Fiduciary/Best Interest Development

  • The Alabama Department of Insurance has adopted a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers.
  • The new rule requires a producer, “when making a recommendation of an annuity, [to] act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.” The rule also requires the producer to satisfy certain duties regarding care, disclosure, conflict of interest, and documentation.
  • To satisfy the duty of care, the producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial objectives and have a “reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objective[s] over the life of the product, as evaluated in light of the consumer profile information.”
  • The duty of care does not mean the producer must necessarily recommend the annuity with the lowest one-time or multiple occurrence compensation structure, nor does it mean the producer has an ongoing duty to monitor.
  • Prior to recommending an annuity, the producer must prominently disclose to the consumer the scope and terms of the relationship with the consumer and the role of the producer in the transaction, must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest” and must make a written record of any recommendation and the basis for the recommendation.
  • 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.
  • The new rule takes effect on January 1, 2022.


Proposed Regulation 482-1-137

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