New: Regulation Best Interest Standard

Update: The new Regulation Best Interest Standard is going into effect in new states across the nation. South Carolina and Pennsylvania are the most recent states to adopt the new Best Interest Standard. Effective May 27,2022 in South Carolina and June 20, 2022 in Pennsylvania advisors must now complete a new Regulation Best Interest training in order to continue to sell annuities.  Twenty states have now adopted the new standard and require additional training for advisors to complete.

Click here to see if your state adopted Regulation Best Interest:

NAIC Annuity Best Interest Standard

Starting in 2003, The National Association of Insurance Commissioners (NAIC) approved the “Suitability in Annuity Transactions Model Regulation” to protect consumers and provide uniformity between state regulations in annuity transactions. The “Suitability Model Regulation” offers a standard of procedure in which brokers must recommend products that are “suitable” for the consumer’s financial needs and objectives. However, in February 2020, the NAIC approved revisions to the “suitability” model that reflects a new “Best Interest Standard”. In short, the Best Interest Standard clarifies that agents and insurers must work in the best interests of the consumer and that agents and carriers may not place their financial interests ahead of the consumer’s when making recommendations. The new Regulation Best Interest Standard seeks to better aid consumers and impose consistency across state lines.

The Importance of Annuities

Annuities have long been a staple in the investment and retirement plans for millions of Americans but in today’s volatile financial landscape annuities are more popular than ever.

“Limra, an insurance industry group, forecasts annuity sales of $267 billion to $288 billion in 2022, eclipsing the record ($265 billion) set in 2008. Consumers pumped $255 billion into annuities last year — the third-highest annual total.”[1]

The increasing attractiveness of annuities can be attributed to a few key factors such as; tax-deferred growth, no contribution limit, death benefits, and the exposure to the market’s upside while protecting against market declines. Annuities are designed to provide guaranteed income for life while transferring the risk of outliving your savings to an insurance company. With rumors of a looming recession, it is easy to understand the allure of annuities as a secure financial product. The booming of annuity sales gives regulators all the more reason to re-evaluate the current regulations and examine if improvements are necessary.

How we got here

As mentioned previously, the NAIC implemented the “Suitability in Annuity Transactions Model Regulation” in 2003 to aid consumers in making decisions regarding their retirement savings and financial future. Prior to the Best Interest Standard the Department of Labor proposed a “fiduciary rule” on financial advisors selling annuity products which would impose a legal requirement for financial advisors to work in their clients’ best interest. The fiduciary rule differs from the “suitability standard” in that under the “suitability standard” advisors are free to recommend products that earn themselves a higher commission as long as the product is deemed suitable for the client.

The federal appeals court shot down the fiduciary standard on the grounds that the Department of Labor overstepped its authority.[2] While the federal court killed the fiduciary rule proponents of the new regulation argued that due to the recent weakening of Social Security, government pensions, and corporate pensions Americans are now more responsible over their financial futures and require increased protection. Opponents of increased regulation argue that, “the fiduciary rule would make it too expensive to work with smaller investors and could limit what types of investments are made available.”[3] The Regulation Best Interest Standard seeks to provide a middle ground between the “suitability standard” and the fiduciary rule.

So What’s in Regulation Best Interest?

Regulation Best Interest seeks to hold financial advisors more accountable. The model now requires agents and carriers to act with “reasonable diligence, care, and skill” when making recommendations. A producer has acted in the best interest of the consumer if they have satisfied the following obligations regarding care, disclosure, conflict of interest, and documentation.

  1. Care Obligation
  • A broker-dealer must exercise reasonable diligence, care and skill when making a recommendation to a retail customer. The broker‑dealer must understand potential risks, rewards, and costs associated with the recommendation. The broker‑dealer must then consider these factors in light of the retail customer’s investment profile and make a recommendation that is in the retail customer’s best interest
  1. Disclosure Obligation
  • Broker-dealers must disclose material facts about the relationship and recommendations, including specific disclosures about the capacity in which the broker is acting, fees, the type and scope of services provided, conflicts, limitations on services and products, and whether the broker dealer provides monitoring services.
  1. Conflict Of Interest Obligation
  • The broker-dealer must establish, maintain, and enforce written policies and procedures reasonably designed to identify and at a minimum disclose or eliminate conflicts of interest.
  1. Documentation Obligation
  • Producers are required to make a written record of the recommendation and the basis for it. Obtain a consumer signed statement that the consumer understands the ramifications if they refuse to provide consumer profile information. Obtain a consumer signed statement as an acknowledgement that the customer decided to buy an annuity that was not based on the producer’s recommendation

In addition to these obligations the Best Interest Standard includes a few more important provisions that insurers and producers need to be aware of. Producers must describe the sources and types of cash and non-cash compensation received when making a recommendation. Producers must also disclose a reasonable estimate of the amount of compensation to be received from a recommendation. With regards to documentation, investment advisers and broker-dealers are required to deliver a relationship summary to retail investors at the beginning of their relationship. The relationship summary is called a Form CRS and firms must maintain a copy of the Form CRS for at least 6 years after the form is created.

Insurers also have new responsibilities under the Best Interest Standard. Insurers must establish and maintain a supervision system that is reasonably designed to achieve the insurer’s and its producers’ compliance with the regulation. This includes establishing procedures for review of each recommendation prior to the issuance of an annuity as well as establish procedures to identify and eliminate sales contests, sales quotas, bonuses and non-cash compensation.

What this means for you

                The Best Interest Standard seeks to aid consumers by mandating that insurers’ and producers’ disclose an increased amount of information that pertains to a producer’s recommendation as well as ensuring companies create procedures to review their own recommendations and provide a service that is in the client’s best interest. Since the original SEC approval of the new regulation in February of 2020, 21 states have adopted the Best Interest Standard with four more states set to adopt the provisions by July 21st, 2023. These states now require additional training in order to continue to sell annuities.

Click here to see if your state adopted Regulation Best Interest:

While some opponents may argue the new standard increases the cost of business for insurance companies and will drive out smaller investors, the Best Interest Standard does increase consumer protection and holds financial institutions to a higher standard. Additionally, the standard promotes uniformity across state lines, securing a quality of service for Americans across the nation. We will see in the coming years the true effectiveness of the new regulations. Does the Best Interest Standard go too far or should advisors be held to an even higher standard?

Click Here For Official Regulation Best Interest Information

Additional information

                If you are a licensed producer in a state that adopted the Regulation Best Interest Standard you may need to complete additional training in order to continue to sell annuities. Fortunately, SuccessCE Inc. offers the new “Annuity Products – Best Interest” course in every required state. Go to our Course Catalog page to order your required CE courses. New students can use the discount code “New” at checkout to receive $5.00 off their first purchase of our Unlimited Success Package.

Why Use SuccessCE

The Success Family of Continuing Education Companies provides the highest quality Life/Health and Property/Casualty Insurance Continuing Education, CFP Continuing Education, CIMA Continuing Education, CPA Continuing Education, CLU/ChFC (PACE) Continuing Education, and MCLE (Legal) Continuing Education available in all 50 states in Live Insurance Continuing Education, Online Insurance Continuing Education, and Textbook Insurance Continuing Education formats.

View State Requirements

[1] Iacurci, Greg. “Annuity sales rise, buoyed by market fears and higher interest rates. What to know before you buy.”, 6 June 2022,

[2] Smith, Kelly Anne. “What Regulation Best Interest Means for Your Financial Advisor.”, 5 March 2021,

[3] Smith, 2021,