Fiduciary/Best Interest Development
- On December 22, 2021, Pennsylvania Governor Tom Wolf signed legislation amending the state’s Suitability of Annuity Transactions statute to adopt the NAIC’s model suitability standard (discussed below).
- The new law 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 law 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, make a reasonable inquiry into the options available to the producer, and have a “reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives 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, unless the monitoring obligation is separately owed under the terms of an agreement with the consumer.
- 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; a description of the compensation to be received by the producer and notice of the consumer’s right to request additional information about the compensation.
- The producer must also “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.”
- 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 consumer signed statement on a form substantially similar to a model form established by the Insurance Department of the Commonwealth of Pennsylvania and following NAIC Model #275’s Appendix B (or following Appendix C if the customer decides to enter into an annuity transaction not based on the producer’s recommendation).
- The law does not create a fiduciary obligation or relationship with the consumer and only creates a regulatory obligation.
- The law takes effect June 20, 2022.
Senate Fiscal Note PN 0912
Legislature’s explanation (As indicated in the Legislature’s explanation, the bracketed shaded language indicates that the language has been removed in the final law)