Wis. Stat. § 628.347
Best interest in annuity transactions
Redline — January 1, 2007 → current.View current text →
Current — January 1, 2021
As of January 1, 2007
(1) Definitions. In this section:
(a) "Annuity" means a fixed or variable annuity that is individually solicited, whether the product is classified as individual or group.
(b) "Recommendation" means advice provided by an insurance intermediary, or an insurer if no intermediary is involved, to an individual consumer that results in the purchase or exchange of an annuity in accordance with that advice.
(2) Duties of insurers and insurance intermediaries with regard to recommendations.
(a) Except as provided in par. (c) , an insurance intermediary, or insurer if no intermediary is involved, may not recommend to a consumer the purchase or exchange of an annuity if the recommendation results in an insurance transaction or series of insurance transactions unless the intermediary or insurer has reasonable grounds to believe that the recommendation is suitable for the consumer on the basis of facts disclosed by the consumer as to his or her investments, other insurance products, and financial situation and needs.
(b) Before making a recommendation described in par. (a) , an insurance intermediary, or insurer if no intermediary is involved, shall make reasonable efforts to obtain information concerning all of the following:
1. The consumer's financial status.
2. The consumer's tax status.
3. The consumer's investment objectives.
4. Any other information that is reasonably appropriate for determining the suitability of a recommendation to the consumer.
(c) An insurance intermediary, or insurer if no intermediary is involved, has no obligation under par. (a) to a consumer related to a recommendation if the consumer does any of the following:
1. Refuses to provide relevant information requested by the insurer or insurance intermediary.
2. Fails to provide complete or accurate information.
3. Decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance intermediary.
(d) Any recommendation of an insurer or insurance intermediary that, under par. (c) , is not subject to the obligation under par. (a) shall be reasonable under all circumstances actually known to the insurer or insurance intermediary at the time the recommendation is made.
(3) Insurer's supervisory responsibility.
(a) An insurer either shall ensure that a system to supervise recommendations that is reasonably designed to achieve compliance with this section is established and maintained by complying with pars. (c) to (e) , or shall establish and maintain such a system, which shall include at least all of the following:
1. Maintaining written procedures.
2. Conducting periodic reviews of its records that are reasonably designed to assist in detecting and preventing violations of this section.
(b) A general agent or independent agency either shall adopt a system established by an insurer to supervise recommendations of its insurance intermediaries that is reasonably designed to achieve compliance with this section, or shall establish and maintain such a system, which shall include at least all of the following:
1. Maintaining written procedures.
2. Conducting periodic reviews of records that are reasonably designed to assist in detecting and preventing violations of this section.
(c) An insurer may contract with a 3rd party, which may be a general agent or independent agency, to establish and maintain a system of supervision as required under par. (a) with respect to insurance intermediaries under contract with or employed by the 3rd party.
(d) An insurer shall make reasonable inquiry to ensure that any 3rd party with which the insurer contracts under par. (c) is performing the functions required under par. (a) and shall take such action as is reasonable under the circumstances to enforce the contractual obligation to perform the functions. An insurer may comply with its obligation to make reasonable inquiry in all of the following ways:
1. The insurer annually obtains from a senior manager of the 3rd party who has responsibility for the delegated functions a representation that the 3rd party is performing the required functions and that the senior manager has a reasonable basis for making the representation.
2. The insurer, based on reasonable selection criteria, periodically selects 3rd parties contracting under par. (c) for reviews to determine whether the 3rd parties are performing the required functions. The insurer shall perform those procedures to conduct the reviews that are reasonable under the circumstances.
(e) An insurer that contracts with a 3rd party under par. (c) and that complies with the supervisory requirement under par. (d) satisfies its responsibilities under par. (a) as to insurance intermediaries under contract with or employed by the 3rd party.
(f) An insurer is not required under par. (a) , and a general agent or independent agency is not required under par. (b) , to do any of the following:
1. Review, or provide for the review of, all insurance intermediary solicited transactions.
2. Include in its system of supervision an insurance intermediary's recommendations made to consumers of products other than annuities offered by the insurer, general agent, or independent agency.
(g) A general agent or independent agency contracting with an insurer under par. (c) shall promptly, upon request by the insurer under par. (d) , provide a representation as described in par. (d) 1. or give a clear statement that it is unable to meet the representation criteria.
