Regulatory Alert - SEC Best Interest Standard Update and News Stories | June 6, 2019
Dear Alliance Members:
Yesterday (June 5, 2019) the Securities and Exchange Commission adopted a “Best Interest” standard rule governing the conduct of a wide variety of insurance producers, broker-dealers, and investment advisors. The “Best Interest” standard requires insurers and producers to provide a higher level of information to consumers than the current “suitability” standard but does not impose a “fiduciary” standard originally proposed by the Department of Labor that would have limited access to retirement products for many middle-class Americans – the individuals that make up that vast majority of fraternal members.
The SEC’s action is seen by a broad cross-section of the financial services community – both the “manufacturers” of annuities and the producers that offer these products to consumers – as a positive step in clarifying the standards that financial services providers need to meet and ensuring that consumers have the information they need to make sound purchasing decisions from an array of retirement income products.
The SEC rule is enormous – more than 750 pages – and industry trade groups and law firms will be spending the coming days thoroughly analyzing the measure. The Alliance has been monitoring this issue carefully for several years now – since the Department of Labor issued its proposed fiduciary standard in 2014 – and we are currently working with an industry coalition that includes ACLI, NAIFA, and other trade groups to review the SEC measure. Our primary objective is to determine the specific impact that the “Best Interest” standard has on the fraternal producers – captive, independent, and member-to-member – who offer annuities and other retirement income products to members.
In the meantime, the debate over the standard-of-care issue continues. Congress has 90 days to reject the SEC’s proposal. According to our colleagues at ACLI, this is not likely to happen. In addition, the Department of Labor is likely to continue its efforts to develop a standard-of-care regulation that may compliment or conflict with the SEC rule. And finally, the NAIC is continuing its effort to establish a uniform standard-of-care Model Act that will likely track closely with the SEC rule. This would be an extremely positive development as it would lay the groundwork for consistent standard-of-care rules among state and federal regulators.
That is not to stay there will not be challenges ahead. Some states – New Jersey and Nevada, among them – continue to push for the establishment of a fiduciary standard, which could result in the proverbial “patchwork quilt” of conflicting regulations that insurers will have to navigate.
We’ve compiled a variety of news stories on the topic for your information (see below). And we will continue to monitor the issue closely, work with our industry colleagues, and report on important new developments to you as they occur.
Please do not hesitate to contact me should you have any questions about this issue.
SEC Passes Regulation Best Interest by 3-1 Vote
New SEC Rule Heightens Broker Responsibilities to Investors
Wall Street Journal
SEC to require brokers only to reveal financial conflicts
SEC releases new details on investment advice reform package