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Producers selling annuity products must adhere to a new standard, Aug. 1

The New York State Department of Financial Services’ final regulation, adopting a best-interest standard for those licensed to sell life insurance and annuity products in New York, goes into effect Thursday, Aug. 1, 2019, with respect to annuity transactions. The best interest standard with respect to life transactions is set to go into effect Feb. 1, 2020.

Insurance producers or insurers making recommendations to a consumer on an annuity product must only consider the interests of the consumer when making recommendations, starting Aug. 1.

Producers would be considered to be acting in the best interest of their client when the producers’ recommendations to the consumers are based on an evaluation of the relevant suitability information, including but not limited to: the benefits provided by the policy; the price of the policy; the financial strength of the insurer; and other factors that differentiate products or insurers. In addition, the producer must act with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the circumstances then prevailing.

The client also must be reasonably informed of various features of the policy and potential consequences of the sales transaction, both favorable and unfavorable, such as:

  • the potential surrender period and surrender charge;
  • any secondary guarantee period;
  • equity-index features; availability of cash value;
  • potential tax implications if the consumer sells, modifies, surrenders, lapses or annuitizes the policy;
  • death benefit;
  • mortality and expense fees;
  • cost of insurance charges;
  • investment advisory fees;
  • policy exclusions or restrictions;
  • potential charges for and features of riders;
  • limitations on interest returns;
  • guaranteed interest rates;
  • insurance and investment components;
  • market risk;
  • any differences in features among fee-based and commission-based versions of the policy; and
  • the manner in which the producer is compensated for the sale and servicing of the policy.

Producers are prohibited from allowing the amount of compensation they receive on a policy from influencing their recommendation to clients.

PIANY has challenged the DFS on the basis that it acted beyond its authority when it adopted this amendment to Regulation 187, but a decision has yet to be rendered by the Albany County Supreme Court.