Financial Advisor
Jackson National Suspends N.Y. Fee-Based Annuity Sales
Jackson National announced that it suspended the sale of fee-based annuities in New York last month due to the implementation of a new fiduciary regulation.
At issue is Insurance Regulation 187, which requires that insurers offer consumers a comparison showing the differences between fee- and commissioned-based annuities.
Jackson temporarily halted the annuity sales on Aug. 12 "as we and other market participants continue to work through the product disclosure requirements in Regulation 187 with the New York Department of Financial Services,” said a Jackson spokesperson. “We remain committed to delivering helpful and relevant disclosures to consumers and distribution partners and to resuming sales of our advisory products in New York as soon as possible.”
The company is continuing to sell its commission-based annuity products in New York.
The disclosure requirements could force Jackson and other annuity providers to offer clients comparisons between products when the same annuity is available in New York in both fee- and commission-based form, said Jason Berkowitz, chief legal and regulatory affairs officer for the Insured Retirement Institute.
"There's some confusion as to the extent that that disclosure may have to cover a broader swath of products and at what point the regulator would be looking for us to provide that disclosure," said Berkowitz. "Our members area deeply committed to complying with the word of the law, but in this instance they're not sure what that means. They're temporarily holding off on keeping these fee-based products on the market."
New York adopted one of the strictest fiduciary regulations in the nation last month when it required that insurance agents act in their customers’ best interests as part of a slate of new consumer disclosure requirements. The rule was proposed in July 2018 by the state’s Department of Financial Services and took effect on Aug. 1 for annuity contracts. It will go into effect Feb. 1 for life insurance policies.
David Lau, CEO of DPL Financial Partners, which offers advisors a platform of fee-based, non-commissioned annuity products, said that Jackson and at least one other annuity provider are halting the sale of fee-based products in New York until further clarification on the regulation is provided by state regulators.
“It’s a new regulation, and oftentimes with new regulations they haven’t yet contemplated all of the different aspects of what it will mean to be in compliance,” said Lau.
Just before the rules went into effect for annuity sales, the New York State Supreme Court upheld the regulation in a strongly worded opinion after two industry organizations—the Independent Insurance Agents and Brokers of New York and the National Association of Insurance and Financial Advisors-New York State—asked the court to block enforcement of the new rules.
Jackson, the nation’s second-largest seller of individual annuities, halted sales shortly after the ruling and other insurers are reportedly planning to follow suit.
Some of Jackson’s fee-based products are made available to fiduciary advisors via DPL Financial Partners platform, said Lau.
“Advisors are, at least temporarily, winding up with fewer products—it’s really business as usual, just with fewer choices,” said Lau. “Jackson is a good partner of ours and we hate to see them out of the market, but we have 14 different carrier partners."
Berkowitz emphasized that the halted annuity sales are only a temporary measure.
Jackson National, the IRI, other annuity providers and other industry groups are currently engaging in talks with New York's Department of FInancial Services as well as other regulators to clarify the new rules.
"We don't anticipate this to be a long-term temporary situation," Berkowitz said. "We have reasons to believe this will be cleared up in the long term."
The rule is notable because it not only expands fiduciary requirements to include insurance brokers, but also encompasses all annuity and life insurance products. Individuals selling annuities or insurance products may not call themselves “financial planners” or “financial advisors” under the new rules unless they provide non-insurance financial services to their clients and have secured the licenses necessary to carry these titles.
In the case of a client dispute, failure to prove a recommendation is made in a client’s best interest would lead to a refund. Insurers must collect 13 specific pieces of personal information for each client before recommending a product, including age, income, goals and risk tolerance.
New York’s rule also requires advisors to discuss the negative elements, like surrender charges, of recommended insurance products.
Lau noted that New York’s stringent insurance rules had already led to fewer competitors and products in the marketplace.
“This regulation absolutely makes it more difficult for advisors to offer annuities to their clients,” said Lau. “New York is already a difficult market for insurers. What we’ve found, across the board, whether we’re talking about fee-based or commission-based, is that there are fewer products in the New York market and ultimately that’s at a detriment to consumers. The well-intentioned effort to protect consumers can also scare insurers away, and we end up with less competition, fewer products and fewer choices.”
New York is one of the more prominent examples of states adopting their own fiduciary regulations after the U.S. Department of Labor’s fiduciary rule was vacated by a federal appeals court last year. Since that ruling, Massachusetts, New Jersey and Nevada have joined New York in pursuing more stringent fiduciary standards of their own.
An insurance industry group, the National Association of Insurance Commissioners, is also undertaking a multiyear examination whether it should impose a best-interest standard on its own membership.