United States: Is It Time To Harvest The NAIC Suitability In Annuity Transactions Model Regulation?

Last Updated: November 29 2018
Article by Ann Young Black and Jamie Bigayer

At the NAIC Fall 2018 National Meeting, state regulators continued plowing through the Suitability in Annuity Transactions Model Regulation (Model 275) (Suitability Model). During its November 15 meeting, the Annuity Suitability (A) Working Group (Suitability WG) continued to fertilize the Suitability Model with a goal of elevating the standard of care for annuity sales to ensure consumers understand the products they are purchasing and any conflicts of interests and producers do not place their financial interests ahead of consumers' needs and objectives. During its November 16 meeting, the Life Insurance and Annuity (A) Committee ((A) Committee) sought to further enrich the Suitability Model by seeking additional input on the draft revisions to the Suitability Model. In the end, the (A) Committee agreed to harvest a draft of the revised Suitability Model for comments to be received by February 15, 2019.

Suitability WG

At its November 15 meeting, the Suitability WG continued to further cultivate the Suitability Model. Several changes discussed sought to prune the Suitability Model, cleaning up language that was viewed as duplicative. The following two changes, however, are more substantive and the first change garnered debate among the Suitability WG and interested parties:

  • the considerations in making a suitability determination
  • the definition of recommendation

In addition, the Suitability WG agreed to add a new drafting note that clarifies the current status of the Suitability Model.

Considerations in Making a Suitability Determination

The Suitability WG discussed adding in Section 6.D. provisions regarding the considerations in making a suitability determination. The Suitability WG members and interested parties agreed to add as Section 6.D.(3) that the person making the recommendation would need to consider:

  • The consumer profile information and product costs, rates, benefits and features ... [which are] generally relevant in making a suitability determination, [and that] the level of importance of each factor may vary depending on the facts and circumstances of a particular case. However, each factor shall not be considered in isolation.

Thus, the Suitability WG acknowledged that the importance of the factors vary based on individualized facts and circumstances. James Regalbuto, Deputy Superintendent for life insurance at the New York Department of Financial Services, noted that it is important for the recommender to comprehensively consider these factors and use judgment in making a recommendation.

Division arose as to whether Section 6.D. should expressly acknowledge that a suitability determination may not result in the annuity with the lowest one-time or multiple occurrence compensation structure. Mr. Regalbuto noted that all things being equal, the annuity recommended should be the lowest cost. He objected to including language in the Suitability Model that there are situations where the recommender does not need to offer the lowest cost option. Birny Birnbaum, Executive Director for the Center for Economic Justice, requested the Suitability WG revisit its decision to allow the producer's interest to be considered, and thought the language under consideration would not come into play. Suitability WG Vice Chair Doug Ommen noted that the purpose of this language was to avoid favoring one commission structure over another. In a straw vote, the Suitability WG agreed to add as Section 6.D.(2):

  • The requirements under this section do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended, but the recommendation shall be diligently focused on whether the product costs, rates, benefits, features and other contractual provisions of the annuity are consistent with the actual financial situation, objectives and needs of the particular consumer.

Definition of Recommendation

Jodi Lerner, Senior Staff Counsel of the California Insurance Department, asked the Suitability WG to reconsider the definition of recommendation. In particular, California was concerned that the October 23 draft had defined a recommendation to mean:

  • individualized advice provided by a producer, or an insurer where no producer is involved to an individual consumer that results in results in a purchase, an exchange or a replacement of an annuity in accordance with that advice.

Ms. Lerner raised the concern that inclusion of "individualized" narrowed the scope of the entire regulation, leaving open the possibility that several product options could be presented to a consumer, allowing the producer to let the consumer pick from the options and then claim no recommendation had been made. Vice Chair Ommen explained the word individualized was meant to clarify that only information presented directly to the consumer would constitute a recommendation as opposed to general forms of communication. To address California's concern and to add clarity on the extent of generic information, the Suitability WG agreed to the following definition of recommendation:

  • "Recommendation" means advice provided by a producer, or an insurer where no producer is involved, to an individual consumer that results in a purchase, an exchange or a replacement of an annuity in accordance with that advice. Recommendation does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

New Suitability Model Status Drafting Note

Ohio proposed a new drafting note to be added at the beginning of the Suitability Model. The drafting note is based on the belief that the Suitability Model is a strong standard that can be measured and objectively applied, along with the desire of the Suitability WG to harmonize the Suitability Model with standards to be adopted by the Securities and Exchange Commission (SEC). The Suitability WG discussed that the SEC's Regulation Best Interest uses, but fails to define, the term "best interest." In a straw vote, the Suitability WG agreed to add the following drafting note:

  • Drafting Note: The NAIC acknowledges that the goal of the U.S. Securities and Exchange Commission's (SEC) April 2018 proposals is to move toward a harmonized best interest standard of conduct for broker-dealers and agents that substantially raises the professional obligations for recommendations, while preserving and differentiating the fiduciary standard for investment advisers. As of the November 2018 Draft of the amended Suitability in Annuity Transactions Model Regulation (#275), the SEC's proposed use of the term "best interest" in the actual text of the SEC's Regulation Best Interest proposal appears to describe "best interest" as including "best interest" without further definition and is not distinguished from the investment adviser fiduciary. The SEC has received many public comments on use of the phrase "best interest" and may provide greater clarity in its final rule. While the NAIC fully supports a similar goal of a harmonized standard of conduct, and has a strong preference to remain consistent with FINRA rules in connection with a recommendation of variable annuities, the NAIC is not yet convinced that this November 2018 Draft of the amended Suitability in Annuity Transactions Model Regulation (#275) is legally distinct from the enhanced standards that are intended by the SEC. Until such time the NAIC can evaluate any distinction in the text of the SEC proposal between a "best interest" recommendation and investment adviser fiduciary duties, and the SEC and FINRA have finalized relevant terms, definitions and related requirements, the NAIC would opt to refrain from using the phrase "best interest" in Section 6A(1) of the proposed modifications to the Suitability in Annuity Transactions Model Regulation (#275).

(A) Committee

At the November 16 (A) Committee meeting, Director Dean Cameron, Chair of the Suitability WG, reported on the status of the draft Suitability Model and recommended the (A) Committee expose the current draft Suitability Model. Director Cameron noted that the current draft Suitability Model is not intended to be a final version and is merely a work in progress. He further noted that the Suitability Model cannot be finalized until the SEC and Department of Labor have further developed their standard of care rules. Director Cameron suggested that exposure by the (A) Committee would allow more comments to be made, including by regulators who are not part of the Suitability WG.

California and New York asserted that the draft Suitability Model was not yet ready to be harvested for exposure. Both believe the Suitability WG must first finalize and approve the draft Suitability Model before the (A) Committee could take action. New York Financial Services Superintendent Maria Vullo contended that draft Suitability Model was not yet fully ripe for picking as there are still many issues that need to be addressed. A vote to delay the harvest was rejected and instead the (A) Committee voted to expose the draft Suitability Model until February 15, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions