\nThe Penn Mutual timeline reflects part two of Regulation 187. The rules will be extended to life insurance on Feb. 1, 2020. That is just one area where rule borrows heavily from the late Department of Labor fiduciary rule.<\/p>\n
\nBut while the DOL rule was tossed out by a federal appeals court, Regulation 187 opponents were not as successful. Acting Albany County Supreme Court Justice Henry Zwack ruled July 31 that the New York Department of Financial Services was within its authority when it issued Regulation 187.<\/p>\n
\nAs this issue went to press, the National Association of Insurance and Financial Advisors\u2013New York and the Independent Insurance Agents and Brokers of New York, plaintiffs in the lawsuit, had not appealed Zwack\u2019s decision.<\/p>\n
\n\n\u201cIt may take another life insurance or annuity sales scandal to speed things up, but the application of a robust best interest standard of care to annuities and life insurance is inevitable.\u201d
\u2014 Birny Birnbaum, Center for Economic Justice<\/p>\n<\/blockquote>\n\nSpeculation is rampant that more insurers will pull business from New York in the months ahead. The issue is liability.<\/p>\n
\nThe rule requires that financial services providers consider the interests of the consumer above everything else when making the annuity recommendation, mandating that any advice be \u201cbased on an evaluation of the relevant suitability information of the consumer and reflects the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the circumstances then prevailing.\u201d<\/p>\n
\nBut it\u2019s the training requirements that are likely causing heartburn for insurers. The rule mandates that insurers and broker-dealers develop training programs for their producers that sell annuities.<\/p>\n
\nJackson is reportedly taking issue with a requirement that insurers offering both fee- and commission-based annuities deliver a comparison between the two products. A spokesman for the company sent InsuranceNewsNet the following:<\/p>\n
\n\u201cEffective Aug. 12, Jackson temporarily suspended all advisory sales in New York as we and other market participants continue to work through the product disclosure requirements in Regulation 187 with the New York Department of Financial Services. We remain committed to delivering helpful and relevant disclosures to consumers and distribution partners and to resuming sales of our advisory products in New York as soon as possible.\u201d<\/p>\n
\nA Penn Mutual statement does not rule out a return to product sales in New York.<\/p>\n
\n\u201cThis decision was made in the best interests of all of our policyholders,\u201d the statement said. \u201cWe remain committed to continuing to provide the highest level of service to our existing New York customers.\u201d<\/p>\n
\nIn the meantime, the National Association of Insurance Commissioners is hoping to finalize an annuity sales model law by the group\u2019s fall meeting in December. New York regulators continue to push the parent organization to adopt the framework of Regulation 187.<\/p>\n
\nMany people in the industry think that is the direction annuity regulation is heading.<\/p>\n
\n\u201cThe New York regulation will become the template for other states,\u201d said Birny Birnbaum, executive director of the Center for Economic Justice, a consumer-focused organization. \u201cIt may take another life insurance or annuity sales scandal to speed things up, but the application of a robust best interest standard of care to annuities and life insurance is inevitable.\u201d<\/p>\n
\nNew York has a solid ally 3,000 miles away. California Insurance Commissioner Ricardo Lara\u2019s office told InsuranceNewsNet in July that it wants \u201cas close to a fiduciary standard as possible.\u201d<\/p>\n
\nIf the NAIC doesn\u2019t come through with a tough standard, \u201clike New York, we may decide to pursue laws that are stronger than the revised NAIC Model Regulation,\u201d Lara\u2019s office said in an email.<\/p>\n
\nFor now, the NAIC Annuity Suitability Working Group is holding two-hour conference calls to work through its model language. The group is working with a draft model that Chairwoman Jillian Froment, director of the Ohio Department of Insurance, has termed \u201cless than a fiduciary standard, but is more than suitability.\u201d<\/p>\n
