Best Interest Standard of Care for Annuities and Securities Transactions
Life insurance companies believe every American should have the tools and resources to make sound financial decisions in today’s marketplace and plan for their future. Financial security is our core business and retirement security for all Americans is a critical mission. We are committed to a uniform, harmonized best interest standard of care for annuity and securities transactions across all state and federal regulatory platforms for financial services firms and financial professionals. This standard would benefit retirement savers and all consumers planning and saving for the future.
We support rules requiring all financial professionals, when making a recommendation, to act in the consumer’s best interest -- with care, skill, and diligence -- based on the consumer’s financial needs and objectives. Consumers should know about the types and scope of services to be provided and compensation to be received by the financial professional. We also support requirements to identify and eliminate or mitigate and disclose conflicts of interest.
This is consistent with the “Regulation Best Interest” (Reg. BI) adopted on June 5, 2019 by the Securities and Exchange Commission (SEC). Reg BI’s principles-based approach is a more sensible and sustainable way to protect consumers than the Department of Labor’s fiduciary regulation that eliminated consumer choice and access to products and services essential to a secure retirement. When faced with a strict fiduciary standard, many financial firms moved to a fee-for-service-only model, eliminating choice and access for small and moderate balance savers and typical buy-and-hold investors who rely on commission-based advice for their retirement needs.
One-third of Americans reaching retirement age have less than $25,000 saved. If the fiduciary regulation had not been vacated by a federal court in 2018, millions of Americans would have been affected. According to the market research firm LIMRA, 54 percent of advisers might have dropped or turned away small investors, resulting in as many as 4 million middle-class Americans losing access to information they want and need. As a product that is designed as a long-term retirement solution, most annuities are sold on a commission basis. According to the latest available data, the median annual household income of annuity owners is $64,000. Eighty percent have total annual incomes below $100,000 and more than a third (35 percent) have household incomes less than $50,000. The standard that life insurance companies and financial professionals support will enable retirement savers at all income levels to maintain access to, and information about, annuities, the only financial products in the private marketplace that can guarantee lifetime income.
ACLI commends SEC Chairman Jay Clayton for saying that the SEC will continue its collaboration with the National Association of Insurance Commissioners and the Department of Labor on a uniform, harmonized standard of care for investment advice. A collaborative approach would ensure all consumers receive financial information and guidance that is in their best interest, regardless of the products they purchase or where they live.
A uniform, harmonized standard of care is far preferable to individual states adopting differing standards. This will result in a patchwork quilt of state and federal laws and regulations that will spread uneven protections across the country and across the retirement plan marketplace, increasing costs and jeopardizing savers’ ability to obtain long-term financial peace of mind.
The SEC identified Americans’ financial literacy deficits as contributing factors to consumers’ confusion about financial products, advice, and the roles of financial professionals. Reg. BI addresses the nexus between financial literacy and retirement security, enabling consumers to obtain informed advice about a wide range of financial and retirement solutions. Unlike fiduciary approaches, Reg. BI would not cause an “advice gap” for small and moderate retirement savers.
Life insurance companies are offering a better alternative to provide retirement savers and all consumers with certainty that financial professionals are acting in their best interest when recommending annuity and securities products, while preserving consumer choice.