Those who testified Tuesday at the Iowa Insurance Division’s hearing on the state’s best interest standard of care for insurance and securities professionals called on Iowa to grant an explicit safe harbor for federally registered broker/dealers (B/Ds) that comply with the U.S. Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI).
Published for the first time last week, the Iowa best interest standard has received mostly positive feedback from the retirement planning industry—especially relative to the feedback given with respect to conflict of interest rules recently put on the books in more progressive states, such as New York. Those in the industry like the fact that the Iowa approach is closely modeled on the one recently adopted by the National Association of Insurance Commissioners (NAIC).
However, as they have in other states, industry stakeholders are voicing some concern that the Iowa rules contain potential inconsistencies with Reg BI, which takes effect nationally on June 30. As such, industry representatives at the Iowa hearing asked the Iowa Insurance Division to craft its proposal as closely as possible to Reg BI.
“We appreciate the leadership Iowa is showing,” said Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute (IRI). “We believe the end result of that process will enhance consumer protection, particularly as people prepare themselves for retirement. We have long supported a best-interest standard.”
Berkowitz said there is some inconsistency in Iowa’s standard. For example, the preamble includes guidance on selling particular insurance products. The Inured Retirement Institute believes that information should be in the formal text of the rule, Berkowitz said.
“On the securities side, there are distinctions between Reg BI and the Iowa model,” Berkowitz said. “We believe Iowa should offer a safe harbor for broker/dealers in compliance with Reg BI. That would relieve them of conflicting requirements.”
Berkowitz also asked the Iowa regulators “to further align the rule’s verbiage with Reg BI” and to make clear when the compliance date takes effect.
Nancy Lancia, managing director of the Securities Industry and Financial Markets Association (SIFMA), said she “sincerely appreciates Iowa’s attempt to align this proposal with Reg BI.” She noted that SIFMA members are aware that Reg BI “modifies every aspect of broker/dealer conduct.”
“As a result of the regulation, firms are changing business models, eliminating conflicts of interest and investing significant resources to comply with the rule,” she said.
Like Berkowitz who testified before her, Lancia said she “suggests amending the proposal to include a Reg BI safe harbor, meaning compliance with Reg BI means compliance with the Iowa rule.”
Likewise, Dan Barry, director of state and legislative affairs at the Financial Services Institute (FSI), asked the Iowa regulators to harmonize the rule with federal standards.
“I urge the division to align the proposal as closely as possible with Reg BI and include a safe harbor in the rule so that those who comply with Reg BI will not run afoul of the Iowa rule,” he said. “Our members are working diligently to comply with Reg BI. Allow these firms to continue to focus most directly on Reg BI. The rule should reference Reg BI directly to minimize any confusion.”
Barry praised the division for ensuring that its language on the sale of annuities aligns with the NAIC model.
Vincent Ryan, legislative director at the American Council of Life Insurers, also expressed the trade association’s “appreciation for the insurance proposal being closely aligned with the NAIC model.”
Ryan said he “strongly advises Iowa to align the securities proposal with Reg BI as closely as possible. The differences will undercut Reg BI.” And, like those who testified before him, Ryan asked the division to offer “safe harbor for federally registered broker/dealers in compliance with Reg BI.”