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What Annuity Agents Need to Know About the New Best Interest Standard

Annuities are a great way to grow your business and help your clients get the most out of their retirement. Senior Market Sales® (SMS) is committed to ensuring suitable sales practices when recommending annuity products to consumers and to supporting the fair and equitable treatment of our insurance customers.

To that end, SMS has compiled this executive summary of recent revisions and actions to the National Association of Insurance Commissioners (NAIC) Suitability in Annuity Transactions Model Regulation (Model #275). These revisions encompass new producer training requirements, updated carrier forms and revised recordkeeping necessities.


  • The long-standing Suitability in Annuity Transactions Model Regulation (“Model Regulation”) was adopted in 2010 by the NAIC to set standards and procedures for suitable annuity transactions.
  • This model regulation, if adopted by a state, requires insurers doing business in that state to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed. As of the date of this article, the Model Regulation has been adopted by 45 states and the District of Columbia.
  • In February 2020, the NAIC adopted revisions to its Suitability in Annuity Transactions Model Regulation. The revised regulation aligns with the Securities and Exchange Commission’s Regulation Best Interest and requires insurance producers and carriers to act in the best interest of the consumer without putting their own financial interests ahead of the consumer’s when recommending an annuity product.
  • Each state that adopts the revised Model Regulation will require the insurer complies with the new requirements. A handful of states adopted the revised model’s best interest provisions and many more are expected to adopt the revised Model Regulations in some form during 2021.
  • Under the new Model Regulations, producers are required to disclose the scope and terms of their relationship with the consumer, how they are being compensated and any material conflicts of interest prior to recommending an annuity.
  • All recommendations made by a producer or insurer to purchase, exchange or replace an annuity product must comply with the best interest standard of conduct. It should be noted, the new standard of conduct is more enhanced than the previous suitability standard but is not a fiduciary standard.
  • The scope of the best interest standard applies to any producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale. This applies regardless of whether the producer has had any direct contact with the consumer.

Best Interest Obligations

To meet the best interest obligation, a producer and insurer must satisfy the four obligations of (1) care, (2) disclosure, (3) conflict of interest and (4) documentation when recommending an annuity.

To satisfy the four obligations, producers must:

  • Know the consumer’s financial situation, insurance needs and financial objectives
  • Understand the available recommendation options
  • Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives
  • Communicate the basis of the recommendation to the consumer
  • Disclose their role in the annuity transaction, their compensation and any material conflicts of interest
  • Document, in writing, any recommendation and the justification for such recommendation

Producer Training

  • The new Model Regulations mandates that producers who engage in the sale of annuity products complete an approved, state-specific best interest annuity training course, and insurers must verify the completion of the training course before the producer can solicit the sale of annuities. The training includes information on appropriate standard of conduct, sales practices, replacement and disclosure requirements.
  • In addition, an insurance producer who engages in the sale of annuity products must complete insurer product-specific training prior to the solicitation or recommendation of an annuity.
  • Producers who are new to selling annuities and have not met the previous suitability training requirements must complete a one-time, four-hour training course before he/she may solicit the sale of annuities.
  • Experienced producers who have previously taken the state’s four-hour generic suitability training, have the option to take a one-hour catch-up course in order to comply with the new NAIC best-interest standard. However, completion of the one-hour catch-up course must be done within six (6) months of the state’s effective date of the amended regulation. Producers that fail to complete the training within the six-month timeframe will be required to complete the four-hour annuity best interest suitability training course.


Suitability Forms - Many carriers have updated their suitability forms for states that have adopted the NAIC’s revised Model Regulation. Please be sure to use the updated forms. The SMS Annuity e-App platform will have the most current forms.

Consumer Disclosure (Appendix A) – producers are required to disclose:

  • The scope and terms of their relationship with the consumer
  • The types of products they are licensed to sell
  • How many insurers they are authorized to sell for
  • The manner in which they are compensated for their services including a notice of the consumer’s right to request additional information regarding cash compensation

Note: Many insurers have created Disclosure Acknowledgement forms to assist with this documentation.

Recordkeeping Requirement

  • Keep and maintain your training completion certification.
  • Retain copies of all sales documentation used in making the recommendation, and anything else that may assist in supporting any recommendation, even if you don’t recommend a new annuity to the consumer.
  • This includes, but is not limited to: fact finder, needs analysis, notes, correspondence, product comparisons, signed carrier application, signed suitability form, signed illustrations, sales materials and post-issue documents such as delivery receipts.
  • Methods of documentation include: paper, photographic, micro-process, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.
  • Be prepared to explain how the product solicitation was completed and why the particular product was selected.
  • In the case of a replacement, be able to demonstrate that the new annuity purchase is suitable after applicable surrender charges, fees and loss of benefits are taken into consideration.
  • Be prepared to provide copies of these documents to the carrier and/or state regulator in a timely manner if requested.

Note: It is recommended to maintain all active files indefinitely and all inactive clients for seven (7) years.

Thank you for allowing SMS to be your annuity partner and for the confidence you’ve entrusted with us. We’re here to provide the support and expertise that will help you deliver the right solutions to your clients and to help you run your practice in today’s competitive environment.

For additional questions or assistance, please contact us at 1.877.645.4939.

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