New York Governor Andrew M. Cuomo announced last week that the state’s Department of Financial Services has proposed new consumer protections that would adopt a “best interest” standard for those licensed to sell life insurance and annuity products – a new requirement that would require that the product that best reflects the customer’s interest be offered ahead of what is most profitable to the seller.
The proposed regulation is also aligned with recently delayed federal regulations relating to retirement savings. A link to the regulation can be found here.
“As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field,” Cuomo said. “With these commonsense reforms we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products.”
Financial Services Superintendent Maria Vullo said, “Consumers who purchase life insurance and annuity products deserve to have financial services providers act in their best interest when providing advice. Given the key role insurance products play in providing financial security to middle class New Yorkers, it is essential that a provider adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer’s best interests.”
The federal Department of Labor Conflict of Interest Rule, which expands the definition of investment advice under the federal Employee Retirement Income Security Act, applies to certain annuity and life insurance sales and requires financial advisors to adhere to enhanced standards of conduct. However, in November 2017, DOL promulgated a regulation that once again delays the implementation of certain components of its fiduciary duty regulation until July 1, 2019.
The proposed amendments to New York’s current suitability regulation would provide for a best interest standard of care for all sales of life insurance and annuity products, beyond the types of advice covered by the DOL Rule, including both in the specific context of retirement planning and when recommendations are made prior to the sale of an insurance product or after the sale but during the servicing of the product for the consumer.
A transaction is considered in the best interest of a consumer when it is in furtherance of a consumer’s needs and objectives and is recommended to the consumer without regard to the financial interest of the product seller. Insurers would also be required to develop and maintain procedures to prevent financial exploitation of consumers.
The amendments supplement existing consumer protections that already exist in New York and that are key elements of the Conflict of Interest Rule, including setting reasonable limits on compensation and compensation transparency for the sale of a life insurance or annuity product in New York State.
The proposed amendments are subject to a 60-day notice and public comment period (ending Feb. 26, 2018) following the Dec. 27, 2017, publication in the New York State Register before its final issuance.