Fiduciary/Best Interest Development
- The Rhode Island Department of Insurance has finalized a rule that sets forth a best interest standard for annuity producers in recommending an annuity to their customers.
- The final rule 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 rule also requires the producer to satisfy certain duties regarding care, disclosure, conflict of interest, and documentation.
- Under the rule, a producer must exercise reasonable diligence, care, and skill in knowing the consumer’s financial situation, insurance needs, and financial objectives. The producer must also understand the available recommendation options after making 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.”
- This duty 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.
- Prior to recommending an annuity, the producer must prominently disclose the scope and terms of the relationship with the consumer, the role of the producer in the transaction, the sources and types of cash compensation and non-cash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services.
- The producer must “identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest” and make a written record of any recommendation and the basis for the recommendation.
- The final rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.
- The final rule takes effect on April 1, 2021.
Final Regulation 230-RICR-20-25-1