2023 Montana Code Annotated › Title 33. Insurance and Insurance Companies › Chapter 20. Life Insurance › Part 8. Suitability in Annuity Transactions › 33-20-805. Duties of insurers and producers-- best interest obligations

33-20-805. Duties of insurers and producers-- best interest obligations.
(1) A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interest. A producer has acted in the best interest of the consumer if the producer has satisfied the following obligations regarding care, disclosure, conflict of interest, and documentation:
(a) The producer, in making a recommendation, shall exercise reasonable diligence, care, and skill to:
(i) know the consumer's financial situation, insurance needs, and financial objectives;
(ii) understand the available recommendation options after making a reasonable inquiry into options available to the producer;
(iii) 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, as evaluated in light of the consumer profile information; and
(iv) communicate the basis or bases of the recommendation to the consumer in writing.
(b) The requirements under subsection (1)(a)(i) include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.
(c) The requirements under subsection (1)(a) require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs, and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers are to be held to standards applicable to producers with similar authority and licensure.
(d) The requirements under this subsection (1) do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in this part.
(e) The consumer 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 needs, and financial objectives, but the level of importance of each factor under the care obligation of this section may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.
(f) The requirements under subsection (1)(a)(i) include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.
(g) The requirements under subsection (1)(a)(i) apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar producer enhancements, if any.
(h) The requirements under subsection (1)(a)(i) do not mean the annuity with the lowest one-time or multiple occurrence compensation structure may necessarily be recommended.
(i) The requirements under subsection (1)(a)(i) do not mean the producer has ongoing monitoring obligations under the care obligation under this section, although this obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer.
(2) In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration whether:
(a) the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements;
(b) the replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and
(c) the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.
(3) Nothing in this part may be construed to require a producer to obtain a license other than a producer license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including but not limited to any securities license, in order to fulfill the duties and obligations contained in this part, provided the producer does not discuss risks specific to a consumer's individual securities holdings, does not provide advice regarding a consumer's specific securities or securities investment performance, does not compare a consumer's securities or securities investment performance with the annuity products being recommended, does not recommend the liquidation of specific securities or identify specific securities that could be used to fund the purchase of a recommended annuity product, does not recommend specific allocations between insurance and securities products, does not offer research, analysis, or recommendations to a consumer regarding specific securities, and does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.
(4) (a) Prior to the recommendation or sale of an annuity, the producer shall prominently disclose to the consumer on a form substantially similar to a model form established by the insurance department:
(i) a description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction;
(ii) an affirmative statement on whether the producer is licensed and authorized to sell the following products:
(A) fixed annuities;
(B) fixed indexed annuities;
(C) variable annuities;
(D) life insurance;
(E) mutual funds;
(F) stocks and bonds; and
(G) certificates of deposit;
(iii) an affirmative statement describing the insurers the producer is authorized, contracted or appointed, or otherwise able to sell insurance products for, using the following descriptions:
(A) from one insurer;
(B) from two or more insurers; or
(C) from two or more insurers although primarily contracted with one insurer;
(iv) a description of the sources and types of cash compensation and noncash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer, or by fee as a result of a contract for advice or consulting services; and
(v) a notice of the consumer's right to request additional information regarding cash compensation described in subsection (4)(b).
(b) On request of the consumer or the consumer's designated representative, the producer shall disclose:
(i) 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
(ii) whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.
(c) Prior to, or at the time of the recommendation or sale of an annuity, the producer has 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 nonguaranteed elements of the annuity, insurance and investment components, and market risk.
(d) A producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.
(e) A producer shall, at the time of recommendation or sale:
(i) make a written record of a recommendation and the basis for the recommendation subject to this part;
(ii) obtain a signed statement from a consumer on a form substantially similar to a model form established by the insurance department documenting:
(A) a customer's refusal to provide the consumer profile information, if any; and
(B) a customer's understanding of the ramifications of not providing the customer's consumer profile information or providing insufficient consumer profile information; and
(iii) obtain a signed statement from a consumer on a form substantially similar to a model form established by the insurance department acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the producer's recommendation.
(5) Any requirement applicable to a producer under this section must apply to each 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, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.
(6) (a) Except as provided under subsection (6)(b), a producer has no obligation to a consumer under subsection (1) related to any annuity transaction if:
(i) no recommendation is made;
(ii) a recommendation is made but later found to have been prepared based on materially inaccurate information provided by the consumer;
(iii) the consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or
(iv) the consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or insurance producer.
(b) An insurer's issuance of an annuity under this subsection (6) must be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.
