(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.
(h)
1. Subject to subd. 2., an insurance intermediary shall have no obligation to a consumer under this subsection if any of the following applies:
a. The intermediary made no recommendation.
b. The intermediary made a recommendation that is later found to have been prepared based on inaccurate material information provided by the consumer.
c. The consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended.
d. The consumer decides to enter into an annuity transaction that is not based on a recommendation made by the intermediary.
2. An insurer’s issuance of an annuity under the circumstances specified in subd. 1. a. to d. shall be reasonable under all circumstances actually known to the insurer at the time the annuity is issued.
(2c) Disclosure obligation.
(a) Prior to the recommendation or sale of an annuity, an insurance intermediary shall prominently disclose to the consumer, on a form substantially similar to Appendix A of the National Association of Insurance Commissioners Annuity Suitability Model Regulation that shall be posted on the office’s Internet site, all of the following information:
1. A description of the scope and terms of the intermediary’s relationship with the consumer and the role of the intermediary in the transaction.
2. An affirmative statement on whether the intermediary is licensed and authorized to sell fixed annuities, fixed indexed annuities, variable annuities, life insurance, mutual funds, stocks, bonds, and certificates of deposit.
3. An affirmative statement describing the insurers for which the intermediary is authorized, contracted, appointed, or otherwise able to sell insurance products, using whichever of the following descriptions is appropriate:
a. From one insurer.
b. From 2 or more insurers.
c. From 2 or more insurers although primarily contracted with one insurer.
4. A description of the sources and types of cash compensation and noncash compensation to be received by the intermediary, including whether the intermediary is to be compensated for the sale of a recommended annuity by commission as part of a premium or other remuneration received from the insurer or another intermediary, or by fee as a result of a contract for advice or consulting services.
5. A notice of the consumer’s right to request additional information regarding cash compensation.
(b) Upon request of the consumer or the consumer’s designated representative, an insurance intermediary shall disclose all of the following:
1. A reasonable estimate of the amount of cash compensation to be received by the intermediary, which may be stated as a range of amounts or percentages.
2. Whether the cash compensation is a onetime or multiple occurrence amount and, if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.
(c) Prior to or at the time of the recommendation or sale of an annuity, the insurance intermediary shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, including the potential surrender period and surrender charges, potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity, mortality and expense fees, investment advisory fees, annual fees, potential charges for and features of riders and other options, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components, and market risk.
(2d) Conflict of interest obligation. An insurance intermediary shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts related to an ownership interest.
(2e) Documentation obligation. An insurance intermediary shall, at the time of making a recommendation or sale of an annuity, do all of the following, as applicable:
(a) If an annuity is recommended, make a written record of any recommendation and the basis for the recommendation subject to this section.
(b) If a consumer refuses to provide consumer profile information, obtain a signed statement from the consumer, on a form substantially similar to Appendix B of the National Association of Insurance Commissioners Annuity Suitability Model Regulation that shall be posted on the office’s Internet site, that documents all of the following:
1. A consumer’s refusal to provide consumer profile information.
2. A consumer’s understanding of the ramifications of not providing his or her consumer profile information or of providing insufficient consumer profile information.
(c) If an annuity is not recommended, obtain a signed statement from the consumer, on a form substantially similar to Appendix C of the National Association of Insurance Commissioners Annuity Suitability Model Regulation that shall be posted on the office’s Internet site, that acknowledges an annuity transaction is not recommended if the consumer decides to enter into an annuity transaction that is not based on the intermediary’s recommendation.
(3) Insurer’s supervisory responsibility.
(a) An insurer shall establish a supervision system that is reasonably designed to achieve the insurer’s and its insurance intermediaries’ compliance with this section. Under the system, the insurer shall do at least all of the following:
1. Maintain reasonable procedures to inform its insurance intermediaries of the requirements of this section and incorporate the requirements of this section into relevant insurance intermediary training manuals.
2. Establish standards for insurance intermediary product training and maintain reasonable procedures to require its insurance intermediaries to comply with the requirements of sub. (4m).
3. Provide product-specific training and training materials that explain all material features of its annuity products to its insurance intermediaries.
4. Maintain procedures for review of each recommendation before issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that a recommendation would effectively address a consumer’s financial situation, insurance needs, and financial objectives. An insurer’s procedures may apply a screening system for the purpose of identifying selected transactions for additional review. An insurer’s procedures may be accomplished electronically or through other means, including physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.
5. Maintain reasonable procedures to detect recommendations that do not comply with subs. (2) to (2e), which may include confirmation of consumer profile information, systematic customer surveys, interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring. Nothing in this subdivision prevents an insurer from complying with this subdivision by applying sampling procedures or by confirming consumer profile information after issuance or delivery of the annuity, or both.
6. Annually provide a report to senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, that is reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.
7. Establish and maintain reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, whether an insurance intermediary has provided to a consumer the information required to be provided under this section.
8. Establish and maintain reasonable procedures to identify and address suspicious refusals by consumers to provide consumer profile information.
9. Establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. Nothing in this subdivision prohibits the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees so long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.
(am) Except as permitted under sub. (2b) (h), an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity will effectively address the particular consumer’s financial situation, insurance needs, and financial objectives based on the consumer’s consumer profile information.
(b)
1. Nothing in this subsection restricts an insurer from contracting for the performance of a function required under par. (a), including maintenance of procedures. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties under subs. (5) and (6), regardless of whether the insurer contracts for the performance of a function and regardless of the insurer’s compliance with subd. 2.
