In a few days, consumers will enjoy enhanced protections under the Securities and Exchange Commission’s Regulation Best Interest (Reg BI). Reg BI imposes a heightened standard of conduct on financial professionals beginning June 30.
Reg BI is the first step toward national, harmonized enhanced consumer protections for consumers seeking guaranteed lifetime income. Together with Form CRS (“Consumer Relationship Summary”), Reg BI builds on current rules and ensures that variable annuity customers receive guidance and information from financial professionals who serve in the best interest of the consumer.
Reg BI requires that broker-dealers act in the best interest of retail customers when a financial product recommendation is made, without placing their financial or other interest ahead of the retail customer’s interests. This general obligation is satisfied only if the broker-dealer complies with four specific component obligations:
- The Disclosure Obligation requires the delivery of information about the recommendation and the relationship between the financial professional and the consumer.
- The Care Obligation requires the exercise of reasonable diligence, care, and skill in making the recommendation.
- The Conflict of Interest Obligation requires the establishment, maintenance, and enforcement of written policies and procedures reasonably designed to address conflicts of interest.
- The Compliance Obligation requires the establishment, maintenance, and enforcement of written policies and procedures reasonably designed to achieve compliance with Reg BI.
Reg BI aligns with the National Association of Insurance Commissioners’ (NAIC) recently adopted parallel protections for fixed annuities. Iowa and Arizona have already adopted best interest rules consistent with the NAIC model. The American Council of Life Insurers is working to have all states adopt these new NAIC model protections. This will ensure harmonized state and federal standards for all annuities.
Americans rely on life insurers to help them achieve financial security in retirement through annuities, the only product in the marketplace that can guarantee lifetime income. Insurance agents and other financial professionals provide consumers with important information and education about annuities. Consumers must have certainty that these financial professionals are acting in their best interest when recommending annuity products.
Reg BI, together with the NAIC best interest model, will provide this certainty.
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