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Compliance With NAIC Model Regulaton Best Interest 

  • The law in 45 States.

  • Agents required to act in the customer's best interest.

  • Imposes many other requirements.

Are You Compliant?

David Macchia describes some of the agent's key obligations.

Our sense is that many agents are not in compliance with NAIC Regulation Best Interest. If this describes you, prudence demands that to avoid liability you become complaint, and quickly. Below, we list the legal obligation that agents must adhere to in their capacity of recommending and selling insurance products.

Before reading these, consider just a single provision of Reg Best Interest dealing with recordkeeping. As you read this, ask yourself if you are in compliance:

"General agents, independent agencies and producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer, disclosures made to the consumer, including written summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions (for five or more) years after the insurance transaction is completed by the insurer."       

Care Obligation

As an agent, you must have a reasonable basis to believe that any annuity you recommend effectively addresses the consumer’s financial situation based upon a number of considerations including a consumer profile that must address:

  • The consumer's age

  • Annual income

  • Overall financial situation

  • financial experience

  • financial education

  • Liquid net worth

  • Risk tolerance

  • Investment experience

  • Tax status

  • Intended use of the annuity

  • The agent must make reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity. In the event the consumer refuses to provide the information needed to complete the profile, the agent must obtain a consumer signed statement documenting the refusal to provide the recommendation should the client decide to enter into an annuity transaction that is not based upon the agent's recommendation.

  • The agent must. make a reasonable inquiry into all annuity products available to the agent based upon his or her company appointments and licensure.  

  • The agent must demonstrate the basis for any product recommendation.

Conflict of Interest Obligation

  • The agent shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

Documentation Obligation

A producer shall at the time of recommendation or sale:

  • Make a written record of any recommendation and the basis for the recommendation subject to this regulation.

    •  Obtain a consumer signed statement on a form substantially similar to Appendix B 
      documenting:

      • A customer’s refusal to provide the consumer profile information, if any; and

      • A customer’s understanding of the ramifications of not providing his or her 
        consumer profile information or providing insufficient consumer profile 
        information; and,

      • Obtain a consumer signed statement on a form substantially similar to Appendix C 
        acknowledging the annuity transaction is not recommended if a customer decides to enter 
        into an annuity transaction that is not based on the producer’s recommendation. 

Disclosure Obligation

Prior to the recommendation or sale of an annuity, the agent must use a form to disclose the following information to the consumer:

  • A description of the scope and terms of the relationship with the consumer and  the role of the producer in the transaction.

  • An affirmative statement on whether the producer is licensed and authorized to sell the following products

 

  • Fixed annuities

  • Fixed index annuities

  • Variable annuities

  • Life insurance

  • Mutual funds

  • Stocks and bonds

  • Certificates of deposit

  • An affirmative statement describing the insurers the producer is authorized, contracted (or appointed), or otherwise able to sell insurance products for, using the following descriptions: 

  • From one insurer

  • From two or more insurers, or, 

  • From two or more insurers but primarily contracted with one insurer.

 

  • A description of 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; and,

  • A notice of the consumer’s right to request additional information regarding cash compensation.

  • Upon request of the consumer or the consumer’s designated representative, the producer 
    shall disclose:

  • A reasonable estimate of the amount of cash compensation to be received by the 
    producer, which may be stated as a range of amounts or percentages; and,

  • Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages; and,

  • Prior to or at the time of the recommendation or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk.

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