Iowa Proposes Harmonized Annuity Best Interest Regulation

Iowa annuity Best Interest regulation

A dozen states could follow Iowa's lead by the end of 2020

As annuities are poised for meaningful expansion into 401k plans as a result of the SECURE Act, states are beginning to update standards for those who are selling annuities to consumers.

The Iowa Insurance Division today filed proposed regulations to require annuity agents and securities agents to act in the best interest of their customers, with standards intended to ensure consumers’ interests are put first.

This makes Iowa, a prominent insurance and annuity industry hub, the first state to propose a new annuities best-interest regulation based on the National Association of Insurance Commissioners (NAIC) updated Suitability in Annuity Transactions Model Regulation that is now harmonized with rulemaking by the U.S. Securities and Exchange Commission (SEC). The American Council of Life Insurers (ACLI) projects at least 12 more states will follow suit this year.

Doug Ommen

Iowa Insurance Commissioner Doug Ommen, who is also the state’s securities regulator, was a key part of the NAIC group that was finally able to get the group’s long-desired annuities model regulation over the finish line earlier this month.

“I was proud to help lead the NAIC’s effort as we worked toward a harmonized ‘best interest’ standard with the SEC for broker-dealers and agents that makes sure the consumer’s interests are put first,” Ommen said. “I’m very pleased that we were able to propose a detailed regulatory framework that promotes informing consumers about risks, benefits and costs of any recommended transaction. I look forward to other states joining with us in this effort to protect consumers.”

Iowa Deputy Administrator for Securities Andrew Hartnett said the proposal is consistent with the efforts of the SEC and will be very beneficial to consumers. Ommen adds that requiring high quality financial advice that fits the particular needs, objectives and situation of the individual Iowan has always been their primary purpose.

“Our experience in Iowa has proven that varied advisory models offer incredibly valuable consumer access to retirement education and security,” Ommen said. “Iowans choose professional financial services either through fee arrangements or through transactional commission arrangements based on their particular needs. Requiring high quality financial advice that fits the particular needs, objectives and situation of the individual Iowan has always been our primary purpose. This model regulation will preserve consumer choice so that many more middle class Iowans will retain access to retirement education and security that they choose.”

Massachusetts reg bucks harmonization

Last week, Massachusetts Secretary of the Commonwealth William Galvin filed regulations which he says will impose a “true fiduciary conduct standard” in the Bay State. Those new regulations, which will go into effect on March 6, will require broker-dealers and broker-dealer agents to provide investment advice and recommendations without regard to the interests of anyone but the customer.

ACLI President and CEO Susan Neely called the new Massachusetts proposal “an elitist, fiduciary-only standard” for those seeking financial services during testimony at a Massachusetts Securities Division hearing back in January.

She said the Commonwealth Secretary’s “flawed” fiduciary proposal would curb access to life insurance and annuities, hurting the very people it claims to protect. Neely urged Massachusetts to instead follow the lead of the SEC’s Regulation Best Interest and the NAIC’s annuity model regulation toward a harmonized national approach.

The Insured Retirement Institute also urged Massachusetts to wait until Reg BI takes effect (July 1, 2020) and its consumer protections evaluated before additional, potentially duplicative regulations are considered. Massachusetts Gov. Charlie Baker also opposed the fiduciary proposal, and unsuccessfully asked the state Securities Division to pull it off the table over concerns it will cause “confusion” in the financial services industry.

The state of other state regs

Meanwhile, ACLI spokesperson Jack Dolan notes the Arizona legislature is moving on a slightly different path from Iowa but with a similar intent—”to boost consumer protections while ensuring retirement savers maintain access to the retirement products they want and need.”

Arizona Senate Bill No. 1557, “Annuity Transactions; Requirements,” would amend Arizona’s suitability requirements for annuity transactions to make it consistent with the NAIC’s Suitability in Annuity Transactions Model Regulation, including a best interest standard.

The Arizona legislation, which has already passed the state senate and is pending in the house, does not track exactly to the NAIC Suitability Model as it reorganizes several provisions and makes wording changes to a number of the requirements, but it essentially mirrors the NAIC model.

New York is the only state that voted “no” on the NAIC annuities best-interest model. The Empire state’s Insurance Regulation 187, finalized in 2018, includes stricter annuities regulation and has been described as a “mishmash of suitability and best-interest concepts.”

It established a uniform standard of care for agents and brokers requiring them to act in the best interest of consumers when making a recommendation with respect to a proposed or existing annuity or life insurance policy. The annuity portion took effect Aug. 1, 2019 and the life insurance standard on Feb. 1, 2020.

ACLI’s Dolan says New Jersey and Nevada fiduciary rule makings are currently in a holding pattern, and while Maryland has contemplated a fiduciary rule in the past, no movement is expected this year.

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