The New York Department of Financial Services ("DFS") adopted a final rule that establishes a "best interest standard" for sellers of life insurance and annuity products.
As previously covered, the rule will require an agent or broker (or an insurer, if there is no agent or broker involved) to "act in the best interest of the consumer." In accordance with the rule, a broker or insurer's recommendations should be "based on an evaluation of the relevant suitability information of the consumer and [reflect] the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the circumstances then prevailing." The amount of compensation must not influence the recommendation.
The rule will (i) require the disclosure of all suitability considerations and product information that form the basis of any recommendation, (ii) permit agents or brokers to make a recommendation only if they have a "reasonable basis to believe that the consumer has the financial ability to meet the financial commitments under the policy" and (iii) prohibit an agent or broker from telling a consumer that a recommendation is comprehensive financial planning, financial advice or related services (unless the agent or broker is a certified professional in that area).
The final rule will become effective on August 1, 2019.
Commentary / Steven Lofchie
Firms will have to evaluate whether it is worthwhile to continue to offer certain products subject to the new rule in the State of New York given the associated regulatory risks. Leaving aside the costs of compliance, which look substantial, it would seem very difficult to demonstrate compliance; and thus, a firm may leave itself open to material liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
