Categories
Uncategorized

FACC Leads the Way Protecting Independent Producers and Consumer Choice

[et_pb_section admin_label=”section”]
[et_pb_row admin_label=”row”]
[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]

  • Oppose any best interest standard that would be essentially a fiduciary-like duty and invite runaway litigation;
  • Protect independent agencies and producers who choose not to hold securities licenses;
  • Define workable and objective requirements for both compliance and enforcement; and,
  • Preserve choice – both for agents and consumers.
  • The dilemma has always been that a best interest standard is a poor fit for insurance agents.  Fiduciary obligations like best interest have historically applied to services and not products.  Fiduciary concepts are aimed at those who provide specialized services where duties of loyalty and prudence are paramount.  This includes corporate directors, lawyers, trustees, and advisers.  But seldom if ever are such standards applied to sales professionals or product recommendations where objective issues of cost and performance are paramount rather than undivided loyalty or conservation-oriented prudence.  Best interest, as applied to products, only invites second guessing in search of “better” or “best” products that are ostensibly cheaper or perform better without regard for intricate choices that abound in a highly competitive marketplace. However, FACC recognized there was a powerful movement towards “best interest” across the financial services industry and demand for “harmony” across different types of financial services providers.  It was clear a best interest standard was inevitable for the insurance industry as state regulators sought to preserve their autonomy and authority over annuity sales practices.  The NAIC moved to incorporate a best interest standard into the Suitability in Annuity Transactions Model.  Even the large trades representing the annuity and life insurance industry supported a best interest standard making its adoption virtually unstoppable.  Facing these circumstances, FACC set out to ensure that any requirements would be objective and reasonable for insurance producers and the carriers who support and rely upon independent distribution, while fostering consumer protection and meaningful disclosure. The most significant protections in the model regulation sought by FACC and obtained through our advocacy are explicit provisions stating insurance producers:
    1. Will be afforded a quasi-safe harbor for meeting the best interest standard if they comply with the obligations of care, documentation, and disclosure and, in addition identify or avoid material conflicts of interest (you can find more details on these obligations here).
    2. Will not be required to obtain any securities license in order to comply with the new best interest requirements.
    3. If ever challenged, will be held to standards of producers with similar authority and licensure and not compared to securities agents, investment advisers or other types of fiduciaries.
    In addition, FACC worked with the NAIC to help ensure insurance companies could reasonably administer the rule’s requirements without undue disruption for independent distribution.  FACC specifically put forward and the NAIC adopted language that explicitly provides an insurer is only responsible for supervision of recommendations of its own products and this limitation on supervision also applies to comparison to or compensation paid for any product other an annuity issued by the insurer. FACC advocated vigorously as well for other favorable provisions that help independent producers and their clients.  We worked with industry and the NAIC Working Group to construct a new compensation disclosure template which is meaningful for consumers without adding needlessly cumbersome and confusing paperwork.  FACC also worked to ensure that compensation in any form (cash commissions or non-cash compensation) was not considered a “material conflict of interest,” but rather routine business practice that could be explained and disclosed as needed to the consumer. FACC believes the new Best Interest model is reasonable, workable, and will not cause significant disruption to producers or their clients.  FACC applauds the efforts of regulators for working with FACC and other interested parties to preserve state oversight of fixed annuities, provide meaningful and beneficial disclosures for annuity buyers, and offer standards of care and documentation that producers and insurance companies can understand and implement. In coming months, FACC will work to support passage of the new model regulation in individual states and ensure its provisions protecting independent distribution and consumer choice remain intact.  We will also monitor progress of the new model regulation to ensure protections under the Harkin Amendment adopted in 2010 under Dodd-Frank are not jeopardized in characterizing fixed indexed annuities as insurance and not securities products.  The Harkin Amendment requires states to adopt these revisions in order for the Harkin Amendment protections to remain in force. FACC remains concerned about one aspect of the new NAIC regulation.  It contains a safe harbor for investment advisors and registered representatives who are not required to follow the new NAIC requirements as long as they comply with SEC rules.  We believe any financial services provider that sells annuity products should be subject to the NAIC requirements which are not the same as the SEC requirements.  We will be watching this issue and engaging when necessary to continue our mission to promote and protect independent insurance producers. Please visit www.fixedannuitychoice.com for our previous blogs and comment letters on this and other topics connected with best interest and independent distribution.]]> [/et_pb_text][/et_pb_column]
    [/et_pb_row]
    [/et_pb_section]

