Fiduciary/Best Interest Development

  • The state has enacted a best interest standard for annuity producers in recommending an annuity to their customers. The new law (SB 1557) is based on the NAIC model suitability standard (discussed below) and the law recently enacted by Iowa. The law provides:
    • Requires a producer 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.”
    • Indicates that a producer has acted in the best interest of a consumer if it satisfies the law’s care, disclosure, conflict of interest and documentation requirements.
    • To satisfy the “care” requirement, a producer must “exercise reasonable diligence, care and skill” to satisfy a number of requirements, including the duty to “know the consumer’s financial situation, insurance needs and financial objectives” and to understand the available product options.
    • Does not create a fiduciary obligation or relationship with the consumer but only “a regulatory obligation,” does not require the lowest compensation for the producer and does not impose an ongoing monitoring obligation.
    • Says recommendations that “comply with comparable standards satisfy the requirements” imposed by the Arizona statute. “Comparable standards” include the SEC’s Reg BI and fiduciary interpretation for RIAs and the ERISA fiduciary requirements.
  • As with other state laws, the statute also makes clear that it does not “create or imply a private cause of action for violation of [the law] or subject a producer to civil liability under the best interest standard of care…or under standards that govern the conduct of a fiduciary or fiduciary relationship.”
  • The new law will become effective January 1, 2021.
  • Sources

    Fact Sheet for SB 1557
    SB 1557

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