Kathleen Owens, Aurora Financial Planning Investment Management
Arizona investors may be surprised when they learn of changes to annuity sales in Arizona Bill 1557: Arizona Revised Statutes; Relating to Annuity Transactions.
This bill, signed into law in 2020, says that an insurance agent shall act in the best interest of the consumer, but then goes on to include loopholes that absolve the agent of the best interest or fiduciary standard.
Here are the sections in the bill that do not align with a best interest standard:
7-a: Means a producer’s (insurance agent) financial interest in the sale of an annuity that a reasonable person would expect to influence the impartiality of the producer’s recommendation. 9 (b) does not include cash compensation or noncash compensation.
28-c: The requirements under the best interest and care obligations under subsections a and b of this section do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in this article.
38-2: Do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.
Insurance lobbyists are working to get this type of legislation passed in all states. Unfortunately, they are succeeding. California just passed their version of this bill in February 2024.
What is confusing is that the National Association of Insurance Commissioners (NAIC) is helping to pass these new bills that do not protect investors. Their stated mission is to protect consumers and ensure a fair, competitive, and healthy insurance market.
The NAIC calls this model regulation: Annuity Suitability “Best Interest” Model Regulation.
As Robert Herrell, executive Director of the Consumer Federation of California puts it; “It feels like the fix is in between California insurance regulator, and the life and annuity insurance industry. This bill started out as something that helps consumers, but now it is largely written by the insurance industry.”
Many consumers have been steered into high commission, complex life insurance and annuities, which has cost them hundreds and thousands of dollars. California Department of Insurance data shows 5,000 complaints about life insurance products and 800+ complaints about annuities over the past few years.
Life insurance and annuities pay huge commissions, which does without a doubt create an obvious conflict of interest.
What can you do if you are considering life insurance or an annuity? Consult with a fiduciary registered investment adviser that is not an insurance agent, for advice.
Kathleen Owens, is a Fiduciary, Fee-Only Registered Investment Adviser Representative and Certified Financial Planner candidate with Aurora Financial Planning & Investment Management LLC. She can be contacted at 858-205-7651 or [email protected].