    Categories
    Uncategorized

    NAIC Suitability & Best Interest Key Duties & Obligations

  • Care: An agent must exercise reasonable diligence, care, and skill to know the client’s situation, understand available options, and recommend options that effectively address the client’s situation, needs, and objectives.
  • Disclosure: An agent must disclose scope and terms of the client relationship, whether the agent is authorized to sell certain products, whether the agent sells for one or more insurers, and a description of compensation including the client’s right to request more details about cash compensation.
  • Conflict of Interest: An agent must identify and avoid or reasonably manage or disclose conflicts of interest, excluding compensation, such as ownership interest in an insurer.
  • Documentation: An agent must make a written record of the recommendation and basis for the recommendation.
  • Under this new model regulation, an insurer must establish and maintain a system of supervision reasonably designed to achieve compliance by both the insurer and its agents. FACC anticipates that carriers will begin to adopt new procedures and requirements they expect producers to follow. Since, the Model is brand new, most carriers are still analyzing it, however, we will keep you abreast of any new information.  Please be sure to sign up for our newsletter!]]>

    Categories
    Uncategorized

    FACC Supports Independent Insurance Producers

    112619F_FACC Comment Letter with Proposed Clarifications The Fixed Annuity Consumer Choice Campaign has been working hard to improve the NAIC best interest proposal for the benefit of independent agents.  We have advocated changes to make the rule more objective in its requirements and more practical from an implementation and compliance standpoint. The primary interest of FACC is ensuring any revisions to the model regulation adopting a best interest standard will ultimately be workable for the independent distribution channel consisting of insurance agents, marketing organizations, and carriers who offer fixed individual annuities to American consumers.  We believe independent producers and marketing organizations are essential to ensure consumers continue to have the widest array of options possible for retirement savings services and products and also avoid unnecessary disruption in the financial services marketplace to the detriment of independent producers.]]>

    Categories
    Uncategorized

    FACC to NAIC – Proposed Best Interest Rule Must ONLY Compare Insurance Agents to Other Insurance Agents! Preview Text: Read our comment to the NAIC

    Comment Submitted July 31, 2019: As you know by our comments, we support the standard put forward by Iowa in Section 6 A (1) (d), or something similar, because it provides a benchmark for determining what is meant by so many other undefined and open-ended terms like “best interest”, “best suited”, “care”, “skill”, “diligence”  etc.  The inherent challenge facing this rule is its use of entirely subjective words with no defined meanings.  In absence of clarification or definition, a provision as Iowa proposed is imperative.  The provision establishes a standard that any judgement about whether a producer has met the rule’s requirements will be made by reference to what is reasonable for the ordinary producer in a similar circumstance and with similar authority and licensing, while also recognizing it is not necessarily the case “a majority of all insurance and investment professionals could agree that the recommended option was the single best option.” We are particularly baffled by those who say – in support of the rule – such a standard is not needed because “this is more art than science” and thus it would be difficult from a compliance standpoint to say whether other producers would or would not have made the same recommendation.  They go even further, saying this is “more aligned with litigation than a regime based on supervision and regulation.”  We hope regulators fully absorb those comments and understand that in saying whether a sale is in the best interest of a consumer can only be resolved through a battle of experts in a courtroom and does not lend itself to regulation.  If that’s true and, ironically, we agree with them, then it makes our very point as to why this should not be a regulation in the first place.  However, if the NAIC proceeds with this rule, then objective standards are needed so regulators have some point of reference when deciding whether an agent did or did not do what is required of them. Let us be clear.  We have never been supporters of a best interest standard.  We think it does not lend itself to regulation and will turn quickly into a litigation trap.  We think these very debates prove the rule is far too subjective and carries these risks.  Nonetheless, if the rule goes forward, we believe it should stipulate that the standard for meeting the care obligation is one of reasonableness as applied to an ordinary producer.  Words can be changed to “peer professional” or “insurance professional” to capture other concerns, but the litmus test must be against what others with similar profiles might have done.  Beyond that it must be made explicit that insurance agents will only be compared to other insurance agents and not held to standards required of securities brokers, investment advisers, trustees, or other kinds of fiduciaries.  This is the only way to ensure the rule is workable and applied fairly as possible.]]>

    Categories
    Uncategorized

    NAILBA Perspectives Magazine – NEW EDITION

    Categories
    Uncategorized

    3 Misconceptions about Best Interest

    Categories
    Uncategorized

    OPEN LETTER TO LIFE INSURANCE AND ANNUITY TRADE ORGANIZATIONS

    Categories
    Uncategorized

    To Best or Not To Best . . . That is the Question . . . Or Is It?

