The New York State Department of Financial Services ("DFS") has proposed a "best interest" standard for those licensed to sell life insurance and annuity products – a new requirement that would require that the product that best reflects the customer's interest be offered ahead of what is most profitable to the seller.

The proposed amendments to New York's current suitability regulation would provide for a best interest standard of care for all sales of life insurance and annuity products, including both in the specific context of retirement planning and when recommendations are made prior to the sale of an insurance product or after the sale but during the servicing of the product for the consumer. Under the proposal, a transaction would be considered in the best interest of a consumer when it was in furtherance of a consumer's needs and objectives and was recommended to the consumer without regard to the financial interest of the product seller. Insurers also would be required to develop and maintain procedures to prevent financial exploitation of consumers.

The proposal supplements existing requirements that already exist in New York, including reasonable limits on compensation and compensation transparency for the sale of a life insurance or annuity product in New York State.

The proposal is subject to a 60-day notice and public comment period following publication in the New York State Register before its final issuance.

"As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field," Governor Andrew M. Cuomo said. "With these commonsense reforms we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products."

The DFS superintendent, Maria Vullo, said, "Consumers who purchase life insurance and annuity products deserve to have financial services providers act in their best interest when providing advice. Given the key role insurance products play in providing financial security to middle class New Yorkers, it is essential that a provider adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer's best interests."

The U.S. Department of Labor Conflict of Interest Rule, which expands the definition of investment advice under the federal Employee Retirement Income Security Act of 1974 ("ERISA"), applies to certain annuity and life insurance sales and requires financial advisors to adhere to enhanced standards of conduct. The DOL, however, has promulgated a regulation that delays the implementation of certain components of its fiduciary duty regulation until July 1, 2019.