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Revised NAIC Suitability

As of 06/01/2023

Revised NAIC Suitability in Annuity Transactions Model Regulation

What is it?

On February 13, 2020, the NAIC adopted revisions to its Suitability in Annuity Transactions Model Regulation that impose a higher best interest standard of care for annuity sales. Similar to the SEC’s Regulation Best Interest (“Reg BI”), it requires producers to act in the best interest of the consumer without putting the producer’s or insurer’s financial interest ahead of the consumer’s, consisting of four core obligations:

  • Care
  • Disclosure
  • Conflict of interest
  • Documentation

Each state needs to approve and adopt the revised model prior to these new best interest standards being applicable to annuity recommendations in that particular state. As of May 2023, 37 states have adopted the revised model’s best interest provisions.

What do I need to do? 

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Care obligation
Producers are required to:
  • Gather and consider additional categories of consumer information
  • Consider available options the producer is licensed to sell
  • Consider the annuity as a whole, including underlying subaccounts and benefits
  • Confirm a replacement substantially benefits the consumer if recommended, and consider whether they’ve had one within the previous 60 months
Disclosure obligation
Producers are required to provide consumers with a disclosure, including:
  • Scope and terms of relationship with consumer
  • Whether the producer is authorized to sell certain types of products (including fixed annuities, fixed indexed annuities, variable annuities, life insurance, mutual funds, stocks and bonds) and products of multiple insurers, or only one
  • Sources and types of cash and noncash compensation received by the producer

Upon request, consumers can obtain an estimate of the amount of cash compensation received by the producer, and whether it’s a one-time or a multiple occurrence amount.

Conflict of interest obligation
Producers are obligated to identify and avoid or reasonably manage and disclose material conflicts of interest.
Documentation obligation
Producers must make a written record of any recommendation and the basis for it. They are required to obtain the consumer’s signature on a new disclosure form relating to, among other things, what types of products the producer is authorized to recommend, what insurers’ products they are authorized to sell, and how they are compensated. When a purchase is not recommended, they are required to obtain a consumer-signed statement.
Training required
  • Producers seeking appointment with an insurer to sell annuities are required to complete a new four-credit training course that covers the new requirements. 
  • Producers already appointed and who have previously completed a four-credit training are required to complete a new one-credit training course. 
  • Completion of these training courses is required within six months after the effective date of the revised Model Regulation in each state provided by third-party vendors. The revised Model also requires product-specific training. 


Other things to know

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Sales contests and incentives
Insurers must identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation based on sales of specific annuities within a limited period of time.
Expanded Safe Harbor
The revised Model Regulation’s Safe Harbor includes recommendations made by broker-dealers in compliance with SEC/FINRA rules, or those made by RIAs and plan fiduciaries in accordance with their respective fiduciary duties. 

Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives and/or insurance agents do not provide tax, accounting or legal advice. Please consult an independent professional as to any tax, accounting or legal statements made herein.

For financial professional use only. Not for use with the public.