    Categories
    Uncategorized

    Industry Coalition Supports Alternative Approach to Best Interest Fixed Annuity Group Proposes Revisions to Model Annuity Disclosure Regulation

    Categories
    Uncategorized

    FACC Campaign Welcomes 5th Circuit Mandate – Encourages NAIC to Step Back from Best Interest

    mandate vacating the Labor Department’s fiduciary rule.   It is a tremendous victory for the financial services industry and for those who believe more government regulation is not always the answer.  But one must ask whether this will be a short-lived victory if the fiduciary rule is simply replaced with a “best interest” regulation. While some might read the Fifth Circuit decision merely as a rebuke to the Labor Department, the FACC Campaign believes the Fifth Circuit decision stands for a larger proposition.  The Court made clear that agents who sell products are not fiduciaries and should not be held to fiduciary standards.  To do otherwise is contrary to decades of common law as well as highly evolved statutory and regulatory decision-making. The Fifth Circuit saw through the fallacy of the Labor Department’s presumption that it could simply deem insurance agents and securities brokers (who are sellers of products) to be equivalent to investment advisers.  The decision blasted the Labor Department for ignoring the longstanding distinction between an agent and adviser, only the latter of which is a fiduciary based on a unique position of trust and confidence, for whom standards of prudence and loyalty apply under ERISA. In rendering its decision, the Court rejected the paternalism of the DOL, rejected the agency’s arbitrary exercise of power, and rejected the idea that regulators could just turn anybody into a fiduciary.  Now that the Fifth Circuit has spoken, one wonders whether the financial services industry, along with regulators, will heed this message or simply chalk off the decision as a narrow admonishment aimed at the Labor Department.   That would be greatly disappointing and a missed opportunity to redirect regulatory energies in a way that truly helps consumers. From our perspective at the FACC Campaign, “best interest” proposals being considered by the SEC and NAIC are essentially a reincarnation of the DOL rule that embody the same precepts of prudence and loyalty that were rejected by the Fifth Circuit as applied to insurance and securities brokerage sales.  With no disrespect intended towards authors of these “best interest” proposals, best interest is a fiduciary concept, and many have admitted best interest is just another means by which to impose fiduciary standards and duties on agents, even if not called such.  This is exactly what the Fifth Circuit decision finds at odds with Congressional intent, common law, and (albeit unstated) common sense. Nobody, least of all the FACC Campaign, is saying agents should have no duties or standards.  But those duties and standards must be sensible and fit industry practices to avoid creating artificial, unrealistic, and potentially disastrous effects.  Indeed, insurance agents have critical duties that include, among others, the duty to provide accurate information, the duty to provide full disclosure, and the duty to ensure recommendations are suitable and meet client’s needs and objectives.  But agents are not fiduciaries and should not be saddled with fiduciary obligations that will only beget confusion and litigation, and in the end destroy the vitality of the fixed insurance industry and deprive consumers of high quality fixed insurance products. It would be a shame to squander this gift from the Fifth Circuit, this clear-eyed opinion that finally sees through the malignancy of the DOL rule.  The FACC Campaign urges industry and regulators to take full account of the meaning of the Fifth Circuit decision by not rushing to adopt a best interest standard that potentially eviscerates the Court’s thoughtful (and courageous) holding. Instead, the FACC Campaign hopes regulators will start afresh and look for ways to improve disclosure and transparency without creating artificial standards of care or unrealistic duties that blur real distinctions in the financial services marketplace – which in the end will only suppress competition, unleash rampant litigation, and ultimately hurt consumers. If regulators do that, the holding of the Fifth Circuit will not be in vain, and real victory will be achieved.]]>