Annuities: the "best interest" standard your producer is now held to

An annuity recommendation used to be checked against a "suitability" standard — did the producer have reasonable grounds to think it fit you. Since February 2020, the NAIC's revised model regulation raised that bar to a "best interest" standard with four specific, named obligations. It still isn't a fiduciary duty, and the difference between the two is worth understanding before you sign anything.

What changed, and when

On February 13, 2020, the NAIC adopted revisions to its Suitability in Annuity Transactions Model Regulation (Model #275), replacing the prior 2010 version's suitability-only framework with a "best interest" standard for any producer recommending an annuity. The revision was explicitly modeled in part on the SEC's Regulation Best Interest for broker-dealers — but the NAIC's own materials are direct about the fact that it doesn't rise to the level of a fiduciary duty, meaning a producer still isn't legally required to recommend the single best available product across the entire market the way a fiduciary would be.

The four obligations

A producer is treated as having acted in a client's best interest under the revised model only by satisfying all four of the following:

Care. Exercise reasonable diligence, care, and skill to know the consumer's financial situation, insurance needs, and financial objectives; understand the available recommendation options; and have a reasonable basis to believe the specific recommendation addresses those needs based on the facts actually disclosed.

Disclosure. Before the recommendation, disclose the producer's role in the transaction, a description of the types of products the producer is licensed and authorized to sell (including whether that's limited to one or a few insurers' proprietary products), and the types and sources of cash and non-cash compensation the producer expects to receive.

Conflict of interest. Identify and either avoid, or reasonably manage and disclose, any material conflict of interest — including one created by the producer's own compensation structure.

Documentation. Document the basis for the recommendation.

Why "not a fiduciary duty" is the important caveat

Meeting all four obligations means the producer followed a specific, checkable process — it does not mean the annuity recommended was the single lowest-cost or best-performing option available anywhere in the market, which is closer to what a fiduciary standard would require. A producer working with a limited set of proprietary carriers (see our explainer on captive vs. independent agents) can satisfy the disclosure obligation simply by telling you that's the limitation — it doesn't require them to have compared your recommendation against every annuity on the market.

Where this rule actually applies, and where it doesn't

Nearly all states have adopted some version of the 2020 revision as of current NAIC tracking, though a handful haven't, and even among adopting states the exact implementation date and any state-specific modifications can vary — verify your own state's current version rather than assuming national uniformity. This standard is specific to annuity recommendations; a churning or twisting pattern involving a life insurance policy replacement (see our separate explainer) is governed by a different model regulation, even though the same producer and the same underlying misconduct pattern can sometimes implicate both.

What to actually ask for

Before buying an annuity, you're entitled to ask the producer directly which carriers' products they're licensed to sell, how they're compensated on this specific sale, and to see the documentation of why this particular annuity was recommended for your situation — all four are things the best-interest standard already requires them to be able to answer, not an unusual request. See our companion piece on the training and insurer-oversight rules behind this standard for what happens further behind the scenes: the training a producer has to complete before recommending an annuity at all, and the supervision system their own insurer is required to run.