TO: FACC Members and Supporters
We want to make you aware of draft legislation soon to be introduced in California that is highly troublesome.
This is legislation advocated by the California Insurance Commissioner which is contrary to the NAIC Model and would be harmful to consumer choice.
FACC is concerned at this stage whether industry as a whole will come together and be forceful enough to fight off this detrimental proposal in order to preserve free markets in California.
Here is a listing of major concerns with California SB 263 that shows how this legislation would hurt the annuity market and especially hurt independent distribution.
- Only the interest of a consumer may be considered which amounts to an unworkable ERISA kind of fiduciary standard.
- Includes a duty of prudence which is generally recognized as a fiduciary principle.
- Requires eliminating all conflicts of interest “if possible” which could be considered tantamount to eliminating all conflicts.
- Includes compensation within the definition of material conflicts which is otherwise excluded by the NAIC in favor of a disclosure approach.
- Restricts compensation paid by insurers in ways that are anticompetitive suggesting flat compensation across all products.
- Appears to prohibit all sales incentives and non-cash compensation that would be especially problematic in the independent channel.
- Threatens to undermine the safe harbor with a precondition that FINRA change its standards to meet CA requirements.
- Lacks reasonable limitations on supervision requirements needed for independent agents who are not controlled by insurers.
- Applies to life insurance even though the model provisions were originally designed for annuity regulation.
- Contains other troubling elements such as no restriction on private right of action, excessive compensation disclosure requirements, unworkable conflict disclosure requirements.
It is important to emphasize that we are awaiting formal introduction of this legislation and we are still in the process of studying it.
For those of you who operate in California we will likely be reaching out for your assistance in trying to fight off this dangerous legislation.
In the meantime we wanted to alert our members and supporters of these developments and welcome any questions or comments.