Department of Labor staff have said they met with state regulators and understand the NAIC best-interest annuity rules that have been adopted by 40 states.
Iowa Insurance Commissioner Doug Ommen is unconvinced.
“That just simply is not accurate,” he said. “I would express concern that in their justification for their rule, they just misunderstand the annuity suitability revisions.”
The DOL fiduciary rule proposal is open for public comment until Jan. 2. Speaking Sunday during the Life Insurance and Annuities [A] Committee meeting, Ommen encouraged the NAIC regulators to craft a pointed comment letter to set the record straight.
“I know we tend to not do that,” Ommen said of commenting on a federal rule proposal, “but this is a particularly different circumstance, since the very justification for their moving forward is their criticism of our efforts here.”
The issues at stake are more than just a federal encroachment on the state-based system of insurance regulation.
The DOL released its latest fiduciary rule attempt on Halloween, with President Joe Biden joining for a press conference to denounce “junk fees.” The rule was widely criticized by industry trade groups who claim the extension of fiduciary duty to virtually anyone recommending an annuity would have a chilling effect on advice to middle-market savers.
The proposal is nearly 500 pages and has a lot of details. But the biggest fight is going to come down to how agents are regulated – and that goes for both independent and captive agents.
Regulators don’t get it, speakers say
The A Committee met during the NAIC fall meeting in Orlando. Several industry groups commented on the DOL proposal.
Howard Bard, vice president and principal deputy general counsel for the American Council of Life Insurers pointed to a recent study estimating that a fiduciary standard would reduce the projected accumulated retirement savings of 2.7 million individuals with incomes below $100,000 by approximately $140 billion over 10 years.
“It makes no distinction between providing investment advice and selling an insurance product and is totally inconsistent with the 2018 federal appeals court ruling striking down DOL prior rulemaking attempt,” Bard said. “Nearly all annuity recommendations will likely now meet this new definition, meaning significant additional and unwarranted liability for those selling insurance products.”
NAIC regulators went to work following the 2018 ruling tossing out the Obama administration fiduciary rule. In the time since, the A Committee updated its annuity suitability regulation, converting it to a best interest standard for annuity sales and recommendations.
It mirrors the best-interest regulation adopted by the Securities and Exchange Commission in 2019 for broker-dealers and registered representatives. Agents are not allowed to place their own interests ahead of their clients.
States swiftly responded to lobbying efforts that ramped up following the 2020 model adoption by insurance commissioners. Oklahoma became the 40th state to adopt the standard in July.
Not everyone opposes annuity rules
Many advisory groups have come out in favor of the expansion of fiduciary status. Registered investment advisors have a self interest in seeing all of their competitors adhering to tougher standards.
Still, Birny Birnbaum, executive director of the Center for Economic Justice, noted that many consumer groups, such as the Consumer Federation of America, also support the rule as good for annuity buyers.
“It’s particularly important for the proposed consumer protections as consumers roll over their lifetime savings into guaranteed income products,” he told the A Committee. “If CJ or CFA believed the rule would eliminate consumer access to retirement security products or financial advice, we would not be supporting the rule. But we don’t believe that outcome will occur.”
InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org. Follow him on Twitter @INNJohnH.
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