(7) (a) Except as permitted under subsection (6), an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives based on the consumer's consumer profile information.
(b) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its producers' compliance with this part and, at a minimum, include the following:
(i) the insurer shall establish and maintain reasonable procedures to inform its producers of the requirements of this part and shall incorporate the requirements of this part into relevant producer training manuals;
(ii) the insurer shall establish and maintain standards for producer product training and shall establish and maintain reasonable procedures to require its insurance producers to comply with the requirements of 33-20-807;
(iii) the insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its producers;
(iv) the insurer shall establish and maintain procedures for the review of each recommendation prior to the issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives. The review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including but not limited to physical review. The electronic system or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.
(v) the insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections (1), (4), (5), (6), (8), and (9). This may include but is not limited to confirmation of the consumer's consumer profile information, systematic consumer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring. Nothing in this subsection prevents an insurer from complying with this subsection by applying sampling procedures or by confirming consumer profile information or other required information under this section after issuance or delivery of the annuity.
(vi) the insurer shall establish and maintain reasonable procedures to assess, prior to or on issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section;
(vii) the insurer shall establish and maintain reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information;
(viii) the insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subsection (7) are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees as long as those benefits are not based on the volume of sales of a specific annuity within a limited period of time.
(ix) the insurer shall annually provide a written report to senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.
(c) (i) Nothing in this subsection (7) restricts an insurer from contracting for performance of a function, including maintenance procedures, required under this subsection (7). An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under 33-20-806 regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with subsection (7)(c)(ii).
(ii) An insurer's supervision system under this subsection (7) must include supervision of contractual performance. This includes but is not limited to the following:
(A) annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has reasonable basis to represent, and does represent that the function is being properly performed; and
(B) monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.
(d) An insurer is not required to include in its system of supervision:
(i) a producer's recommendations to consumers of products other than the annuities offered by the insurer; or
(ii) consideration of or comparison to options available to the producer or compensation relating to those options other than the annuities or other products offered by the insurer.
(8) A producer or an insurer may not dissuade or attempt to dissuade a consumer from:
(a) truthfully responding to an insurer's request for confirmation of the consumer profile information;
(b) filing a complaint; or
(c) cooperating with the investigation of a complaint.
(9) (a) Recommendations and sales of annuities made in compliance with comparable standards must satisfy the requirements under this part. This subsection (9) applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if the standard would not otherwise apply to the product or recommendation at issue. However, nothing in this subsection (9) may limit the insurance commissioner's ability to investigate and enforce the provisions of this part.
(b) Nothing in subsection (9)(a) may limit the insurer's obligation to comply with subsection (7), although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.
(c) For subsection (9)(a) to apply, an insurer shall:
(i) monitor the relevant conduct of the financial professional seeking to rely on subsection (9)(a) or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal or state securities laws, using information collected in the normal course of an insurer's business; and
(ii) provide to the entity responsible for supervising the financial professional seeking to rely on subsection (9)(a), such as the financial professional's broker-dealer or investment adviser registered under federal or state securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system.
(d) For the purposes of this subsection, a "financial professional" means a producer that is regulated and acting as:
(i) a broker-dealer registered under federal or state securities laws or a registered representative of a broker-dealer;
(ii) an investment adviser registered under federal or state securities laws or an investment adviser representative associated with the federal or state registered investment adviser; or
(iii) a plan fiduciary under section 3(21) of the Employee Retirement Income Security Act of 1974 or a fiduciary under section 4975(e)(3) of the Internal Revenue Code.
(e) For the purposes of this subsection, a "comparable standards" means:
(i) with respect to broker-dealers and registered representatives of broker-dealers, applicable securities and exchange commission and financial industry regulatory authority rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including but not limited to regulation best interest;
(ii) with respect to investment advisers registered under federal or state securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on the investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940, Title 30, chapter 10, including but not limited to the Form ADV and interpretations; and
(iii) with respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to the status under the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001, et seq., or the Internal Revenue Code.
(10) (a) Insurers, insurance producers, and independent agencies shall maintain or be able to make available to the commissioner records of the information collected from the consumer, disclosures made to the consumer, including summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions for 5 years after the insurance transaction is completed by the insurer. An insurer is permitted, but is not required, to maintain documentation on behalf of a producer.
(b) Records required to be maintained by this section may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media or by any process that accurately reproduces the actual document.
History: En. Sec. 5, Ch. 476, L. 2007; amd. Sec. 5, Ch. 324, L. 2017; amd. Sec. 4, Ch. 432, L. 2021.