211 CMR 96.05 - Duties of Producers and Insurers
(1)
Best Interest Obligation. 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 they have satisfied the following obligations regarding care, disclosure,
conflict of interest and documentation:
(a)
Care Obligation.
1.
The producer , in making a recommendation shall exercise reasonable diligence,
care and skill to:
a. Know the consumer's
financial situation, insurance needs and financial objectives;
b. Understand the available recommendation
options after making a reasonable inquiry into options available to the
producer ;
c. 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
d. Communicate the basis or
bases of the recommendation .
2. The requirements set forth in
211
CMR 96.05(1)(a)1. include
making reasonable efforts to obtain consumer profile information from the
consumer prior to the recommendation of an annuity .
3. The requirements set forth in
211
CMR 96.05(1)(a)1. 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 shall be held to standards applicable
to producers with similar authority and licensure.
4. The requirements set forth in
211
CMR 96.05(1) do not create
a fiduciary obligation or relationship and only create a regulatory obligation
as established by
211 CMR
96.00.
5.
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 set forth in
211
CMR 96.05(1)(a) may vary
depending on the facts and circumstances of a particular case. However, each
factor may not be considered in isolation.
6. The requirements set forth in
211
CMR 96.05(1)(a) include
having a reasonable basis to believe the consumer would benefit from certain
features of an annuity , such as the annuitization, death or living benefit or
other insurance-related features
7.
The requirements set forth in
211
CMR 96.05(1)(a) 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 product enhancements, if any.
8. The requirements set forth in
211
CMR 96.05(1)(a) do not mean
the annuity with the lowest one-time or multiple occurrence compensation
structure will necessarily be recommended.
9. The requirements set forth in
211
CMR 96.05(1)(a) do not mean
the producer has ongoing monitoring obligations under the care obligation set
forth in
211
CMR 96.05(1)(a)1., although
such an obligation may be separately owed under the terms of a fiduciary,
consulting, investment advising or financial planning agreement between the
producer and the consumer.
10. 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 replacement 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.
11. Nothing in
211 CMR
96.00 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 Massachusetts including,
but not limited to, any securities license, in order to fulfill the duties and
obligations set forth in
211 CMR
96.00; provided the producer does not give advice or
provide services that are otherwise subject to securities laws or engages in
any other activity requiring other professional licenses.
(b)
Disclosure
Obligation.
1. Prior to the
recommendation of sale of an annuity , the producer shall prominently disclose
to the consumer on a form designated by the Commissioner and posted on the
Division's website at www.mass.gov/doi:
a. A description of the scope and terms of
the relationship with the consumer and the role of the producer in the
transaction;
b. 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.
c. 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. One
insurer ;
B. From two or more
insurers; or
C. From two or more
insurers although primarily contracted with one insurer .
d. A description of the sources and types of
cash compensation and non-cash 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
e. A notice of the consumer's right to
request additional information regarding cash compensation described in
211
CMR 96.05(1)(b)2.
2. Upon 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; and
3. 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.
(c)
Conflict of
Interest Obligation. 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.
(d)
Documentation
Obligation. A producer shall at the time of recommendation or
sale:
1. Make a written record of any
recommendation and the basis for the recommendation subject to
211 CMR
96.00;
2.
Obtain a consumer signed statement on a form designated by the Commissioner and
posted on the Division's website at www.mass.gov/doi 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 his or her consumer profile information or
providing insufficient consumer profile information ; and
3. Obtain a consumer signed statement on a
form designated by the Commissioner and posted on the Division's website at
www.mass.gov/doi 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.
(e)
Application of the Best Interest Obligation. Any
requirement applicable to a producer under
211
CMR 96.05(1) shall apply to
every 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.
(2)
Transactions Not Based on a
Recommendation
.
(a) Except as
provided under
211
CMR 96.05(2)(b), a producer
shall have no obligation to a consumer under
211
CMR 96.05(1) related to any
annuity transaction if:
1. No recommendation
is made;
2. A recommendation was
made and was later found to have been prepared based on materially inaccurate
information provided by the consumer;
3. A consumer refuses to provide relevant
consumer profile information and the annuity transaction is not recommended;
or
4. A consumer decides to enter
into an annuity transaction that is not based on a recommendation of the
producer.
(b) An
insurer 's issuance of an annuity subject to
211
CMR 96.05(2)(a) shall be
reasonable under all the circumstances actually known to the insurer at the
time the annuity is issued.
(3)
Supervision
System.
