two standards handle compensation are also stark. When an advisor accepts cash and non-cash compensation, the NAIC does not find that to be a material conflict of interest.

“As a result, while the model regulation requires disclosure of how the producer is compensation, there is no requirement ... to identify and reasonably manage compensation-related conflicts,” the CFP Board said.

In contrast, the CFP Board considers conflicts related to cash and non-cash compensation “to be among the most prevalent and significant conflicts of interest” and requires CFPs to disclose and properly manage their compensation-related conflicts, the board added.

“There is no question the CFP Board Codes and Standards describe a higher standard than the NAIC model. That is plain,” said Knut Rostad, president of the Institute for the Fiduciary Standard.

The code also requires CFPs to act without regard to the financial or other interests of any entity other than the client. The model regulation does not use similar language, the CFP Board said.

“While the Model Regulation states that a producer shall not place the producer’s or the insurer’s financial interest ahead of the consumer’s interest, none of the component obligations include a specific requirement for the producer to act in the best interests of the consumer, the CFP Board said.

On a practical level, the application of a fiduciary standard also means that CFPs who sell annuities would not be permitted to recommend products from an insurer or broker-dealer’s “limited menu” without consideration of what is “generally available in the marketplace” and whether the products are in a client’s best interest, the board said.

The NAIC’s model regulation, however, does allow an agent or advisor to make an annuity sale from a limited menu that may not meet a customer’s best interest if a “comparable professional” would make the same sale, the board said.

CFP Board General Counsel Leo Rydzewski said that the CFP Board began developing the guide in early 2023. "CFP professionals operate in a variety of business models, and, therefore, are subject to a variety of laws, rules and regulations," he said, noting the organization did a similar guide in 2020 comparing the board's code and standards to Regulation Best Interest.