Fiduciary/Best Interest Development
- On July 18, 2018, the New York Department of Financial Services (NYDFS) issued a final version of New York Insurance Regulation 187 (now called “Suitability and Best Interests in Life Insurance and Annuity Transactions”) which sets forth a “best interest” standard for sellers of life insurance and annuity products. It requires an insurer to have reasonable grounds for believing a recommendation is in the best interest of the consumer.
- While annuity products were already subject to a suitability standard, a best interest standard is new. Further, prior to the Regulation, a best interest or suitability standard did not apply to the sellers of life insurance, but now both standards apply to life insurance.
- The Regulation expands the applicability of the regulation to apply to insurance producers, life insurance policies, and in-force policies/contracts. It applies to policies/ contracts delivered or issued for delivery in New York.
- The Regulation continues to exempt policies/contracts used to fund qualified retirement plans, ERISA plans, and employer-sponsored IRAs.
- The Regulation also will not apply to sales of mutual funds or other securities, unless related to an annuity or life insurance product.
- There are two effective dates: August 1, 2019 for annuities and February 1, 2020 for life insurance.
- NOTE: On April 29, 2021, a state appeals court struck down the Regulation as unconstitutional. See Indep. Ins. Agents & Brokers of New York, Inc. v. New York State Dep’t of Fin. Servs., 195 A.D.3d 83 (N.Y. App. Div. 2021). New York is expected to appeal the decision.
Faegre Drinker Blog Post on Proposed Regulation
Final Version of New York Insurance Regulation 187
- The Investment Transparency Act (the ITA), aimed at “mandating greater levels of disclosures by non-fiduciaries that provide investment advice,” is pending in the New York legislature. The bill was introduced previously but did not pass.
- The enhanced disclosures would be accomplished through amending several sections of the general obligations law.
- Investment advisors not currently subject to a fiduciary standard would be required, at the outset of the client relationship, to specifically disclose to clients, orally and in writing, that they are not fiduciaries.
- The specific disclosure must state: “I am not a Therefore, I am not required to act in your best interest, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.”
- Investment advisors that the bill specifically requires to make this disclosure include: “brokers,” “dealers” “financial advisors,” “retirement planners,” or any advisor whose title would suggest expertise in financial planning, retirement planning or investments.