New York is the latest state to plant its flag in the swirling sands of “best interest” standards in an effort to advance rules governing the sale of annuities and life insurance in the state. The reaction from those it will impact has been swift, and critics are zeroing in on what the rule doesn’t do, as much as on what it does.
“If this would lead the rest of the industry toward a fiduciary standard, I’m all for it, but it should not just be for insurance and annuities, but across the board for all securities,” said Devika Kamboh, president of the Financial Planning Association of New York.
The proposal would cover "all sales of life insurance and annuity products, beyond the types of advice covered by the DOL rule," Gov. Andrew Cuomo said in a statement. While the proposal does advance New York’s suitability standard for annuities and insurance products, it would not apply to securities, mutual funds, ETFs or other investment products covered by the partially delayed rule created by the U.S. Department of Labor.
And while the DOL rule would only apply to the sale of products using retirement dollars, the New York proposal would extend to all sales of life insurance and annuities.
"As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field," said Cuomo, a Democrat who has been publicly critical of President Trump. "With these commonsense reforms, we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products."
According to the New York state proposal, a transaction is considered in the “best interest” of a consumer when it is "in furtherance of a consumer's needs and objectives and is recommended to the consumer without regard to the financial interest of the product seller," the governor's press statement said.
The proposed amendments are subject to a 60-day notice and public comment period. If they are passed, New York would become the second state to pass its own best-interest standard. Nevada passed a law in June.
Both states have criticized the DOL’s lengthy delays of its fiduciary rule. While parts of the DOL rule went into effect June 9, provisions regulating the sale of variable and fixed indexed annuities have been delayed until July 1, 2019. Analysts expect the department to weaken annuities provisions, with exceptions.
The rule is concerning to the insurance and the annuities industries, especially those companies operating in New York. Critics of the state’s proposal argue that any new regulation should be uniform across the country so companies, sales professionals, investment advisors and consumers won’t face different standards in different states. New York insurers and annuities providers should not have more stringent rules, for instance, than companies operating in California or Massachusetts, critics said.
“The American Council of Life Insurers urges the New York Department of Financial Services to reconsider amending its suitability regulation to model the U.S. Department of Labor’s fiduciary regulation, which has been delayed for a comprehensive review,” said Kate Kiernan, the council’s vice president, chief counsel and deputy, in a statement.