The care obligation annuity is a recent development in many states that requires producers to meet best interest standards when making recommendations about sales or recommendations of an annuity, effective January 1, 2025. These requirements aim to protect consumers by covering care, disclosure, conflict of interest and documentation – four key components designed to safeguard customers. These changes will require producer training sessions as well as revisions to suitability forms and recordkeeping forms and updated recordkeeping methods.
The best interest standard requires that an annuity producer provide consumers with information regarding the costs, benefits and features of a proposed annuity prior to making any recommendations. They must have reasonable grounds for believing the recommended annuity will effectively address a consumer’s current financial situation, insurance needs and long-term goals; using consumer profile data. They are also required to clearly communicate this recommendation back to them via clear explanation and communication channels.
As part of their duties as producers, producers must also be knowledgeable of the annuities they can sell and make reasonable efforts to obtain consumer profile data before providing recommendations. In addition, producers must evaluate any annuities authorized and licensed for sale, taking note of features as well as potential alternative products or strategies available in the market at that point in time.
Producers must be mindful of any potential conflicts of interest and, should one exist, disclose it to consumers. This includes receiving commissions or income from third-party sources, such as an investment firm or insurance agency. Furthermore, they should disclose any additional potential conflicts.
Producers must have reasonable grounds for believing the annuity they recommend would be in the consumer’s best interests, taking into account features, characteristics and costs/rates/benefits/terms of it. This doesn’t entail considering every annuity available – the producer simply has to analyze those he or she is authorized and licensed to sell before providing recommendations that are in their consumer’s best interest based on information available at that moment in time.
Finally, the producer must document that they met the best interest standard in writing. This must include an outline of how they made their recommendation as well as a copy of the consumer’s completed questionnaire. Documents must be kept by producers and given to clients upon request. In order to meet this documentation requirement, The Standard has created an annuity suitability customer profile form which can be used when making recommendations of an annuity policy. Downloadable from our website, the form will also be mailed directly to all customers as part of future annuity transactions. Both producers and prospective purchasers should sign the form prior to submitting it with their annuity application to The Standard.