Fiduciary/Best Interest Development
The Tennessee Department of Commerce and Insurance adopted a rule, effective January 1, 2024, requiring producers to act in the best interest of the consumer when making a recommendation of an annuity.
- The rule requires 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 rule applies to any sale or recommendation of an annuity.
- In recommending an annuity, the producer must have a reasonable basis to believe the recommendation 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 obtained prior to the recommendation.
- Prior to the recommendation or sale of 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.
- 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 rule does not create a fiduciary obligation or relationship nor does the rule create a private cause of action for enforcing these new standards.
- The rule 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.