(h) No person may provide a representation under par. (d) 1. unless the person satisfies all of the following:
1. The person is a senior manager with responsibility for the delegated functions.
2. The person has a reasonable basis for making the representation.
(4) National Association of Securities Dealers Conduct Rules. Compliance with the National Association of Securities Dealers Conduct Rules pertaining to suitability satisfies the requirements under sub. (2) for the recommendation of variable annuities. Nothing in this subsection, however, limits the commissioner's ability to enforce this section.
(5) Remedial measures. The commissioner may do any of the following:
(a) Order an insurer to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurer or the insurer's insurance intermediary.
(b) Order an insurance intermediary to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurance intermediary.
(c) Order a general agent or independent agency that employs or contracts with an insurance intermediary to sell, or solicit the sale of, annuities to consumers to take reasonably appropriate corrective action for any consumer harmed by a violation of this section by the insurance intermediary.
(6) Penalties; mitigation.
(a) Any person who violates this section is subject to the penalties provided under s. 601.64 , suspension or revocation of a license or certificate of authority, and an order under s. 601.41 (4) .
(b) A penalty under par. (a) for a violation of sub. (2) (a) , (b) , or (d) , including a forfeiture, may be reduced or eliminated to the extent provided by rule of the commissioner if corrective action is taken for the consumer promptly after the violation is discovered.
(c) The commissioner may promulgate rules related to the reduction or elimination of penalties for violations of this section on the basis of prompt action taken to correct any harm caused to consumers by the violations.
(7) Record keeping. An insurer and an insurance intermediary, including a general agent and an independent agency, shall maintain, or be able to make available to the commissioner, records of the information collected from a consumer and other information used in making a recommendation that was the basis for an insurance transaction for 6 years after the insurance transaction is completed by the insurer, except as otherwise permitted by the commissioner by rule. An insurer may, but is not required to, maintain records on behalf of an insurance intermediary, including a general agent and an independent agency.
(8) Exemptions. This section does not apply to any of the following:
(a) Direct response solicitations in which no recommendation is made based on information collected from the consumer.
(b) Recommendations related to contracts used to fund any of the following:
1. An employee pension or welfare benefit plan that is covered by the federal Employee Retirement and Income Security Act.
2. A plan described in section 401 (a) or (k), 403 (b), or 408 (k) or (p) of the Internal Revenue Code, if the plan is established or maintained by an employer.
3. A government or church plan as defined in section 414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the Internal Revenue Code.
4. A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.
5. A settlement or assumption of liability associated with personal injury litigation or any dispute or claim resolution process.
6. A formal prepaid funeral or burial contract.
(1) Definitions. In this section:
(a) “Annuity" means an annuity that is an insurance product that is individually solicited, whether the product is classified as an individual or group annuity.
(ac) “Cash compensation” means any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received in connection with the recommendation or sale of an annuity by an insurance intermediary from an insurer or other insurance intermediary or directly from the consumer.
(ae) “Comparable standards” means:
1. With respect to broker-dealers and registered representatives of broker-dealers, the applicable rules of the federal securities and exchange commission and FINRA pertaining to best interest obligations and supervision of annuity recommendations and sales, including Regulation Best Interest and any amendments or successor regulations thereto.
2. With respect to investment advisers registered under federal or state securities law and investment adviser representatives, the fiduciary duties and other requirements imposed on the investment adviser or investment adviser representative by contract or under the Investment Advisers Act of 1940 or applicable state securities law, including the federal form ADV and applicable interpretations.
3. With respect to plan fiduciaries and fiduciaries described in par. (ak) 3. , the duties, obligations, prohibitions, and other requirements attendant to such status under the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code.
(ag) “Consumer profile information" means information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs, and financial objectives, including all of the following:
1. Age.
2. Annual income.
3. Financial situation and needs, including debts and other obligations.
4. Financial experience.
5. Financial objectives.
6. Intended use of the annuity.
7. Financial time horizon.
8. Existing assets and financial products, including investment, annuity, and insurance holdings.
9. Liquidity needs.
10. Liquid net worth.
11. Risk tolerance, including willingness to accept non-guaranteed elements in the annuity.
12. Tax status.
13. Insurance needs.
14. Financial resources used to fund the annuity.
(ak) “Financial professional” means an insurance intermediary who is regulated and acting as any of the following:
1. A broker-dealer registered under federal or state securities law or a registered representative of such a broker-dealer.
2. An investment adviser registered under federal or state securities law or an investment adviser representative associated with such an investment adviser.
3. A plan fiduciary, as defined in 29 USC 1002 (21), or a fiduciary, as defined in section 4975 (e) (3) of the Internal Revenue Code.
