2021 - 2022 LEGISLATURE
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2021 ASSEMBLY BILL 654
October 25, 2021 - Introduced by Representatives PETERSEN, MAGNAFICI, DITTRICH,
DOYLE, ALLEN, MACCO, HESSELBEIN, TUSLER and PETRYK, cosponsored by
Senators STAFSHOLT, FEYEN and BALLWEG. Referred to Committee on
Insurance.
1 AN ACT to renumber and amend 628.347 (1) (e); to amend 628.347 (title),
2 628.347 (1) (b), 628.347 (3) (a) 4., 628.347 (3) (a) 5., 628.347 (3) (c), 628.347 (3m)
3 (a) and 628.347 (4m) (b) 3. f.; to repeal and recreate 628.347 (2) and 628.347
4 (4); and to create 628.347 (1) (ac), 628.347 (1) (ae), 628.347 (1) (ag) 13. and 14.,
5 628.347 (1) (ak), 628.347 (1) (ar), 628.347 (1) (aw), 628.347 (1) (ax), 628.347 (2b),
6 628.347 (2c), 628.347 (2d), 628.347 (2e), 628.347 (3) (a) 7., 8. and 9., 628.347 (3)
7 (am), 628.347 (4m) (b) 10., 628.347 (4m) (b) 11. and 628.347 (9) and (10) of the
8 statutes; relating to: best interest in annuity transactions.
Analysis by the Legislative Reference Bureau
Under current law, before an insurance agent, or insurer if no agent is involved,
can advise a prospective buyer to buy an annuity product, the agent or insurer must
have reasonable grounds to believe that the recommendation is not unsuitable for
the buyer. This bill modifies the existing suitability requirement based on a model
regulation of the National Association of Insurance Commissioners.
Under the bill, rather than using the suitability framework provided under
current law, an insurance agent must act in the best interest of the consumer under
the circumstances known at the time the recommendation is made, without placing
the financial interest of the agent or insurer ahead of the consumer's interest. The
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ASSEMBLY BILL 654
bill provides that an agent acts in the consumer's best interest if the agent satisfies
obligations regarding care, disclosure, conflict of interest, and documentation.
Under the bill's care obligation, the agent must exercise reasonable diligence,
care, and skill in making a recommendation, which includes knowing the consumer's
financial situation, insurance needs, and financial objectives, understanding the
available options, having a reasonable basis to believe the recommended option
effectively addresses the consumer's financial situation, insurance needs, and
financial objectives, and communicating the basis of the recommendation to the
consumer. The bill requires the agent to have a reasonable basis to believe the
consumer will benefit from the annuity's features, make reasonable efforts to obtain
the consumer's profile information, and consider the types of products the agent is
authorized and licensed to recommend or sell that address the consumer's financial
situation, insurance needs, and financial objectives.
Under the bill's disclosure obligation, the agent must, prior to the
recommendation or sale, prominently disclose to the consumer a description of the
agent's relationship with the consumer and role in the transaction, a statement on
whether the agent is licensed and authorized to sell annuities and other products,
a statement describing the insurers for which the agent is authorized to sell
products, a description of the cash and noncash compensation to be received by the
agent, and notice of the consumer's right to request additional information regarding
cash compensation. The bill also requires that the agent disclose, upon request of
the consumer or designee, a reasonable estimate of the amount of cash compensation
to be received and whether the compensation is a one-time or multiple occurrence
amount. Additionally, the bill requires that the agent, prior to or at the time of the
recommendation or sale, have a reasonable basis to believe that the consumer has
been informed of various features of the annuity.
Under the bill's conflict of interest obligation, the agent must identify and avoid
or reasonably manage and disclose material conflicts of interest, including material
conflicts related to an ownership interest.
Under the bill's documentation obligation, the agent must, at the time of
making a recommendation or sale, make a written record of any recommendation
and the basis for it, obtain a signed statement from the consumer regarding the
failure to provide profile information, and obtain a signed statement from the
consumer that acknowledges an annuity transaction is not recommended if the
consumer decides to enter into a transaction that is not based on the agent's
recommendation.
The bill also provides that an insurer may not issue an annuity recommended
to a consumer unless there is a reasonable basis to believe the annuity will effectively
address the consumer's financial situation, insurance needs, and financial objectives
based on the consumer's profile information. The bill also requires that insurers
establish and maintain reasonable procedures to assess whether agents have
provided consumers with the information required to be provided under the bill, to
identify and address suspicious refusals by consumers to provide profile information,
and to identify and eliminate contests, quotas, bonuses, and noncash compensation
that are based on the sales of specific annuities within a limited time period.
