(1) Best Interest Obligations. A producer,
when making a recommendation of an annuity, shall act in the best interest of
the consumer under the circumstances known at the time the recommendation is
made, without placing the producer's or the insurer's financial interest ahead
of the consumer's interest. A producer has acted in the best interest of the
consumer if they have satisfied the following obligations regarding care,
disclosure, conflict of interest and documentation:
(a)
(i)
Care Obligation. The producer, in making a recommendation shall exercise
reasonable diligence, care and skill to:
(A)
Know the consumer's financial situation, insurance needs and financial
objectives;
(B) Understand the
available recommendation options after making a reasonable inquiry into options
available to the producer;
(C) Have
a reasonable basis to believe the recommended option effectively addresses the
consumer's financial situation, insurance needs and financial objectives over
the life of the product, as evaluated in light of the consumer profile
information; and
(D) Communicate
the basis or bases of the recommendation.
(ii) The requirements under subparagraph
(a)(i) of this paragraph include making reasonable efforts to obtain consumer
profile information from the consumer prior to the recommendation of an
annuity.
(iii) The requirements
under subparagraph (a)(i) of this paragraph require a producer to consider the
types of products the producer is authorized and licensed to recommend or sell
that address the consumer's financial situation, insurance needs and financial
objectives. This does not require analysis or consideration of any products
outside the authority and license of the producer or other possible alternative
products or strategies available in the market at the time of the
recommendation. Producers shall be held to standards applicable to producers
with similar authority and licensure.
(iv) The requirements under this subsection
do not create a fiduciary obligation or relationship and only create a
regulatory obligation as established in this regulation.
(v) The consumer profile information,
characteristics of the insurer, and product costs, rates, benefits and features
are those factors generally relevant in making a determination whether an
annuity effectively addresses the consumer's financial situation, insurance
needs and financial objectives, but the level of importance of each factor
under the care obligation of this paragraph may vary depending on the facts and
circumstances of a particular case. However, each factor may not be considered
in isolation.
(vi) The requirements
under subparagraph (a)(i) of this paragraph include having a reasonable basis
to believe the consumer would benefit from certain features of the annuity,
such as annuitization, death or living benefit or other insurance-related
features.
(vii) The requirements
under subparagraph (a)(i) of this paragraph apply to the particular annuity as
a whole and the underlying subaccounts to which funds are allocated at the time
of purchase or exchange of an annuity, and riders and similar producer
enhancements, if any.
(viii) The
requirements under subparagraph (a)(i) of this paragraph do not mean the
annuity with the lowest one-time or multiple occurrence compensation structure
shall necessarily be recommended.
(ix) The requirements under subparagraph
(a)(i) of this paragraph do not mean the producer has ongoing monitoring
obligations under the care obligation under this paragraph, although such an
obligation may be separately owed under the terms of a fiduciary, consulting,
investment advising or financial planning agreement between the consumer and
the producer.
(x) In the case of an
exchange or replacement of an annuity, the producer shall consider the whole
transaction, which includes taking into consideration whether:
(A) The consumer will incur a surrender
charge, be subject to the commencement of a new surrender period, lose existing
benefits, such as death, living or other contractual benefits, or be subject to
increased fees, investment advisory fees or charges for riders and similar
product enhancements;
(B) The
replacing product would substantially benefit the consumer in comparison to the
replaced product over the life of the product; and
(C) The consumer has had another annuity
exchange or replacement and, in particular, an exchange or replacement within
the preceding 60 months.
(xi) Nothing in this regulation should be
construed to require a producer to obtain any license other than a producer
license with the appropriate line of authority to sell, solicit or negotiate
insurance in this state, including but not limited to any securities license,
in order to fulfill the duties and obligations contained in this regulation;
provided the producer does not give advice or provide services that are
otherwise subject to securities laws or engage in any other activity requiring
other professional licenses.
(b) Disclosure obligation.
(i) Prior to the recommendation or sale of an
annuity, the producer shall prominently disclose to the consumer on a form
substantially similar to Appendix A:
(A) A
description of the scope and terms of the relationship with the consumer and
the role of the producer in the transaction;
(B) An affirmative statement on whether the
producer is licensed and authorized to sell the following products:
(I) Fixed annuities;
(II) Fixed indexed annuities;
(III) Variable annuities;
(IV) Life insurance;
(V) Mutual funds;
(VI) Stocks and bonds; and
(VII) Certificates of deposit;
(C) An affirmative statement
describing the insurers the producer is authorized, contracted (or appointed),
or otherwise able to sell insurance products for, using the following
descriptions:
(I) One insurer;
(II) From two or more insurers; or
(III) From two or more insurers although
primarily contracted with one insurer.
(D) A description of the sources and types of
cash compensation and non-cash compensation to be received by the producer,
including whether the producer is to be compensated for the sale of a
recommended annuity by commission as part of premium or other remuneration
received from the insurer, intermediary or other producer or by fee as a result
of a contract for advice or consulting services; and
(E) A notice of the consumer's right to
request additional information regarding cash compensation described in
subparagraph (ii) of this paragraph;
(ii) Upon request of the consumer or the
consumer's designated representative, the producer shall disclose:
(A) A reasonable estimate of the amount of
cash compensation to be received by the producer, which may be stated as a
range of amounts or percentages; and
(B) Whether the cash compensation is a
one-time or multiple occurrence amount, and if a multiple occurrence amount,
the frequency and amount of the occurrence, which may be stated as a range of
amounts or percentages; and
(iii) Prior to or at the time of the
recommendation or sale of an annuity, the producer shall have a reasonable
basis to believe the consumer has been informed of various features of the
annuity, such as the potential surrender period and surrender charge, potential
tax penalty if the consumer sells, exchanges, surrenders or annuitizes the
annuity, mortality and expense fees, investment advisory fees, any annual fees,
potential charges for and features of riders or other options of the annuity,
limitations on interest returns, potential changes in non-guaranteed elements
of the annuity, insurance and investment components and market risk;
(c) Conflict of interest
obligation. A producer shall identify and avoid or reasonably manage and
disclose material conflicts of interest, including material conflicts of
interest related to an ownership interest.
(d) Documentation obligation. A producer
shall at the time of recommendation or sale:
(i) Make a written record of any
recommendation and the basis for the recommendation subject to this regulation;
(ii) Obtain a consumer signed
statement on a form substantially similar to Appendix B documenting:
(A) A customer's refusal to provide the
consumer profile information, if any; and
(B) A customer's understanding of the
ramifications of not providing his or her consumer profile information or
providing insufficient consumer profile information; and
(iii) Obtain a consumer signed statement on a
form substantially similar to Appendix C, acknowledging the annuity transaction
is not recommended if a customer decides to enter into an annuity transaction
that is not based on the producer's recommendation.
(e) Application of the best interest
obligation. Any requirement applicable to a producer under this subsection
shall apply to every producer who has exercised material control or influence
in the making of a recommendation and has received direct compensation as a
result of the recommendation or sale, regardless of whether the producer has
had any direct contact with the consumer. Activities such as providing or
delivering marketing or educational materials, product wholesaling or other
back office product support, and general supervision producer do not, in and of
themselves, constitute material control or influence.