The website of InsuranceJournal.com reported on December 29, 2017 that
“New York State’s top financial watchdog proposed regulations that would require sellers of life insurance and annuities to act in the best interest of clients, raising standards even as the U.S. government delays its fiduciary rule.
“Products that best fit clients would have to be offered before those that are most profitable to the sellers, the New York Department of Financial Services said Wednesday in a statement.
Importantly, the proposed regulations replace the ‘suitability’ rule with the ‘best interests’ standard of care rule.
The statement says:
“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.”
A great article written by Harold Evensky discussing more specifically the meaning of ‘best interests’ was published in Financial Advisor magazine. Read the article here. Mr. Evensky quotes the DOL regulations as describing the best interests standards as
“Give advice that is in the retirement investor’s best Interest (i.e., prudent advice that is based on the investment objectives, risk tolerance, financial circumstances and needs of the retirement investor, without regard to financial or other interests of the advisor, financial institution, or their affiliates, related entities or other parties).
Perhaps the clearest explanation of the best interests standard is found in an article in Forbes magazine only, written by Peter Lazaroff.
The proposed regulations also apply the new standards to servicing of existing contracts, not only the sale of new policies. There’s a 60 day comment period before the proposed regulations become effective. Even then, in response to the comments received, or for other reasons, the Department may modify the regulations before they go into effect. It’s unlikely the insurance industry, via its many representative and lobbying organizations, will fail to comment on the proposed regulations. Based on the industries’ comments on the Department of Labor proposed ‘fiduciary standards’ rule, it’s reasonably certain those comments will urge the Department of Financial Services to either restrict the application of the proposed regulations and/or reduce the impact of the regulations on how agents and brokers currently do business.