Key Takeaways
- Texas adopted comprehensive annuity suitability requirements under 28 TAC Chapter 3
- Producers must act in the best interest of the consumer when recommending annuities
- A thorough suitability analysis must be completed and documented before any annuity sale
- Texas requires disclosure of compensation and conflicts of interest
- Insurers must maintain supervision systems to ensure producer compliance
Texas Annuity Suitability Requirements
Texas has adopted comprehensive annuity suitability regulations under 28 TAC Chapter 3 to protect consumers from unsuitable annuity sales.
Best Interest Standard
Texas requires producers to act in the best interest of the consumer:
Core Obligations
| Obligation | Description |
|---|---|
| Care | Exercise reasonable diligence, care, and skill |
| Disclosure | Provide material information to consumer |
| Conflict Management | Identify and manage conflicts of interest |
| Documentation | Maintain records of suitability analysis |
Best Interest Definition
Under Texas rules, best interest means:
- Recommendation reflects consumer's suitability information
- Producer has reasonable basis to believe consumer will benefit
- Producer's compensation does not drive recommendation
- All material information is disclosed
Exam Tip: Texas's best interest standard means producers cannot prioritize commissions over consumer needs. Know this distinction.
Required Suitability Information
Before recommending an annuity, producers must obtain:
Consumer Profile Categories
-
Financial Situation
- Annual income
- Assets and liabilities
- Financial needs and objectives
-
Tax Status
- Current tax bracket
- Qualified vs. non-qualified funds
-
Investment Profile
- Investment objectives
- Investment experience
- Investment time horizon
-
Risk Tolerance
- Risk tolerance level
- Liquidity needs
- Existing insurance products
Producer Responsibilities
Reasonable Basis Requirement
Producers must have reasonable grounds to believe:
| Factor | Analysis Required |
|---|---|
| Consumer Benefit | Consumer benefits from product features |
| Product Match | Annuity matches stated objectives |
| Alternative Analysis | Other options were considered |
| Surrender Appropriateness | Consumer can afford surrender period |
Replacement Analysis
When replacing an existing annuity or life insurance:
- Compare benefits of existing and new products
- Evaluate surrender charges on existing contract
- Consider new surrender charge period
- Document why replacement benefits consumer
- Consider tax consequences of replacement
Documentation Requirements
Texas requires producers to document:
- Consumer information gathered
- Analysis of consumer's financial situation
- Basis for the recommendation
- Why the annuity meets consumer's needs
- Alternatives considered
Insurer Supervision
Required Supervision Systems
| Requirement | Description |
|---|---|
| Written Procedures | Compliance procedures required |
| Training | Producer training on requirements |
| Transaction Review | Review annuity recommendations |
| Corrective Action | Address deficiencies |
Safe Harbor
Insurers receive a safe harbor if they:
- Maintain adequate supervision procedures
- Have no reason to know of unsuitable sales
- Conduct compliance reviews
- Take corrective action when needed
Exam Tip: Both producers AND insurers have compliance responsibilities under Texas law.
What standard must Texas producers meet when recommending annuities?
Which of the following is NOT required when gathering suitability information in Texas?
What must Texas insurers establish to comply with annuity suitability rules?
When recommending an annuity replacement in Texas, what must a producer document?
A Texas producer recommends an annuity primarily because it pays the highest commission. This is: