Key Takeaways
- Arizona adopted the NAIC Suitability in Annuity Transactions Model Regulation requiring producers to act in the consumer's best interest
- Producers must gather complete financial information including income, assets, risk tolerance, and liquidity needs before recommending an annuity
- Documentation of the suitability analysis must be maintained for at least 5 years
- Insurers must establish supervision systems to ensure compliance with suitability requirements
- Producers cannot place their own financial interests ahead of the consumer when making recommendations
Arizona Annuity Suitability Requirements
Arizona has adopted comprehensive annuity suitability regulations based on the NAIC Suitability in Annuity Transactions Model Regulation. These rules protect consumers, particularly seniors, from unsuitable annuity sales.
Best Interest Standard
Effective in Arizona, annuity recommendations must meet a best interest standard:
Core Obligations
| Obligation | Requirement |
|---|---|
| Best Interest | Recommendation must be in consumer's best interest at time of sale |
| No Conflict Priority | Cannot place financial interest ahead of consumer |
| Care Obligation | Exercise reasonable diligence, care, and skill |
| Disclosure Obligation | Disclose material conflicts of interest |
What "Best Interest" Means
The producer must:
- Reasonably believe the recommendation is in the consumer's best interest
- Have a reasonable basis for the recommendation
- Not base recommendation primarily on compensation
- Consider consumer's financial situation, needs, and objectives
Exam Tip: Arizona's best interest standard is higher than the older "suitability" standard. Producers must put the consumer's interest first, not just ensure a product is "suitable."
Required Consumer Information
Before recommending an annuity, the producer must make reasonable efforts to obtain:
Financial Profile
| Category | Information Required |
|---|---|
| Age | Consumer's current age |
| Annual Income | All sources of income |
| Financial Situation | Assets, liabilities, net worth |
| Tax Status | Tax bracket, qualified vs. non-qualified funds |
| Financial Experience | Investment knowledge and experience |
| Financial Objectives | Goals for the annuity purchase |
| Intended Use | Purpose of the annuity funds |
| Time Horizon | Expected duration before needing funds |
| Liquidity Needs | Expected need for access to funds |
| Risk Tolerance | Willingness and ability to accept risk |
| Existing Coverage | Current annuities and life insurance |
Documentation Requirements
Arizona requires thorough documentation of suitability:
What Must Be Documented
- Consumer profile information gathered
- Annuity features and benefits explained
- Comparison with consumer's needs
- Basis for the recommendation
- Any consumer refusal to provide information
Records Retention
| Record Type | Retention Period |
|---|---|
| Suitability analysis | 5 years |
| Consumer disclosures | 5 years |
| Transaction records | 5 years |
| Recommendation documentation | 5 years |
Consumer Refusal to Provide Information
If a consumer refuses to provide required information:
- Producer must document the refusal
- May proceed if consumer signs acknowledgment
- Acknowledgment must state:
- Consumer was advised recommendation may not be in their best interest
- Consumer chose not to provide information
- Consumer takes responsibility for the decision
Sample Documentation Language
"The consumer declined to provide [specific information]. Consumer was advised that without this information, the recommendation may not be in their best interest. Consumer acknowledged this warning and chose to proceed."
Insurer Supervision Requirements
Insurers must establish supervision systems:
Supervision Duties
| Duty | Requirement |
|---|---|
| Policies and Procedures | Written suitability procedures |
| Training | Train producers on suitability requirements |
| Review | Review transactions for compliance |
| Correction | Take corrective action for violations |
| Record Keeping | Maintain supervision records |
Exam Tip: Both the producer AND the insurer have suitability obligations. The insurer must supervise producer compliance and take action if violations occur.
Under Arizona annuity suitability rules, what standard must producers meet when recommending an annuity?
How long must Arizona producers retain annuity suitability documentation?
Which of the following is NOT required consumer information under Arizona annuity suitability rules?
What must a producer do if a consumer refuses to provide required suitability information in Arizona?
Who has responsibility for supervising annuity suitability compliance in Arizona?