(a) Except as permitted
under
211
CMR 96.05(2), 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 designed to achieve compliance with
211 CMR
96.00 including, but not limited to, the following:
1. The insurer shall establish and maintain
procedures to inform its producers of the requirements of
211 CMR
96.00 and shall incorporate the requirements of
211 CMR
96.00 into relevant producer training
manuals;
2. The insurer shall
establish and maintain standards for producer product training and shall
establish and maintain procedures to require its producers to comply with the
requirements of
211
CMR 96.06;
3. The insurer shall provide product-specific
training and training materials which explain all material features of its
annuity products to its producers;
4. The insurer shall establish and maintain
procedures for the review of each recommendation prior to issuance of an
annuity . The review procedures shall be 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. Such 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. Such review procedures may be designed to require
additional review only of those transactions identified for additional
review;
5. The insurer shall
establish and maintain procedures to detect recommendations that are not in
compliance with
211
CMR 96.05(1), (2), (4) and
(5). In addition to investigating consumer
complaints, these may include, but are not limited to, confirmation of the
consumer's consumer profile information , systematic customer surveys, producer
and consumer interviews, confirmation letters, producer statements or
attestations and programs of internal monitoring. Insurers may comply with this
requirement by applying sampling procedures, or by confirming the consumer
profile information or other required information under
211 CMR
96.00 after issuance or delivery of the
annuity ;
6. The insurer shall
establish and maintain procedures to assess, prior to or upon issuance or
delivery of an annuity , whether a producer has provided to the consumer the
information required to be provided under this section;
7. The insurer shall establish and maintain
procedures to identify and address suspicious consumer refusals to provide
consumer profile information ;
8.
The insurer shall establish and maintain procedures to identify and eliminate
any sales contests, sales quotas, bonuses, and non-cash compensation that are
based on the sales of specific annuities within a limited period of time. This
is 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 upon the volume of sales of a specific
annuity within a limited period of time; and
9. The insurer shall annually provide a
written report to senior management, including to the senior manager
responsible for audit functions, which details a review, with appropriate
testing, designed to determine the effectiveness of the supervision system, the
exceptions found, and corrective action taken or recommended, if any.
(c)
1. Insurers may contract for compliance with
211
CMR 96.05(3)(b). An insurer
is responsible for taking appropriate corrective action and may be subject to
sanctions and penalties pursuant to
211
CMR 96.07, regardless of whether the insurer
contracts for performance of a function and regardless of the insurer 's
compliance with
211
CMR
96.05(3)(c)(2).
2. An insurer 's supervision system under
211
CMR 96.05(3)(b) shall
include supervision of contractual performance. This includes, but is not
limited to, the following:
a. Monitoring and,
as appropriate, conducting audits to assure that the contracted function is
properly performed; and
b. Annually
obtaining a certification from a senior manager who has responsibility for the
contracted function that the function is properly performed.
(d) An insurer is not
required to include in its system of supervision:
1. A producer 's recommendations to consumers
of products other than the annuities offered by the insurer ; or
2. Consideration of or comparison to options
available to the producer or compensation relating to those options other than
annuities or other products offered by the insurer .
(4)
Prohibited Practices. Neither a producer nor an
insurer shall 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.
(5)
Safe Harbor.
(a)
Recommendations and sales of annuities made in compliance with comparable
standards shall satisfy the requirements of
211 CMR
96.00.
211
CMR 96.05(5) 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 such standard would not otherwise apply to the
product or recommendation at issue. However, nothing in this subsection shall
limit the Commissioner 's ability to investigate and enforce the provisions of
this regulation.
(b) Nothing in
211
CMR 96.05(5)(a) shall limit
the insurer 's obligation to comply with
211
CMR 96.05(3)(a), although
the insurer may base its analysis on information received from either the
financial professional or the entity supervising the financial
professional.
(c) For
211
CMR 96.05(5)(a) to apply,
an insurer shall:
1. Monitor the relevant
conduct of the financial professional seeking to rely on
211
CMR 96.05(5)(a) or the
entity responsible for supervising the financial professional, such as the
financial professional's broker-dealer or investment adviser registered under
federal or Massachusetts securities law using information collected in the
normal course of an insurer 's business; and
2. Provide to the entity responsible for
supervising the financial professional seeking to rely on
211
CMR 96.05(5)(a), such as the
financial professional's broker-dealer or investment adviser registered under
federal or Massachusetts securities law, information and reports that are
reasonably appropriate to assist such entity to maintain its supervision
system.
(d) For purposes
of 211 CMR
96.05(5), "financial
professional" means a producer that is regulated and acting as:
1. A broker-dealer registered under federal
or Massachusetts securities laws or a registered representative of a
broker-dealer;
2. An investment
adviser registered under federal or Massachusetts securities laws or an
investment adviser representative associated with the federal or Massachusetts
registered investment adviser; or
3. A plan fiduciary under Section 3(21) of
the Employee Retirement Income Security Act of 1974 (ERISA) or fiduciary under
Section 4975(e)(3) of the Internal revenue Code (IRC) or any amendments or
successor statutes thereto.
(e) For purposes of
211
CMR 96.05(5), "comparable
standard" means;
1. With respect to
broker-dealers and registered representatives of broker-dealers, applicable SEC
and FINRA rules pertaining to best interest obligations and supervision of
annuity recommendations and sales including, but not limited to, Regulation
Best Interest and any amendments or successor regulations thereto;
2. With respect to investment advisers
registered under federal or Massachusetts securities laws or investment adviser
representatives, the fiduciary duties and all other requirements imposed on
such investment advisers or investment adviser representatives by contract or
under the Investment Advisers Act of 1940 or Massachusetts securities laws
including, but not limited to, the Form ADV and interpretations; and
3. With respect to plan fiduciaries or
fiduciaries, means the duties, obligations, prohibitions and all other
requirements attendant to such status under ERISA or the IRC and any amendments
or successor statutes thereto.
Notes
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