Critics Weigh in on N.Y.’s Best-Interest Standard for Insurance
Critics of the best interest standard on insurance and annuities sales set by New York’s Department of Financial Services say the state’s rule makes it too hard for insurance agents to do their job, according to FA magazine. But supporters of the regulation tell the publication it merely requires salespeople to understand what they’re selling.
Set to take effect Aug. 1, life insurance and annuities sales inside the state were to be governed by the state-level best-interest standard set by DFS. The agency opted to roll out a state standard in light of the recent demise of the Department of Labor’s fiduciary rule, a broader regulation that purportedly would have required retirement account advisors to put clients’ interest first but was officially vacated in June.
New York’s regulation, however, puts too much burden on salespeople, essentially requiring them to assess products and services they may not even offer, Steven Lofchie, a partner and co-chair of the Financial Services Group at the law firm Cadwalader, Wickersham & Taft, insists to FA magazine.
The state regulation basically requires every salesperson to act as a fiduciary, requiring them to “gather and analyze a substantial amount of information about the client and about the market,” which would carry substantial costs that the consumer in turn would bear, Lofchie tells the publication.
But Jane Bryant Quinn, AARP columnist and author of "How To Make Your Money Last," tells FA magazine the rule merely requires salespeople to understand the limited number of products they’re selling, which she says is “pretty reasonable.”
As for costs to the consumers, Quinn says more fee and product disclosure always benefit them, according to the publication.
In fact, Quinn only takes issue with the words “best interest” in the DFS’s rule — the term “should be reserved for fiduciaries,” she tells the publication.
"Salespeople have already hijacked the words,” she says, according to FA magazine. “Otherwise, I think the [New York] proposal is right on."
Lofchie, meanwhile, says he would prefer a rule simply stating that salespeople had to declare themselves as such and weren’t allowed to say they were acting in a client’s best interest, the publication writes.
"Combined with a prohibition on material misstatements, that would be a very straightforward rule,” he tells FA magazine.