IRI Comments On NAIC ‘Annuity Transactions’ Suitability Model
January 23, 2018 by PE Kelley, Managing Editor
The Insured Retirement Institute (IRI) today announced its support and suggestions to the National Association of Insurance Commissioners (NAIC) with regard to that groups’ Suitability in Annuity Transactions Model Regulation (#275), which all parties hope will incorporate a ‘best interest standard of conduct.’
John Jennings, Government & Public Affairs Specialist for IRI stated that “IRI [has] submitted a comment letter expressing support for a workable and cohesive best interest standard, and emphasizing the importance of collaboration and coordination among the NAIC, the enewslinenewSEC and the DOL on this initiative. We also provided constructive suggestions to improve the NAIC’s draft based on the guiding principles we recently submitted to the SEC.”
“We and other commenters have raised and continue to have serious concerns about the DOL Rule and its harmful impact on retirement savers,” the letter to the NAIC read. It went on to illustrate that ‘best interest standard articulated by the DOL appears to require a complete disregard for the business and economic reality that firms and financial professionals have to generate enough revenue to cover their costs and earn a reasonable profit in order to stay in business.’
See a link to the IRI letter below.
Excerpts from IRI’s Letter to NAIC
1. The NAIC Should Collaborate With the SEC, the DOL, FINRA, and NASAA to Develop a Cohesive and Workable Best Interest Standard and Should Not Adopt a Revised Regulation Until This Effort is Completed.
As explained in our SEC Comment Letter, IRI and our members believe it is essential that all of the appropriate regulatory bodies working to develop best interest standards engage in a constructive and collaborative dialogue before adopting any final rules. This effort should include the NAIC, the SEC, the DOL, FINRA, and NASAA. We are encouraged by the sentiments recently expressed by the NAIC,5 SEC Chairman Jay Clayton, and Secretary of Labor Alexander Acosta acknowledging the need for coordination, and we urge the regulators to follow through on those comments.
As the prudential regulators for the insurance and securities industries, the NAIC and the SEC should lead this effort. They have the the ability to adopt the most broadly applicable rules, and have robust examination and enforcement tools at their disposal to effectively ensure compliance or penalize violators for non-compliance. Unlike the DOL Rule, which applies only to recommendations made with respect to retirement assets, this approach would establish consistent and clear standards of conduct for recommendations made by all licensed financial professionals with respect to any insurance or securities product
2. The Scope of the Model Should Not Be Expanded Beyond Recommendations
Section 2 of the Exposure Draft would expand the scope of the Model beyond “recommendations” to also include “solicitation, negotiation,…or sale of an annuity,” possibly in order to conform the Model to the NAIC’s Producer Licensing Model Regulation. IRI believes the applicable standard of conduct should apply only to recommendations for which a producer receives compensation.
Unless and until a producer makes an actual recommendation to a consumer for which the producer will receive actual compensation, the producer is acting merely as a salesperson and therefore should not be subject to a suitability or best interest standard. As such, we respectfully oppose the proposed changes in Section 2 of the Exposure Draft. In addition, we respectfully recommend that the terms “solicitation,” “negotiation,” and “sale” be removed from the definition of “cash compensation” in Section 5.C.
3. The FINRA Safe Harbor Should Be Expanded to Recognize All Substantially Similar Best Interest Standards
Section 6.J of the Exposure Draft would replace the references to FINRA’s suitability rules with references to FINRA best interest standards. We note, however, that FINRA does not currently have formal best interest standards. Moreover, best interest standards under the federal securities laws may ultimately reside in SEC rules (or possibly even in Congressional legislation) rather than FINRA rules.
In addition, the DOL Rule may ultimately be retained or amended in a manner that preserves a best interest standard. As such, we respectfully request that this section be revised to more broadly reference standards of conduct established under any other laws or regulations that are substantially similar to those included in the revised Model.
Read the IRI letter in its entirety here.
Connect with John Jennings:
(202) 469-3017
Cell: (908) 328-3939
IRI – 1100 Vermont Avenue, NW, 10th Floor, Washington, DC 20005
