Fiduciary Duty Development

  • On December 27, 2017, the New York Department of Financial Services (NYDFS) proposed new consumer protections in life insurance sales that would adopt a “best interest” standard for sellers of life insurance and annuity products
  • The Proposal would expand the applicability of the existing suitability regulation to include insurance producers, life insurance policies, and in-force policies/contracts. It applies to policies/contracts delivered or issued for delivery in New York
  • In recommended a transaction an insurer would need reasonable grounds for believing the recommendation is suitable for the consumer
  • The Proposal does not change the existing suitability rule’s exemptions except to expand them, along with the overall change in scope, to include life insurance policies used for any of the exempted purposes
  • Thus, the regulation would continue to exempt policies/contracts used to fund qualified retirement plans, ERISA plans, and employer-sponsored IRAs
  • The Proposal also would not apply to sales of mutual funds or other securities, unless related to an annuity or life insurance product

Sources

Drinker Biddle Blog Post on Proposed Regulation
New York State Department of Financial Services Proposed Rule

  • On May 8, 2018, the New York assembly reported out of Committee A.2464, (preliminarily entitled The Investment Transparency Act) a bill aimed at “mandating greater levels of disclosures by nonfiduciaries that provide investment advice”
  • This would be accomplished through amending several sections of the general obligations law.
  • Investment advisors not currently subject to a fiduciary standard would be required, at the outset of the client relationship, to specifically disclose to clients, orally and in writing, that they are not fiduciaries
  • The specific disclosure must state: “I am not a fiduciary. Therefore, I am not required to act in your best interest, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you”
  • Investment advisors that the bill specifically requires to make this disclosure include: “brokers,” “dealers” “financial advisors,” “retirement planners,” or any advisor whose title would suggest expertise in financial planning, retirement planning or investments

Sources

The Investment Transparency Act