Kentucky Administrative Regulations › Title 806 - PUBLIC PROTECTION CABINET - DEPARTMENT OF INSURANCE › Chapter 12 - Trade Practices and Frauds › Section 806 KAR 12:120 - Suitability in annuity transactions

Current through Register Vol. 51, No. 1, July 1, 2024
RELATES TO:
				KRS
				304.1-040,
				304.5-030,
				304.9-020(1),
				304.9-025,
				304.9-040,
				304.9-390,
				304.12-010,
				304.12-030(1)(a),
				304.99-020,
				26 U.S.C.
				401,
				403,
				408,
				414,
				457,
				29 U.S.C.
				1001-1461
NECESSITY, FUNCTION, AND CONFORMITY:
				KRS
				304.2-110(1) authorizes the
				Commissioner of Insurance to promulgate administrative regulations necessary
				for or as an aid to the effectuation of any provision of the Kentucky Insurance
				Code, KRS Chapter 304. This administrative regulation requires licensees to act
				in the best interest of the consumer when making a recommendation of an annuity
				and to require insurers to establish and maintain a system to supervise
				recommendations so that the insurance needs and financial objectives of
				consumers at the time of the transaction are effectively addressed.
Section 1. Definitions.
(1) "Agent" is defined by
			 KRS
			 304.9-020(1).
(2) "Annuity" is defined by
			 KRS
			 304.5-030.
(3) "Cash Compensation" means any discount,
			 concession, fee, service fee, commission, sales charge, loan, override, or cash
			 benefit received by a producer in connection with the recommendation or sale of
			 an annuity from an insurer, intermediary, or directly from the
			 consumer.
(4) "Commissioner" is
			 defined by
			 KRS
			 304.1-050(1).
(5) "Comparable standards" means:
(a) With respect to broker-dealer and
			 registered representatives of broker-dealers, applicable SEC and FINRA rules
			 pertaining to best interest obligations and supervision of annuity
			 recommendations and sales, including Regulation Best Interest and any
			 amendments or successor regulations thereto;
(b) With respect to investment advisers
			 registered under federal and state securities laws or investment adviser
			 representatives, the fiduciary duties, and all other requirements imposed on
			 investment advisers or investment adviser representatives by contract or under
			 the Investment Advisers Act of 1940, including the Form ADV and
			 interpretations; and
(c) With
			 respect to plan fiduciaries or fiduciaries, means the duties, obligations,
			 prohibitions, and all other requirements attendant to such status under the
			 Employee Retirement Security Act of 1974 (ERISA) or the Internal Revenue Code
			 (IRC) and any amendments or successor statutes thereto.
(6) "Consultant" is defined by
			 KRS
			 304.9-040.
(7) "Financial professional" means a licensee
			 that is regulated and acting as:
(a) A
			 broker-dealer registered under federal and state securities laws or a
			 registered representative of a broker-dealer;
(b) An investment adviser registered under
			 federal and state securities laws or an investment adviser representative
			 associated with the federal and state registered investment adviser;
			 or
(c) A plan fiduciary under
			 Section 3(21) of the ERISA or fiduciary under Section 4975 (e)(3) of the IRC or
			 any amendments or successor statutes thereto.
(8) "FINRA" means the Financial Industry
			 Regulatory Authority or a succeeding agency.
(9) "Insurance producer" is defined by
			 KRS
			 304.9-020(10).
(10) "Insurer" is defined by
			 KRS
			 304.1-040.
(11) "Intermediary" means an entity
			 contracted directly with an insurer or with another entity contracted with an
			 insurer to facilitate the sale of the insurer's annuities by
			 producers.
(12) "Licensee" means
			 agent, or an insurer if an agent is not involved, and consultant.
(13) "Material conflict of interest" means a
			 financial interest of the producer in the sale of an annuity that a reasonable
			 person would expect to influence the impartiality of a recommendation but does
			 not include cash compensation or non-cash compensation.
(14) "Non-cash compensation" means any form
			 of compensation that is not cash compensation.
(15) "Nonguaranteed elements" means the
			 premium, credited interest rates including bonus, benefits, values, dividends,
			 non-interest based credits, charges, or elements of formulas used to determine
			 any of these, that are subject to company discretion and are not guaranteed at
			 issue. An element shall be considered nonguaranteed if any of the underlying
			 nonguaranteed elements are used in its calculation.
(16)
(a)
			 "Recommendation" means advice provided by a licensee to an individual consumer
			 that results in a purchase, exchange, or replacement of an annuity in
			 accordance with that advice.
(b)
			 Recommendation shall not include general communication to the public,
			 generalized customer services assistance or administrative support, general
			 educational information and tools, prospectuses, or other product and sales
			 material.
(17)
			 "Replacement" is defined by
			 KRS
			 304.12-030(1)(a).
(18) "SEC" means the United States Securities
			 and Exchange Commission.