While some industry critics say it too closely resembles the now-overturned DOL fiduciary rule, others say it doesn't go far enough to protect consumers from hidden or potentially harmful annuities compensation practices and conflicts of interest.
Several states, including New York, Nevada, New Jersey and Connecticut, are not waiting for the NAIC to finalize a model act but are moving to create their own best-interest standards.
James Regalbuto, Deputy Superintendent of the Life Bureau at the New York Department of Financial Services, said NY intends to proceed with its own suitability regulations.
The NAIC’s delay is giving critics across the spectrum hope for what they believe can be a more desirable rule.
“We call it the NAIC reset and we think it’s terrific,” said Kim’ O’Brien, CEO of Americans for Annuity Protection, an advocacy group for independent marketing organizations and agents. O’Brien supports more protection for consumers through disclosure, but opposes a fiduciary rule, which she says applies to financial planners and investment advisors, not to insurance agents and marketers of annuities, who turn over ongoing product management to insurance companies.
“Putting the customer first and ahead of your own interests is very important; however I don’t think the process of financial planning is an ongoing duty with annuities,” O’Brien said. “Once you’ve made an assessment of customer needs, risk tolerance and time horizon and make a recommendation and that customer purchases an annuity, the agent has no role with ongoing management like a CFP practitioner. The agent should revisit the customer every few years to see if there has been a life event, but ongoing management is the insurer’s responsibility,” she added.
New LIMRA analysis shows that more than half the money invested in annuities ($84.5 billion) is being used to purchase products that offer guaranteed income. “Despite all the news questioning whether Americans understand annuities, our analysis demonstrates that Americans are purchasing annuities to meet their specific investment objectives in retirement,” said Todd Giesing, director of Annuity Research, LIMRA Secure Retirement Institute. LIMRA’s research shows the top financial goal of pre-retirees is to have enough money to last a lifetime, so it stands to reason that the majority of the assets invested in annuities are targeted towards creating lifetime income, Giesing added.
The Consumer Federation of America had asked the NAIC in January to withdraw and revise its model, saying it fell short of a true best-interest standard.
“As currently drafted, the proposal offers only limited improvements over the existing regulations governing annuities transactions,” Barb Roper, CFA’s director of investor protection, said in comment letter to the NAIC. “It falls well short of the true “best interest” standard that is needed to adequately protect consumers from the harmful impact of conflicts of interest in this market. … Some of the worst examples have occurred in the annuities market, where a combination of out-size sales incentives and complex, opaque investment products make consumers particularly vulnerable to abuse,” Roper added.