Annuity Suitability Training FAQ
Public Act 544 expanded suitability requirements for annuity sales. The Act requires a producer who engages in the sale of annuities to complete a one-time 4-hour annuity education course by December 1, 2013. Insurers are responsible to provide product-specific training and training materials that explain all material features of annuity products to their producers. Insurers shall verify that their producers have completed the annuity training course before allowing the producer to sell an annuity for that insurer.
In addition to requiring insurers to provide product-specific training to their producers, a number of new suitability factors were added. These include age, annual income, financial situation, financial experience, financial objectives, financial time horizon, existing assets, liquidity needs, liquid net worth, risk tolerance and tax status. The reasonability of a recommended annuity purchase must be based on these factors. In addition, for an exchange or replacement annuity, the producer must also take into consideration any surrender charge or the beginning of a new surrender period, loss of existing benefits, investment advisory fees, the belief that the consumer would benefit from product enhancements or whether the product had been replaced or exchanged in the preceding 36 months.
- What are the new requirements for insurance producers to sell annuity products in Michigan?
Effective June 1, 2013, all producers currently licensed for Life who engage in the sale of annuities, must complete a one-time 4-hour annuity training course provided by a Michigan approved Continuing Education (CE) provider by December 1, 2013. Individuals who become licensed for Life on or after June 1, 2013, cannot engage in the sale of annuities until they have completed a one-time 4-hour annuity training course by a Michigan approved Continuing Education (CE) provider.
- Does the annuity training only apply to resident producers?
- The one-time 4-hour training requirement applies to all producers, whether resident or non-resident. However, non-resident producers whose resident licenses are from states with annuity licensing requirements substantially similar to Michigan's do not have to take an additional 4-hour course to engage in the sale of annuities.
- Does the annuity training apply to producers registered with the Financial Industry Regulatory Authority (FINRA)?
Yes, producers registered with FINRA who engage in the sale of annuities must complete a one-time 4-hour training course as required under Public Act 544. Producers selling, soliciting or negotiating variable life and variable annuity (VA) products are required to be licensed with the VA line of authority and be registered with FINRA.
- Is the annuity training requirement a continuing education (CE) requirement?
No, this is a training requirement for selling an annuity product. Resident producers, who take the 4-hour credit course, may use the credits to satisfy their overall CE requirements. The annuity training course must be submitted by a CE provider and be in compliance with the rules and guidelines applicable to a CE course as provided in Chapter 12 of the Insurance Code. The annuity training course may be conducted and completed by classroom or self-study methods in accordance with requirements of Chapter 12 of the Insurance Code.
- If I complete an annuity training course before the effective date of Public Act 544, will it be accepted as meeting the requirements of the Act?
Yes, the Department of Insurance and Financial Services (DIFS) will accept a CE course completed prior to June 1, 2013, provided that the CE course was consistent with the NAIC Suitability in Annuity Transactions Model Regulation.
- Does a producer need to keep a certificate of completion of the training course?
Yes, the producer may be asked by the insurer to provide a certificate of completion of the training course in order to satisfy the insurer's responsibility under this regulation to obtain the certificate of completion or to obtain reports from Commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved CE providers. The Michigan DIFS will not track the training course completions for producers. It is the insurer's responsibility to verify the producer has completed the training.
- What topics must be covered by an annuity training course?
The topics are set out in Public Act 544 and shall include information on all of the following:
- The types of annuities and various classifications of annuities.
- Identification of the parties to an annuity.
- How fixed, variable, and indexed annuity contract provisions affect consumers.
- The income taxation of qualified and nonqualified annuities.
- The primary uses of annuities.
- Appropriate sales practices and replacement and disclosure requirements.
- The annuity training shall cover all topics and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to the topics under Public Act 544.
- Where can I find an approved annuity training CE course?
DIFS posts this information in a searchable format on the Continuing Education Providers and Courses webpage. Choose Life/Health as Course Type Approved Annuities courses that meet the training requirements in Public Act 544 will display as Annuities in the column heading Short Desc Type.
The answers provided are not meant to be a substitute for legal advice.