The New York State Department of Financial Services has proposed a new “best interest” standard for people licensed to sell life insurance and annuity products in the state.
The new mandate would require that seller’s offer the product that best reflects the customer’s interest ahead of what is most profitable to the seller. The regulation is also aligned with recently delayed federal rule for retirement savings, called the “fiduciary rule,” proposed by the Department of Labor (DOL).
“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,” New York Gov. Andrew Cuomo said. “With these commonsense reforms, we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products.”
The federal DOL Conflict of Interest Rule, which expands the definition of investment advice, requires financial advisors to adhere to enhanced standards of conduct. It applies to certain annuity and life insurance sales. Last month, the DOL delayed the implementation of certain components of its fiduciary rule until July 1, 2019.
“Consumers who purchase life insurance and annuity products deserve to have financial services providers act in their best interest when providing advice,” Financial Services Superintendent Maria Vullo said. “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 proposal would amend New York’s current suitability regulation to provide 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. A transaction is considered in the best interest of a consumer when it furthers a consumer’s needs and is recommended without regard to the financial interest of the seller. Insurers would also be required to develop a process to protect consumers.
The proposal is subject to a 60-day public comment period following the Dec. 27, 2017, publication in the New York State Register.