New York State’s Best Interest Standard

New York State’s Department of Financial Services’ final version of their Best Interest Regulation is upon us. These regulations would apply to all Life Insurance and Annuity sales.

Reading through the regulation left me with three distinct impressions.

  • New York State’s Department of Financial Services (NYSDFS) is determined to be viewed as a leader in Consumer Protectionism. They seem to believe that they will be viewed as the vanguard by other states and possibly even the SEC – as they continue to work on their Fiduciary Rule.
  • Agency Distribution is in the crosshairs of the NYSDFS.
  • No one at the NYSDFS has ever sold or understands how to sell an Annuity or Life Insurance product nor do they come off as understanding how commissions are paid in New York.

My response to each of the following points would be:

  • New York state already has by far the strictest regulations of all the states. No other state or regulatory body has followed, there is no reason to believe that they will now follow New York’s lead.
  • There is one section that specifically discusses how to pick appropriate products and then states, “the amount of the compensation or the receipt of an incentive does not influence the recommendation”. This could impact the ability of carriers to reward their captive agents for selling “core” products. I am very interested in seeing how this passage is reacted to.
  • New York advisors already have a severely diminished catalogue of products to choose from and compensation has been levelized. As more and more carriers pull products out of the New York market place our clients are left with fewer and fewer options. This may have shielded some New York residents from improper products or sales techniques but at the same time it has overwhelmingly reduced their options for quality products and advice.

This regulation seems to have been created to look like New York is on the side of the consumer. However, without proper understanding of the products, commissions, and marketplace this regulation is more likely to just create substantial litigation.