Montana Producer Advisory

Purpose

Montana has adopted the NAIC’s Suitability in Annuity Transactions Model Regulation that was amended in February 2020. The Model now incorporates a best interest standard of care for any sale or recommendation of an annuity.

Suitability Determination

Beginning with sales recommendations made on or after Oct. 1, 2021, a producer must collect information on The Standard’s Annuity Suitability Customer Profile, Form 15510 (1/21). The form must be completed, signed by both the producer and the prospective purchaser, and submitted to The Standard together with the application. A producer must keep a copy as well as provide a copy to the client. Any alterations made to the signed form, must be initialed by the applicants.

The Standard’s individual annuity intake personnel must enter the suitability information included on the Annuity Suitability Customer Profile form into the suitability database. Any “flags” raised as a result of such information entered into the database must either be:

• Resolved to show a company determination that the sale is suitable, and such resolution must be clearly documented; or
• Be communicated to the producer as part of our decision not to proceed with the application due to failure to meet applicable suitability requirements.

Product Training

A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer’s standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this regulation.

Continuing Education (CE) Training

Producers may not engage in the sale of annuities until the training course required under this regulation has been completed.

A producer who has completed an annuity-training course approved by the department of insurance prior to Oct. 1, 2021, shall, before April 1, 2022, complete either:

• A new four (4) credit hour training course approved by the department of insurance; or
• An additional one-time one (1) credit hour training course approved by the department of insurance and provided by the department of insurance-approved education provider on appropriate sales practices, replacement and disclosure requirements under this amended regulation.

A producer who has not completed an annuity-training course approved by the department of insurance on or before April 1, 2022, must complete the new four (4) credit hour training course approved by the department of insurance before they can be appointed and sell annuities through The Standard.

Summary of the Amended 2020 Suitability in Annuity Transactions Model Regulation

A producer, when making any recommendation of an annuity, shall act in the best interest of the consumer under circumstances known at the time of the recommendation is made, without placing the producer’s or insurer’s financial interest ahead of the consumer’s interest. 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.

To satisfy the care obligation a producer in making a recommendation shall exercise reasonable diligence, care and skill to:

• 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 over the life of the product.
• Communicate the basis or bases of the recommendation.

These requirements include making reasonable efforts to obtain consumer profile information prior to the recommendation of an annuity.

Consumer Profile Information

1. Age
2. Annual Income
3. Financial situation and needs, including debts and other obligations
4. Financial experience
5. Insurance needs
6. Financial objectives
7. Intended use of the annuity
8. Financial time horizon
9. Existing assets or financial products, including investment, annuity and insurance holdings
10. Liquidity needs
11. Liquid net worth
12. Risk tolerance, including but not limited to, willingness to accept non-guaranteed elements in the annuity
13. Financial resources used to fund the annuity
14. Tax status

The producer must consider the types of products they are authorized and licensed to recommend or sell that address the consumer’s financial situations, insurance needs and financial objectives.

A consumers profile information, characteristics of the insurer, and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer’s financial situation, insurance need and financial objectives, but the level of importance of each factor under the care obligation may vary depending on the facts and circumstances of a particular case. Each factor may not be considered in isolation.

The producer must have a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death benefit or other insurance-related features. The requirements of the care obligation apply to the annuity as whole, where funds are allocated at the time of the purchase or exchange of an annuity, riders and similar producer enhancements, if any. This does not mean the annuity with the lowest one-time or multiple occurrence compensation structure or that the producer has an ongoing monitoring obligation, although such an obligation may be separately owed under the terms of a fiduciary, consulting investment advising or financial planning agreement between the consumer and producer.

In the case of an exchange or a replacement of an annuity the producer shall consider the whole transaction, taking into consideration whether:

• The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, or be subject to increased fees or charges for riders and similar product enhancements.
• The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product.
• The consumer has had another annuity exchange or replacement within the preceding 60 months.

Nothing in this regulation should be construed to require a producer to obtain any license other than a producer license with the appropriate line of authority to sell, solicit or negotiate insurance in a state, including but not limited to any securities license to fulfill the duties and obligations, provided a producer does not give advice or provide services that are subject to securities laws or engage in any activity requiring professional licenses.

The disclosure obligation is disclosing to a consumer the terms of their relationship and the role of the producer in the transaction, an affirmative statement on whether the producer is licensed to sell the particular product, the number of insurer’s they are authorized, contracted (or appointed), or otherwise able to sell insurance products from, describing the sources of their cash and non-cash compensation, including whether commission as part of premium or other renumeration received from the insurer, intermediary or other producer or by a fee as a result of a contract for advice or consulting services and a consumer’s right to request additional information regarding cash compensation. Upon request of the consumer the producer shall disclose a reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages and whether the cash compensation is a one-time or multiple occurrence amount and if a multiple occurrences amount, the frequency and amount of the occurrence, which may be states as a range of amounts or percentages.

Prior to or at the time of the recommendation or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk.

The conflict of interest obligation is to identify and avoid, or reasonably manage and disclose “material conflicts of interest,” meaning financial interest, to the consumer.

The documentation obligation is to record the basis for any recommendation in writing and to request a signed statement from a consumer who refuses to provide their financial information, insurance needs or investment objectives on a consumer profile information form.

Application of the best interest obligation. Any requirement applicable to a producer shall apply to every producer who as exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation and sale, regardless of whether the producer has had any direct contact with the consumer.

Questions and Additional Information

Our goal in Compliance is to support and enable sales goals in such a manner as to mitigate and eliminate any risk of compliance exposure. We appreciate the efforts of our producers to support and maintain our compliance position. Please feel free to contact us at 800.247.6888 if you have any questions or need any additional information regarding this compliance alert.