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Insurance and Annuities to be Subjected to Best Interest Standard at State Level

February 20, 2019

New York is likely to be the next state to apply the fiduciary standard at the state level as the SEC develops a nationwide standard, according to news reports.

Starting Aug. 1, broker-dealers and insurance agents will have to abide by the standard if they are licensed in the state or make recommendations to residents of the state, ThinkAdvisor writes.

Lawyers at Eversheds Sutherland write in a legal alert on the firm’s website that the rule would apply to product purchases, replacement and “certain other post-issuance transactions involving life insurance and annuity products,” according to the publication.

The new regulation would also require broker-dealers selling annuities to add new documentation, training and disclosures, according to the lawyers, ThinkAdvisor writes.

The New York State Department of Financial Services’ Regulation 187, as it’s known, is meant to “fill in regulatory gaps” the regulator sees as a result of the Department of Labor’s fiduciary rule being vacated in the courts, according to the publication.

The Obama-era rule, which had gone only into partial effect before being killed, purported to require only retirement account advisors to put their clients’ interests first.

Meanwhile, it’s also unclear when the SEC will move on its proposed Regulation Best Interest, which would apply to all brokers and advisors, although some experts expect it as early as the third quarter.

New York follows Nevada, which in 2017 put in place a statutory fiduciary duty on brokers and advisors working with Nevada residents, and Connecticut, which passed a bill the same year requiring service providers for 403(b) plans for some Connecticut-based entities to disclose conflicts of interest to the plans’ fiduciaries.

Investor advocates, meanwhile, are particularly optimistic about a pending Maryland bill, introduced earlier this month, to hold brokers, insurance agents and others to the fiduciary standard, as reported.

Critics of state-level fiduciary rules say a patchwork of regulations would significantly complicate compliance.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.