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Fiduciary/Best Interest Development
- On February 24, 2022, the New Mexico Office of Superintendent of Insurance (OSI) issued a rule
(1) requiring insurance producers to act in the best interest of a consumer when making a sale or recommendation of an annuity in New Mexico or to a resident of New Mexico and (2) requiring an insurer to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of the consumer are effectively addressed.
- The best interest obligation is comprised of a duty of care, a disclosure obligation and a conflict of interest obligation. The rule does not create a fiduciary obligation or relationship.
- Under the care obligation, the producer must exercise reasonable diligence, care and skill to know the consumer’s financial situation, insurance needs and financial objectives, understand the consumer’s available options and have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives. The rule also requires that the producer make a written record of the basis for the recommendation.
- Before 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 rule includes a form of disclosure that can be used for this purpose.
- The producer must also identify and avoid or reasonably manage and disclose material conflicts of interest.
- Under the rule, the producer must complete an OSI-approved training course.
- The rule also imposes an obligation on the insurer to establish and maintain a supervision system to ensure that an annuity recommendation to a consumer complies with these rules.
- The rule is effective October 1, 2022.
Final Adopted Rule