Author: Stephen M. Pennartz

View the full bio for Stephen M. Pennartz at the Drinker Biddle website.

Posts by Stephen M. Pennartz:


State Fiduciary and Best Interest Developments: Texas, Virginia and Montana

Texas, Virginia and Montana are the latest states to enact legislation or rules setting forth a best interest standard for annuity producers in recommending annuities to their customers.  Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s.  Virginia’s new rule took effect May 1, 2021, while Texas’s and Montana’s rules will take effect on September 1 and October 1, 2021, respectively.

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Recent State Fiduciary Duty Developments: Idaho, North Dakota and Ohio

Idaho and North Dakota have adopted wholesale the National Association of Insurance Commissioners’ (NAIC) model suitability standard. Ohio also finalized its proposed rule adopting the NAIC model rule. This brings to six the number of states that have adopted the NAIC model (Arkansas, Delaware, Idaho, Michigan, North Dakota and Ohio), and three others have proposed to do so (Kentucky, Maine, and Nebraska).

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Recent State Fiduciary Duty Developments: Eight States Have Proposed or Finalized Best Interest Standards for Annuity Producers

In recent months, eight states — Arkansas, Delaware, Kentucky, Maine, Michigan, Nebraska, North Dakota, and Ohio — have proposed or finalized rules setting forth a best interest standard for annuity producers in recommending annuities to their customers. Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s. The rule also requires producers, prior to recommending an annuity, to disclose the scope and terms of their relationship to the consumer, how the producer is being compensated, and any material conflicts of interest. Notably, the rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

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Recent State Fiduciary Duty Developments: Alabama and Rhode Island Issue Regulations

Alabama and Rhode Island are the most recent states to issue regulations setting forth a best interest standard for annuity producers in recommending an annuity to their customers. Both regulations follow the National Association of Insurance Commissioners’ (NAIC’s) model regulation by requiring producers to act in the consumer’s best interest and not place the producer’s financial interest ahead of the consumer’s. Prior to recommending an annuity, producers are required to disclose the scope and terms of their relationship with the consumer, how the producer is being compensated and any material conflicts of interest. Like the NAIC model regulation, the Alabama and Rhode Island regulations do not create a fiduciary obligation or relationship with the consumer and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

The Alabama regulation is still in its proposed form, with comments due December 7, 2020. If finalized without delay, the regulation would take effect on January 1, 2021. The Rhode Island regulation has been finalized and takes effect on April 1, 2021. A copy of the updated state chart can be found here.