February 24, 2021

Volume XI, Number 55

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Recent State Fiduciary Duty Developments: Eight States Have Proposed or Finalized Best Interest Standards for Annuity Producers

In recent months, eight states — ArkansasDelawareKentuckyMaineMichiganNebraskaNorth Dakota, and Ohio — have proposed or finalized rules setting forth a best interest standard for annuity producers in recommending annuities to their customers. Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s. The rule also requires producers, prior to recommending an annuity, to disclose the scope and terms of their relationship to the consumer, how the producer is being compensated, and any material conflicts of interest. Notably, the rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

The NAIC adopted its model suitability rule in early 2020, and since that time at least ten states have set forth rules modeled after the NAIC rule (and in many cases have adopted the rule wholesale). The NAIC and other trade associations reportedly continue to lobby states to adopt the model rule, so interested parties should continue to monitor state regulatory activity in this area.

Separately, it has become apparent that under the Massachusetts fiduciary rule for broker-dealers, the use of sales contests to reward brokers creates a presumption of a violation of the duty of loyalty. This isn’t a per se violation, but rebutting the presumption may be difficult.

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© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume XI, Number 33
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About this Author

Bruce Ashton, Drinker Biddle Law Firm Los Angeles, Employment Benefits Attorney
Partner

Bruce L. Ashton has more than 35 years of experience handling employee benefits matters. His practice concentrates on representing plan service providers (including RIAs, independent record-keepers, third-party administrators, broker-dealers and insurance companies) in fulfilling their obligations under ERISA. His experience includes representing public and private sector plans and their sponsors, negotiating the resolution of plan qualification issues under IRS remedial correction programs, advising and defending fiduciaries on their obligations and...

310-203-4048
Associate

Stephen Pennartz represents private and public sector clients in a wide variety of ERISA health and welfare matters, including analyzing benefit claims and appeals, handling HIPAA privacy and mental health parity matters, and performing M&A due diligence.

215-988-1119
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