Fiduciary/Best Interest Development
- Effective November 1, 2022, Colorado adopted a new regulation based on the NAIC model (discussed below) titled Concerning Best Interest Obligations and Supervision in Annuity Transactions.
- The purpose of the regulation is to require producers to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.
- The regulation does not apply to recommendations involving contracts used to fund certain retirement plans, including an ERISA plan, a tax-qualified retirement plan, governmental plans, church plans and nonqualified deferred compensation arrangements.
- The regulation does not create a fiduciary relationship nor does it create a private cause of action for enforcing these new standards.
- In recommending the annuity, the producer must have a reasonable basis for believing the recommendation effectively addresses the consumer’s financial situation, insurance needs and financial objectives based on consumer profile information obtained by the producer prior to the recommendation.
- Prior to recommending the annuity, the producer is obligated to prominently disclose to the consumer the producer’s role in the transaction, the types of products the producer is authorized to sell, a description of the compensation the producer will receive and notice of the consumer’s right to request additional information. The regulation includes a form of disclosure that can be used for this purpose.
- At the time of the recommendation or sale, the producer must make a written record of any recommendation and the basis for the recommendation and obtain a signed statement from the consumer if the consumer refuses to provide or provides insufficient consumer profile information.
- The regulation also requires the insurer to establish and maintain a supervision system reasonably designed to achieve compliance with these requirements by the insurer and the producer.
Sources
Dept. of Regulatory Agencies
