The cost of ignoring annuity training compliance

Confusion over annuity training requirements can leave producers scrambling.

By Bill Wienhoff

Diontae was excited to close his first annuity sale in months, and it was a large contract. But the application was returned by the carrier because he was not in compliance with the new annuity training requirement in the consumer’s resident state.

He quickly completed the required training and contacted the consumer to get a redated application signed, but he wasted time in the process that cost him other potential sales. And what if the client had refused to sign the redated app?

Confusion over annuity training requirements has caused far too many similar scenarios. Let’s quickly review the problem.

In the name of protecting consumer interests, and perhaps with an eye toward preventing the Financial Industry Regulatory Authority from increased federal oversight of state-based industry control, the National Association of Insurance Commissioners has released two updates to its annuity model within the last 12 years.

The 2010 Suitability in Annuities Regulation ushered in a new era of mandatory training for annuity producers. Eventually adopted by 43 states, it required producers to complete a four-hour course addressing specific annuity topics and issues related to suitability, that is, a product as appropriate for the consumer’s financial situation, as documented by required notices and disclosures. In addition, insurers were required to prove that their producers had completed the fourhour course and had received training on represented products.

State implementations provided a grace period of six or 12 months for currently licensed producers to get compliant, while new producers were required to complete training before representing annuity products. Continuing education credits were not required, with isolated exceptions, and while new products required producers to keep up with insurer product training, the four-hour course was a once-and-done.

And with only a few states varying from the NAIC boilerplate, such as requiring courses to be exactly four hours in length or for producers to complete the training in their resident state, reciprocity was broad and compliance fairly straightforward.

Ten years later, the fiduciary rule adopted in 2016 by the Obama administration had been voided by court ruling, but its strengthened standard of ensuring not only that products sold were suitable but also were in the client’s best interest, had taken hold.

As several states, most notably New York, moved forward with their own version of a best interest rule, the NAIC updated the suitability regulation to the best interest standard in 2020, codifying a series of producer behaviors that support the goal of ensuring annuities sold are in the consumer’s best interest, again supported by required documentation and disclosures.

Adoption by states was slow at first, considering everything else that was going on in 2020, but picked up steam in 2021. As of this writing, a total of 32 states have announced or implemented new best interest regulations, including two (Arkansas and New Mexico) that never adopted the suitability regulation. staggered basis; and, of course, continue to manage insurer product training.

The 2020 update to the Suitability in Annuities Regulation, like the original, also contains a four-hour training course and retained the insurer’s verification of the state training and product training requirements of its predecessor. The former suitability content was replaced by the best interest behaviors, although the remaining required content didn’t change.

This left many producers scrambling to produce proof of four-hour suitability course completion, verifying which course providers their carriers would accept certificates from and deciphering differences in how individual carriers decided to apply the rules.

For example, most carriers recognize best interest course completions as reciprocal to suitability states — but not returned by the home office, a disastrous outcome that may require getting a redated app signed after you take required training, and to potentially losing the business entirely. So it’s important to be proactive about your training compliance status.

• Types and classifications of annuities.

• Identification of the parties to an annuity.

As a producer, how can you best navigate this potential minefield, especially if you sell annuities in multiple states? Although it is the carrier’s responsibility to verify to the state that you are in

• How product-specific annuity contract features affect the consumer.

• Application of income taxation of qualified and nonqualified annuities.

• Primary uses of annuities.

• Appropriate standard of conduct, sales practices, replacement and disclosure requirements.

The grace period

Recognizing that existing producers previously completed three-fourths of the training, the updated regulation allowed them to complete a one-hour best interest update course during a sixmonth grace period, while new producers and those who failed to complete the course during the grace period were required to take a four-hour best interest course. Some states allowed best interest training to be completed prior to the effective date marking the start of the grace period, but others did not.

This meant that insurers had to prove that existing producers took the original four-hour suitability course and completed the one-hour course during a state’s grace period window; decide whether four-hour best interest courses satisfied the requirement in states that still followed the original suitability regulation; determine how to manage reciprocity as states implemented the requirement on a all. To ease their administration of the rule, some carriers require producers to take training from a designated firm, even if they previously completed training from another company.

“Training Acknowledgement” forms issued by some firms in place of statebased training certificates — fairly common since multistate licensed producers often completed training in a nonresident state if it implemented before their resident state — are acceptable to some carriers but not others.

And while Pennsylvania allows newly licensed producers until the end of their first full licensing term to complete the 4-hour best interest course, every other state requires the course to be completed before representing the product.

Be proactive

Since the carrier is responsible for verifying your compliance, any misstep on your part could lead to business being compliance with mandatory annuity training, it’s in your best interest to make this as easy as possible. Here are some proven ways to ensure that your training compliance status doesn’t interfere with your business product.

» Know the rules in your licensed state(s) — Many national training providers and licensing administration companies publish state-by-state annuity training rules. But it’s important to ensure that the carrier you are placing business with applies the rules the same way. So, if at all possible, get a copy of the rules directly from your carriers. Take careful note of any differences if you represent annuities for more than one, as well as any rule variations between states you sell in.

» Choose your course carefully — Not every four-hour annuity course will satisfy the requirement. Many states have set up a best interest or annuity course category to help producers find courses that were approved for meeting the requirement, but carriers may require that you take training from a specific list of vendors. Doing your homework on state rules and course choice can minimize the amount of training you take and prevent problems down the road.

» Be sure to get a state-based certificate — Even if you have to pay for continuing education credits you don’t need to get one. Training acknowledgement printouts that don’t include your license or National Producer Number or indicate the state in which credit was earned will be rejected by some carriers. And if you can’t find your certificate later, you’ll be able to pull your completion record from your state-authorized transcript.

» Don’t opt out of third-party reporting if offered by your training vendor — You may unwittingly prevent your carrier from independently validating your status and slow the processing of your business.

» Locate and safely archive copies of course certificates — Yes, we live in a digital age, and both annuity regulations allow for digital reporting of course completion data. But as many producers learned, finding a suitability certificate 10 years later may be impossible; many training companies only offer replacement certificates for recently completed courses. Digitize paper copies and archive them somewhere safe, ideally in the cloud. And remember where you put them!

» Include copies of your course certificates when you turn in business to the home office — They probably won’t need them, but you’re demonstrating that you understand and have complied with the training requirement for the business state.

Bill Wienhoff is the founder and president of ClearCert. He may be contacted at bill.wienhoff@innfeedback.com.

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