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ASSEMBLY BILL 654
The bill provides that recommendations and sales of annuities made in
compliance with comparable standards, such as those under federal and state
securities laws, satisfy the bill's requirements if the insurer satisfies certain
conditions. Under current law, this standard is limited to requirements of the
Financial Industry Regulatory Authority pertaining to suitability and supervision
of annuity transactions.
Under the bill, insurance agents are required to, within six months of the bill's
effective date, take a four credit training course approved by the commissioner of
insurance or an additional one credit course provided by an education provider that
is approved by the commissioner.
These provisions do not create or imply a private cause of action for a violation
of the requirements or subject an insurance intermediary or insurer to civil liability
under the best interest standard of care or fiduciary standards. The provisions also
do not require an insurance intermediary to obtain any additional licensure.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
1 SECTION 1. 628.347 (title) of the statutes is amended to read:
2 628.347 (title) Suitability Best interest in annuity transactions.
3 SECTION 2. 628.347 (1) (ac) of the statutes is created to read:
4 628.347 (1) (ac) “Cash compensation” means any discount, concession, fee,
5 service fee, commission, sales charge, loan, override, or cash benefit received in
6 connection with the recommendation or sale of an annuity by an insurance
7 intermediary from an insurer or other insurance intermediary or directly from the
8 consumer.
9 SECTION 3. 628.347 (1) (ae) of the statutes is created to read:
10 628.347 (1) (ae) “Comparable standards” means:
11 1. With respect to broker-dealers and registered representatives of
12 broker-dealers, the applicable rules of the federal securities and exchange
13 commission and FINRA pertaining to best interest obligations and supervision of
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ASSEMBLY BILL 654 SECTION 3
1 annuity recommendations and sales, including Regulation Best Interest and any
2 amendments or successor regulations thereto.
3 2. With respect to investment advisers registered under federal or state
4 securities law and investment adviser representatives, the fiduciary duties and
5 other requirements imposed on the investment adviser or investment adviser
6 representative by contract or under the Investment Advisers Act of 1940 or
7 applicable state securities law, including the federal form ADV and applicable
8 interpretations.
9 3. With respect to plan fiduciaries and fiduciaries described in par. (ak) 3., the
10 duties, obligations, prohibitions, and other requirements attendant to such status
11 under the Employee Retirement Income Security Act of 1974 or the Internal Revenue
12 Code.
13 SECTION 4. 628.347 (1) (ag) 13. and 14. of the statutes are created to read:
14 628.347 (1) (ag) 13. Insurance needs.
15 14. Financial resources used to fund the annuity.
16 SECTION 5. 628.347 (1) (ak) of the statutes is created to read:
17 628.347 (1) (ak) “Financial professional” means an insurance intermediary
18 who is regulated and acting as any of the following:
19 1. A broker-dealer registered under federal or state securities law or a
20 registered representative of such a broker-dealer.
21 2. An investment adviser registered under federal or state securities law or an
22 investment adviser representative associated with such an investment adviser.
23 3. A plan fiduciary, as defined in 29 USC 1002 (21), or a fiduciary, as defined
24 in section 4975 (e) (3) of the Internal Revenue Code.
25 SECTION 6. 628.347 (1) (ar) of the statutes is created to read:
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1 628.347 (1) (ar) “Material conflict of interest” means a financial interest of an
2 insurance intermediary in the sale of an annuity that a reasonable person would
3 expect to influence the impartiality of a recommendation, but does not include cash
4 compensation or noncash compensation.
5 SECTION 7. 628.347 (1) (aw) of the statutes is created to read:
6 628.347 (1) (aw) “Noncash compensation” means any form of compensation
7 that is not cash compensation, including health insurance, office rent, office support,
8 and retirement benefits.
9 SECTION 8. 628.347 (1) (ax) of the statutes is created to read:
10 628.347 (1) (ax) “Non-guaranteed elements” means the premiums, credited
11 interest rates, benefits, values, dividends, noninterest based credits, and charges,
12 along with the elements of formulas used to determine any of these items, that are
13 subject to company discretion and are not guaranteed at issue. An element is a
14 non-guaranteed element if any non-guaranteed elements are used in its calculation.
15 For purposes of this subsection, credited interest rates include any bonus.
16 SECTION 9. 628.347 (1) (b) of the statutes is amended to read:
17 628.347 (1) (b) “Recommendation" means advice provided by an insurance
18 intermediary, or an insurer if no intermediary is involved, to an individual consumer
19 that results in, or was intended to result in, the purchase, exchange, or replacement
20 of an annuity in accordance with that advice, except that “recommendation” does not
21 include general communication to the public, generalized customer service
22 assistance or administrative support, general educational information and tools,
23 prospectuses, and other product and sales materials.