\nPresident Trump\u2019s ongoing Twitter war with the Federal Reserve, and more specifically with Fed Chairman Jerome Powell, has shown a willingness to put pressure on the otherwise independent central bank. <\/p>\n
\nIn his criticism, the president most often lashes out at Powell and the Fed for doing too little or for its inaction altogether around the issue of interest rates.<\/p>\n
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\nTrump isn\u2019t the first president to do so. Presidents Lyndon Johnson and Harry Truman also put pressure on the Fed to lower or maintain interest rates, to varying outcomes.<\/p>\n
\nWhat Exactly Is The Federal Reserve And What Are They In Charge Of?<\/h2>\n
\nThe Federal Reserve or U.S. Central Bank is made up of three key entities \u2014 the Board of Governors, 12 Federal Reserve Banks and the Federal Reserve Open Market Committee.<\/p>\n
\nThe 12 Reserve Banks follow geographically outlined districts, each having its own Reserve Bank. The district boundaries were based on prevailing trade regions that existed in 1913 and related economic considerations.<\/p>\n
\nDuring Fed meetings, policies \u2014 including interest rates \u2014 are voted on by these 12 districts.<\/p>\n
\nThe Federal Reserve\u2019s five primary functions are to:<\/strong><\/p>\n
\n
- \nConduct the nation\u2019s monetary policy \u2014 \u201cto promote maximum employment, stable prices and moderate long-term interest rates in the U.S. economy.\u201d<\/li>\n
- \nProvide and maintain effective and efficient payments systems \u2014 \u201cthrough services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments.\u201d<\/li>\n
- \nSupervise and regulate banking operations \u2014 \u201cand monitor [the banks\u2019] impact on the financial system as a whole.\u201d<\/li>\n
- \nPromote consumer protection and community development \u2014 \u201cthrough consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.\u201d<\/li>\n
- \nPromote financial system stability \u2014 \u201cand seek to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad.\u201d<\/li>\n<\/ol>\n
\nIs The Fed Independent?<\/h2>\n
\nKind of. The Federal Reserve is independent from the rest of the federal government in that its funds come from its own operations, not from Congress. Other than funds and its governors\u2019 extremely long tenures, it\u2019s not as independent as it\u2019s often described.<\/p>\n
\nWhen making policy, the Fed still has to take into consideration the information they are receiving from global markets, lawmakers, investor expectations and even presidents. This is extremely true of interest rates. <\/p>\n
\nAre Trump\u2019s Complaints About The Fed Valid?<\/h2>\n
\nThe White House has said that the Fed is the biggest problem facing the economy, but is the Fed really the enemy?
Short answer: No. Here\u2019s why:<\/p>\n\nTrump has often touted on social media and at his rallies the triumphs and successes the economy has seen under his presidency. With a possible recession riding his coattails, Trump is pressuring the Fed to give the economy a recession-busting boost before the 2020 election.<\/p>\n
\nUnfortunately, the evidence suggests that interest rates aren\u2019t the problem. Unlike past circumstances, the unemployment rate is at a record low and inflation would not prompt an interest rate drop from the Fed either, since it is currently below the Fed\u2019s 2% target.<\/p>\n
\nAdditionally, investors are still borrowing at reasonably cheap rates and companies are not worried about access to credit, leaving a gaping hole in Trump\u2019s endless search for someone to blame where interest rates are concerned.<\/p>\n
\nWhat companies are complaining about are tariffs. President Trump\u2019s ongoing trade war with China continues to be \u201ca dagger in the body of the economy,\u201d as one economist described it.<\/p>\n
\nNot only does Trump\u2019s trade war have direct costs to the economy, but it also causes uncertainty and lack of confidence in the market among investors.<\/p>\n
\nIf inflation, unemployment and credit were issues afflicting the economy, the Federal Reserve would be inclined to act. The economy is slowing, but stocks are still performing well. If the Fed acted too swiftly and aggressively and lowered rates prematurely, they won\u2019t be able to cut rates when they are desperately needed, such as during a recession.<\/p>\n