Back in late February, the National Association of Insurance Commissioners (NAIC) granted final approval to its revised model regulation that sets the conflict of interest rules for insurance producers to follow when recommending annuity products to their clients.
The move came after years of work by the NAIC on the development of updated “best interest service” rules applying to insurance agents and representatives selling annuity products. With the NAIC’s approval, state insurance regulators are now free to adopt the model regulation into their own insurance regulations.
This week, Iowa regulators proposed their own new rules to require financial professionals to act in the best interest of clients, applying to both insurance sales and the broader activities of financial advisers and broker/dealers. The proposal is primarily based upon the model regulation approved by the NAIC in February, but it also includes additional provisions that would hold broker/dealers and their representatives to a best interest standard under Iowa securities law.
Early interpretation from the likes of the Insured Retirement Institute (IRI) suggests the advisory and brokerage industry’s reaction to the Iowa rulemaking will be more positive than the reaction to related rules on the books in more progressive states, such as New York. However, as it has in other states, the IRI is voicing some concern that the Iowa rules contain “potential inconsistencies” when compared with the U.S. Securities and Exchange Commission’s Regulation Best Interest (Reg BI), which takes effect nationally on June 30.
“IRI and our members have long supported the creation of a workable best interest standard for financial professionals and we applaud the Iowa Insurance Division for moving so quickly to adopt the NAIC’s new best interest rules for insurance producers,” says Jason Berkowitz, IRI chief legal and regulatory affairs officer. “The proposed rules for securities professionals aim to align with Reg BI, but IRI and our members are concerned about a few subtle but important distinctions between the two.”
In comments filed with the Iowa Insurance Division, IRI says that the inconsistencies between federal rules and Iowa’s proposal could be addressed by “a clear exception or safe harbor for federally regulated broker/dealers and registered representatives acting in compliance with Reg BI.”
“In our view, this would be the most clear and direct way to avoid duplication and inconsistency,” Berkowitz says, noting the IRI has also suggested that the Iowa proposed regulation include “sufficient time to ensure that broker/dealers and registered representatives can appropriately comply with the new rules.”
Due to the ongoing challenges in dealing with the COVID-19 pandemic, IRI has also urged the Iowa agency to extend the comment period and postpone the public hearing for 90 days.
The full text of the Iowa proposal is available here, along with information about submitting comments during the next week before the deadline.