NAIC Adopts Best Interest Standard
Best Interest Standard Definition
Best interest is a term used in a number of situations including the medical and legal fields. In the financial sector it means setting aside any personal beliefs or biases and working for the good of the client at all times. It goes beyond recommending what may be a good fit and finding the best fit.
The NAIC Best Interest Standard Protects Annuity Consumers
The updated NAIC Annuity standard requires insurance producers to recommend annuities that are not only suitable for the client, but are in the clients best interest. For example, if you are looking for a new car to use for your daily commute virtually any automobile is suitable for your needs. However not all automobiles are in your best interest. To determine your best interest the automobile dealer needs to understand more about you, your needs and your wants. They would need to document those needs and wants and disclose any conflicts of interest they may have. This may even require that dealer to recommend an automobile sold by another dealership.
About NAIC Model Regulation
NAIC Model Regulation for Suitability in Annuity Transactions
- Conflict of interest
- Know the consumer’s financial situation, insurance needs and financial objectives.
- Understand the available recommendation options.
- Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives.
- Communicate the basis of the recommendation to the consumer.
- Disclose their role in the transaction, their compensation, and any material conflicts of interest.
- Document, in writing, any recommendation and the justification for such recommendation.
NAIC Suitability in Annuity Transactions: Model Regulation Training Requirements
NAIC States’ Plans
Iowa was the first state to put the new NAIC rule in play. They have been followed by Alabama, Arizona, Arkansas, Delaware, Idaho, Michigan, North Dakota,Nebraska, Ohio and Rhode Island. States with rules pending include Connecticut, Kentucky, Maine, Montana, Nevada, Texas and Virginia.
When you look at a best interest rule like New York’s or the NAIC’s and compare it with the fiduciary standard for CFP® professionals, it’s hard to tell the difference. After enacting its Regulation Best Interest (BI), the SEC indicated that it views fiduciary and best interest as the same. Other organizations, most notably CFP Board, maintain that the fiduciary standard is stricter.
Many states prefer the NAIC rule, with 11 adopting the rules already. Another 7 states have Annuity Best Interest rules pending in their legislatures.
States Adopting and Proposing NAIC Requirements and Courses
Kaplan will be following the progression of the NAIC Best Interest Rule, along with any other standards individual states adopt. We encourage you to follow along. As they become part of each state’s insurance continuing education, we will also add them to our insurance CE packages.
States Adopting NAIC Requirements
- North Dakota
- Rhode Island
States Proposing NAIC Requirements
States with NAIC Courses Released
- North Dakota
- Rhode Island
States with NAIC Courses Pending
Best Interest Standard Training Courses for Annuity Agents
If you are ready for a Best Interest Standard Training Course, you can get started with Kaplan’s 1-Hour Training Course, or dive right into our 4-Hour Training Course. Learn more about training course options in your state.