No One Even Knows What ‘Best Interest’ Means, Industry Groups Say
July 17, 2018 by Allison Bell
Consumer advocates often press regulators to make financial services sales standards flexible, to keep crooks from using loopholes to avoid prosecution.
Four financial services groups are arguing that state and federal efforts to develop a “best-interest standard” are so flexible, and so vague, that trying to comply with the standard would be a nightmare.
“Requiring producers by law to act in the best interest of a customer may seem innocuous and unremarkable, but the reality is that such a standard is abstract, nebulous, subjective and replete with adverse consequences,” the groups argue, in a letter influencing debate at the National Council of Insurance Legislators (NCOIL).
“This lack of consistency and clarity is troubling, and it will open the door to second-guessing and retrospective scrutiny years after an initial recommendation is made,” the groups write.
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Four industry group officials signed the letter: Wesley Bissett, a senior counsel at the Independent Insurance Agents & Brokers of America (IIABA); Sarah Ferman, a senior government relations representative at the American Bankers Association (ABA); Laura Pachman, director of regulatory affairs at the National Association of Professional Insurance Agents (NAPIA); and Jessica Waltman, a regulatory consultant at the National Association of Health Underwriters (NAHU).
New Annuity Sales Standard Battles
The four industry group sent the letter to a panel at the National Association of Insurance Commissioners.
A panel at the NAIC, the Annuity Suitability Working Group, is trying to develop a best interest standard for annuity sellers, to supplement the current suitability standard, and to replace the fiduciary standard the U.S. Department of Labor tried to impose.
The current suitability standard requires annuity issuers and sellers to verify that an annuity sold to a consumer suits the consumer’s needs.
NCOIL, a group for state insurance legislators with an interest insurance, is also looking at the annuity sales standards. The group included a copy of the letter in the packet for its 2018 summer meeting, which took place from July 12 through 14 in Salt Lake City.
NCOIL’s copy of the letter is available here.
A Plea for Objective Requirements
IIABA, the ABA, NAPIA and NAHU argue that agents and brokers selling annuities in the real world need rules they can understand, not a requirement that sounds good but has no clear meaning.
“The adoption of a nebulous standard of care serves no meaningful purpose, and it creates regulatory uncertainty,” the groups write. “Any new mandates imposed on the producer community will have an impact on the operations of many agencies, and they might also result in fewer producers offering annuities and hinder consumer choice and access to annuity products.”
If there are specific marketplace problems or regulatory gaps, regulators should address those groups, rather than developing an amorphous new standard, the groups write.
If, for example, consumers are confused about producer compensation, regulators could develop new, clear compensation disclosure standards, the groups write.
