The New York State Department of Financial Services (NY DFS) has released the final version of best-interest Regulation 187 (NY 187). The final regulation, now called “Suitability and Best Interests in Life Insurance and Annuity Transactions,” will require producers and insurers to implement a process that ensures they are acting in the consumer’s best interest when recommending an annuity or life insurance policy issued in New York. The new regulations take effect on:

• August 1, 2019 for annuity contracts
• February 1, 2020 for life insurance policies

What We Are Doing

At Lincoln Financial Advisors, we’re working closely with our Lincoln enterprise partners, other insurance carriers and industry experts and groups to ensure compliance with the regulation and that we are also supporting your needs. For more details, see the General Questions and Questions About Annuities sections below.

How This Affects You

All LFA advisors (i.e., registered representatives of LFA) transacting NY annuity and life insurance business will have a duty to recommend NY annuity and life insurance products in the consumer’s best interest as described below. In addition, any LFA advisor submitting any variable, fixed index or fixed annuity or variable universal life policies through LFA for suitability review will soon see certain enhancements made to those forms and applications.

Further, LFA advisors transacting NY annuity and life insurance business will also be required to complete certain NY 187 training prior to submitting new business after the effective date of the new regulation. More specific details regarding the timing of, and any substantive changes in, LFA suitability forms, as well as the timing of LFA training required specific to this regulation, will be forthcoming.

General Questions

• What are some key points of the final NY 187?  
  
  • Best interest standard clarified. Only the consumer’s best interest, and not the financial interests of the producer or insurer, can influence a recommendation to purchase an annuity or life insurance policy. The recommendation must address the consumer’s insurance needs and financial objectives at the time of the transaction.
     
  • When in-force transactions are affected. NY 187 will affect in-force transactions (e.g., 1035 exchanges into existing annuity contracts, or adding income riders to existing contracts) if they involve new sales compensation. New sales compensation does not include compensation provided to a producer when, after the initial premium or deposit under a policy, the consumer pays further premiums or deposits pursuant to the policy or contract.
     
  • Enhanced documentation required. There are enhanced disclosure requirements at the time of sale regarding suitability and product information, and additional documentation requirements regarding the basis for any recommendation made subject to NY 187.
     
  • Third-party supervision permitted. The final rule permits insurers to contract with third parties – such as broker-dealer distributors like LFA – to establish and maintain a supervisory system (i.e., conduct suitability/best interest reviews).
     
  • Insurers to oversee training and supervision. When not otherwise delegated to another third-party distributor as mentioned above, NY 187 imposes significant insurer oversight obligations regarding training and supervision and requires insurers to take corrective action where appropriate.
     
• What’s next? 
  We will continue to update you on any future changes to our process or procedures that may affect you and/or your procedures. Internally, LFA has various teams focused on the implications of this new regulation, including legal, compliance, operations, risk management, IT and finance.

Questions About Annuities

• Will there be any additional annuities training that is required? 
  Yes, as noted above, LFA advisors transacting NY annuity and life insurance business will be required to complete certain NY 187 training prior to submitting new NY business after the effective date of the new regulation. We expect this new training to be available in June.
   
• Will insurers’ wholesaler activities change for annuities? 
  NY 187 includes requirements for anyone materially participating in a recommendation. Lincoln Financial Distributors’ (LFD) wholesalers are prohibited from materially participating in any recommendations. However, specific to Lincoln as an insurer, Lincoln does plan to train its LFD wholesalers on any changes to Lincoln forms, or any other changes made as a result of the regulation, so they can best support you.
   
• Is LFA providing a fee-based/commission-based comparison? 
  We are reviewing a template and determining product feature differences so that we can identify scenarios where this disclosure will be required.

John DiMonda Senior Vice President Head of Lincoln Financial Advisors

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