(am) “FINRA" means the Financial Industry Regulatory Authority or a succeeding agency.
(ar) “Material conflict of interest” means a financial interest of an insurance intermediary in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation, but does not include cash compensation or noncash compensation.
(aw) “Noncash compensation” means any form of compensation that is not cash compensation, including health insurance, office rent, office support, and retirement benefits.
(ax) “Non-guaranteed elements” means the premiums, credited interest rates, benefits, values, dividends, noninterest based credits, and charges, along with the elements of formulas used to determine any of these items, that are subject to company discretion and are not guaranteed at issue. An element is a non-guaranteed element if any non-guaranteed elements are used in its calculation. For purposes of this subsection, credited interest rates include any bonus.
(b) “Recommendation" means advice provided by an insurance intermediary, or an insurer if no intermediary is involved, to an individual consumer that results in, or was intended to result in, the purchase, exchange, or replacement of an annuity in accordance with that advice, except that “recommendation” does not include general communication to the public, generalized customer service assistance or administrative support, general educational information and tools, prospectuses, and other product and sales materials.
(d) “Replacement" means a transaction in which a new annuity is to be purchased and it is known, or should be known to the proposing insurance intermediary, or to the proposing insurer if no intermediary is involved, that by reason of the transaction an existing policy or contract has been or is to be any of the following:
1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.
2. Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
3. Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would otherwise be paid.
4. Reissued with a reduction in cash value.
5. Used in a financed purchase.
(2) Best interest obligations.
(a) When making a recommendation of an annuity, an insurance intermediary shall 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 intermediary or insurer ahead of the consumer's interest. An insurance intermediary has acted in the best interest of the consumer if the intermediary has satisfied the care obligation under sub. (2b) , the disclosure obligation under sub. (2c) , the conflict of interest obligation under sub. (2d) , and the documentation obligation under sub. (2e) . The requirements under this subsection and subs. (2b) to (2e) create only a regulatory obligation and do not create a fiduciary obligation or relationship.
(b) Any requirement applicable to an insurance intermediary under this subsection shall apply to every insurance intermediary who exercises material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the intermediary has any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and conducting general supervision of an insurance intermediary do not, in and of themselves, constitute material control or influence.
(2b) Care obligation.
(a) In making a recommendation, an insurance intermediary shall exercise reasonable diligence, care, and skill to do all of the following:
1. Know the consumer's financial situation, insurance needs, and financial objectives.
2. Understand the available recommendation options after making a reasonable inquiry into the options available to the intermediary.
3. Have a reasonable basis to believe the recommended option effectively addresses the consumer's financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information.
4. Communicate the basis or bases of the recommendation to the consumer.
(b) The requirements imposed on an insurance intermediary under par. (a) include all of the following:
1. Having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization, a death or living benefit, or other insurance-related features.
2. Making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation.
3. Considering the types of products the intermediary is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs, and financial objectives. Nothing in this subdivision requires analysis or consideration of products outside the authority and license of the intermediary or other possible alternative products or strategies available in the market at the time of the recommendation. Under this subdivision, an intermediary shall be held to standards applicable to intermediaries with similar authority and licensure.
(be) If consumer profile information is obtained by an insurance intermediary, the insurance intermediary may not conceal the information from the insurer, and an insurance intermediary may not otherwise dissuade or attempt to dissuade the consumer from providing the information.
(c) The requirements under this subsection shall apply to the annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and any riders and similar product enhancements.
(d) The factors generally relevant in determining under this subsection whether an annuity effectively addresses the consumer's financial situation, insurance needs, and financial objectives shall be the consumer profile information, characteristics of the insurer, and product costs, rates, benefits and features. The level of importance of each factor may vary depending on the facts and circumstances of a particular case, and no factor may be considered in isolation.
(e) Nothing in this subsection requires that an annuity with the lowest onetime or multiple occurrence compensation structure be recommended.
(f) Nothing in this subsection requires that the insurance intermediary have an ongoing monitoring obligation, although such obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and intermediary.
(g) In the case of an exchange or replacement of an annuity, the insurance intermediary shall consider the whole transaction, which includes taking into consideration all of the following:
1. Whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, including death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements.
2. Whether the replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product.
3. Whether the consumer has had another annuity exchange or replacement, particularly within the preceding 60 months.
Official source: Wisconsin State Legislature. Reproduced from public-domain Wisconsin statutes; confirm against the official source for the current text. Not legal advice.