2. An insurer’s supervision system under par. (a) shall include supervision of any contractual performance under this subsection, including all of the following:
a. Monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.
b. Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.
(c) An insurer is not required to include in its system of supervision an insurance intermediary’s recommendations to consumers of products other than the annuities offered by the insurer or include consideration of, or comparison to, options available to the intermediary or compensation relating to those options other than annuities or other products offered by the insurer.
(3m) Prohibited acts of intermediary. An insurance intermediary may not dissuade, or attempt to dissuade, a consumer from doing any of the following:
(a) Truthfully responding to an insurer’s request for confirmation of consumer profile information.
(b) Filing a complaint.
(c) Cooperating with the investigation of a complaint.
(4) Comparable standards.
(a) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements of this section. This subsection applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if the standard does not otherwise apply to the annuity or recommendation.
(b) Nothing in this subsection limits the commissioner’s ability to investigate and enforce the provisions of this section.
(c) Nothing in par. (a) limits an insurer’s obligation to comply with sub. (3) (am), although the insurer may base its analysis on information received from either the financial professional or the entity responsible for supervising the financial professional, including the financial professional’s broker-dealer or an investment adviser registered under federal or state securities law.
(d) In order for par. (a) to apply, an insurer shall do all of the following:
1. Monitor the relevant conduct of the financial professional or the entity responsible for supervising the financial professional, including the financial professional’s broker-dealer or an investment adviser registered under federal or state securities law, using information collected in the normal course of an insurer’s business.
2. Provide to the entity responsible for supervising the financial professional, including the financial professional’s broker-dealer or investment adviser registered under federal or state securities law, the information and reports that are reasonably appropriate to assist the entity with maintaining its supervision system.
(4m) Insurance intermediary training.
(a) An insurance intermediary may not solicit the sale of an annuity product unless the insurance intermediary has adequate knowledge of the product to recommend the annuity and the insurance intermediary is in compliance with the insurer’s standards for product training. An insurance intermediary may rely on insurer-provided product-specific training standards and materials to comply with this paragraph.
(b)
1.
a. An insurance intermediary who engages in the sale of annuity products shall complete a one-time training course approved by the commissioner and provided by an education provider approved by the commissioner.
b. Insurance intermediaries who hold a life insurance line of authority on May 1, 2011, and who desire to sell annuities must complete the requirements of this paragraph within 6 months after May 1, 2011. Individuals who obtain a life insurance line of authority on or after May 1, 2011, may not engage in the sale of annuities until they have completed the annuity training course required under this paragraph.
2. The minimum length of the training required under this paragraph shall be sufficient to qualify for at least 4 continuing education credits, but may be longer.
3. The training required under this paragraph shall include information on all of the following topics:
a. The types of annuities and various classifications of annuities.
b. Identification of the parties to an annuity.
c. How product-specific annuity contract features affect consumers.
d. The application of income taxation of qualified and non-qualified annuities.
e. The primary uses of annuities.
f. Appropriate standard of conduct, sales practices, and replacement and disclosure requirements.
4. Providers of annuity training courses intended to comply with this paragraph shall cover all of the topics listed under subd. 3. and may 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 those listed under subd. 3.
5. A provider of an annuity training course intended to comply with this paragraph shall register as a continuing education provider in this state and comply with the rules and guidelines applicable to insurance intermediary continuing education courses as set forth in rules of the office governing intermediary continuing education requirements.
6. Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with rules of the office governing intermediary continuing education requirements.
7. Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with rules of the office governing intermediary continuing education requirements.
8. Satisfaction of the training requirements of another state that are substantially similar to the requirements of this paragraph satisfies the training requirements of this paragraph in this state.
9. An insurer shall verify that an insurance intermediary has completed the annuity training course required under this paragraph before allowing the intermediary to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this subdivision by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.
10. An intermediary who has completed an annuity training course approved by the commissioner prior to October 1, 2022, shall, within 6 months of October 1, 2022, complete any of the following:
a. A 4-credit training course approved by the commissioner.
b. An additional onetime one-credit training course approved by the commissioner and provided by an education provider, who is approved by the commissioner, on appropriate sales practices and replacement and disclosure requirements under this section.
11. Satisfaction of the components of the training requirements of a course or courses with components substantially similar to the requirements of this paragraph satisfies the training requirements of this paragraph.
(5) Compliance; remedial measures. An insurer is responsible for compliance with this section. If a violation occurs, either because of the action or inaction of the insurer or its insurance intermediary, 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.
(d) Impose any appropriate penalties or sanctions.
(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).
(c) The commissioner may by rule provide for the reduction or elimination of a penalty under par. (a) for a violation of this section if corrective action is taken for the consumer promptly after the violation is discovered or the violation is not part of a pattern or practice.
(7) Record keeping.
(a) 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.
(b) Records that are required to be maintained under this section may be maintained in paper, photographic, microprocess, magnetic, or electronic media or by any process that accurately reproduces the actual document.
(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.
(9) No private cause of action. Nothing in this section may be construed to create or imply a private cause of action for a violation of this section or to subject an insurance intermediary or insurer to civil liability under the best interest standard of care under sub. (2) or under standards governing the conduct of a fiduciary or a fiduciary relationship.
(10) No additional licensure. Nothing in this section may be construed to require an insurance intermediary to obtain any license, including a securities license, other than an insurance intermediary license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state in order to fulfill the duties and obligations contained in this section so long as the insurance intermediary does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring another professional license.