24 SECTION 10. 628.347 (1) (e) of the statutes is renumbered 628.347 (1) (ag), and
25 628.347 (1) (ag) (intro.), 3., 8. and 11., as renumbered, are amended to read:
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ASSEMBLY BILL 654 SECTION 10
1 628.347 (1) (ag) (intro.) “Suitability Consumer profile information" means
2 information that is reasonably appropriate to determine the suitability of whether
3 a recommendation addresses the consumer's financial situation, insurance needs,
4 and financial objectives, including all of the following:
5 3. Financial situation and needs, including the financial resources used for the
6 funding of the annuity debts and other obligations.
7 8. Existing assets and financial products, including investment, annuity, and
8 life insurance holdings.
9 11. Risk tolerance, including willingness to accept non-guaranteed elements
10 in the annuity.
11 SECTION 11. 628.347 (2) of the statutes is repealed and recreated to read:
12 628.347 (2) BEST INTEREST OBLIGATIONS. (a) When making a recommendation
13 of an annuity, an insurance intermediary shall act in the best interest of the
14 consumer under the circumstances known at the time the recommendation is made,
15 without placing the financial interest of the intermediary or insurer ahead of the
16 consumer's interest. An insurance intermediary has acted in the best interest of the
17 consumer if the intermediary has satisfied the care obligation under sub. (2b), the
18 disclosure obligation under sub. (2c), the conflict of interest obligation under sub.
19 (2d), and the documentation obligation under sub. (2e). The requirements under this
20 subsection and subs. (2b) to (2e) create only a regulatory obligation and do not create
21 a fiduciary obligation or relationship.
22 (b) Any requirement applicable to an insurance intermediary under this
23 subsection shall apply to every insurance intermediary who exercises material
24 control or influence in the making of a recommendation and has received direct
25 compensation as a result of the recommendation or sale, regardless of whether the
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1 intermediary has any direct contact with the consumer. Activities such as providing
2 or delivering marketing or educational materials, product wholesaling or other back
3 office product support, and conducting general supervision of an insurance
4 intermediary do not, in and of themselves, constitute material control or influence.
5 SECTION 12. 628.347 (2b) of the statutes is created to read:
6 628.347 (2b) CARE OBLIGATION. (a) In making a recommendation, an insurance
7 intermediary shall exercise reasonable diligence, care, and skill to do all of the
8 following:
9 1. Know the consumer's financial situation, insurance needs, and financial
10 objectives.
11 2. Understand the available recommendation options after making a
12 reasonable inquiry into the options available to the intermediary.
13 3. Have a reasonable basis to believe the recommended option effectively
14 addresses the consumer's financial situation, insurance needs, and financial
15 objectives over the life of the product, as evaluated in light of the consumer profile
16 information.
17 4. Communicate the basis or bases of the recommendation to the consumer.
18 (b) The requirements imposed on an insurance intermediary under par. (a)
19 include all of the following:
20 1. Having a reasonable basis to believe the consumer would benefit from
21 certain features of the annuity, such as tax-deferred growth, annuitization, a death
22 or living benefit, or other insurance-related features.
23 2. Making reasonable efforts to obtain consumer profile information from the
24 consumer prior to the recommendation.
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1 3. Considering the types of products the intermediary is authorized and
2 licensed to recommend or sell that address the consumer's financial situation,
3 insurance needs, and financial objectives. Nothing in this subdivision requires
4 analysis or consideration of products outside the authority and license of the
5 intermediary or other possible alternative products or strategies available in the
6 market at the time of the recommendation. Under this subdivision, an intermediary
7 shall be held to standards applicable to intermediaries with similar authority and
8 licensure.
9 (be) If consumer profile information is obtained by an insurance intermediary,
10 the insurance intermediary may not conceal the information from the insurer, and
11 an insurance intermediary may not otherwise dissuade or attempt to dissuade the
12 consumer from providing the information.
13 (c) The requirements under this subsection shall apply to the annuity as a
14 whole, the underlying subaccounts to which funds are allocated at the time of
15 purchase or exchange of the annuity, and any riders and similar product
16 enhancements.
17 (d) The factors generally relevant in determining under this subsection
18 whether an annuity effectively addresses the consumer's financial situation,
19 insurance needs, and financial objectives shall be the consumer profile information,
20 characteristics of the insurer, and product costs, rates, benefits and features. The
21 level of importance of ea