PURPOSE: This rule implements the requirements of sections 375.141.1(8) and 375.143, RSMo, with respect to the codification of professional standards of conduct in the recommendation of annuities and variable life insurance contracts. Failure to meet these standards would constitute the demonstration of incompetence, untrustworthiness or financial irresponsibility of producers in the offer, sale or exchange of annuities and variable life contracts.

1. (1) The standards of conduct codified in this rule reflect the professionalism of a licensed insurance producer. Grounds for the discipline or disqualification of producers shall include, in addition to other grounds specified in section 375.141, RSMo, failure to comply with or violation of the following professional standards of conduct:

   1. (A) Variable Annuities and Variable Life Insurance.

      1. 1. In recommending to an individual

customer the purchase, sale, or exchange of any variable life or variable annuity product, a producer shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other investment holdings and as to his financial situation and needs. FINANCIAL INSTITUTIONS AND PROFESSIONAL REGISTRATION

1. 2. Prior to the execution of a variable

life or variable annuity transaction recommended to an individual customer, a producer shall make reasonable efforts to obtain information concerning—

1. A. The customer’s financial status,

including annual income, financial situation and needs, and existing assets;

1. B. The customer’s tax status;
2. C. The customer’s financial objec-

tives, including investment objectives, reasonably anticipated income needs, and risk tolerance;

1. D. The customer’s investment time

horizon, liquid net worth, and current and reasonably anticipated needs for liquidity; and

1. E. Such other information used or

considered to be reasonable by such producer in making recommendations to the customer.

1. 3. No producer shall recommend to any

customer the purchase or exchange of any deferred variable annuity, unless the producer has a reasonable basis to believe:

1. A. That the transaction is suitable in

accordance with this rule and, in particular, that there is a reasonable basis to believe that—

1. (I) The customer has been

informed, in general terms, of various features of deferred variable annuities, such as the potential surrender period and surrender charge; potential tax penalty if the customer sells or redeems deferred variable annuities before reaching the age of fifty-nine and one half (59½); mortality and expense fees; investment advisory fees; potential charges for and features of riders; the benefit and investment components of deferred variable annuities; and market risk;

1. (II) The customer would benefit

from certain features of deferred variable annuities, such as tax-deferred growth, annuitization, or a death or living benefit; and

1. (III) The particular deferred vari-

able annuity as a whole, the underlying subaccounts to which funds are allocated at the time of the purchase or exchange of the deferred variable annuity, and riders and similar product enhancements, if any, are suitable (and, in the case of an exchange, the transaction as a whole also is suitable) for the particular customer based on the information required by this rule; and

1. B. In the case of an exchange of a

deferred variable annuity, the exchange also is consistent with the suitability determination required by subparagraph (1)(A)3.A. of this rule, taking into consideration whether—

1. (I) The customer would incur a sur-

render charge, be subject to the commencement of a new surrender period, lose existing benefits (such as death, living, or other contractual benefits), or be subject to increased fees or charges (such as mortality and expense fees, investment advisory fees, or charges for riders and similar product enhancements);

1. (II) The customer would benefit

from product enhancements and improvements; and

1. (III) The customer’s account has

had another deferred annuity exchange within the preceding thirty-six (36) months.

1. 4. Interpretation of subsection (1)(A) of

this rule shall be guided by judicial and administrative opinions and decisions construing substantially similar requirements of the Financial Industry Regulatory Authority (FINRA) or its predecessor organizations.

1. (B) Indexed Annuities.

   1. 1. In recommending to an individual

customer the purchase, sale, or exchange of a indexed annuity, a producer shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his or her insurance and investment holdings and as to his or her current and reasonably anticipated financial situation and needs.

1. 2. Prior to the execution of an indexed

annuity transaction recommended to an individual customer, a producer shall make reasonable efforts to obtain information concerning—

1. A. The customer’s financial status,

including annual income, financial situation and needs, and existing assets;

1. B. The customer’s tax status;
2. C. The customer’s financial objec-

tives, including investment objectives, reasonably anticipated income needs, and risk tolerance;

1. D. The customer’s investment time

horizon, liquid net worth, and current and reasonably anticipated needs for liquidity; and

1. E. Such other information used or

considered to be reasonable by such producer in making recommendations to the customer.

1. 3. No producer shall recommend to any

customer the purchase or exchange of a deferred indexed annuity unless the producer has a reasonable basis to believe:

1. A. That the transaction is suitable in

accordance with this rule and, in particular, that there is a reasonable basis to believe that—

1. (I) The customer has been

informed, in general terms, of various features of deferred indexed annuities, such as the potential surrender period and surrender charge; potential tax penalty if a customer sells or redeems deferred indexed annuities before reaching the age of fifty-nine and one half (59½); mortality and expense fees; potential charges for and features of riders; the benefit and accumulation components of deferred indexed annuities; and market risk;

1. (II) The particular deferred indexed

annuity as a whole, the underlying accumulation provisions and riders and similar product enhancements, if any, are suitable (and, in the case of an exchange, the transaction as a whole also is suitable) for the particular customer based on the information required by this rule; and

1. B. In the case of an exchange of a

deferred indexed annuity, the exchange also is consistent with the suitability determination required by subparagraph (1)(B)3.A. of this rule, taking into consideration whether—

1. (I) The customer would incur a sur-

render charge, be subject to the commencement of a new surrender period, lose existing benefits (such as death, living, or other contractual benefits), or be subject to increased fees or charges (such as mortality and expense fees, investment advisory fees, or charges for riders and similar product enhancements);

1. (II) The customer would benefit

from product enhancements and improvements; and

1. (III) The customer’s account has had

another deferred indexed annuity exchange within the preceding thirty-six (36) months.

1. (C) Fixed Annuities.

   1. 1. In recommending to an individual

customer the purchase, sale, or exchange of a fixed annuity, a producer shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his or her insurance and investment holdings and as to his or her current and reasonably anticipated financial situation and needs.

1. 2. Prior to the execution of a fixed annu-

ity transaction recommended to an individual customer, a producer shall make reasonable efforts to obtain information concerning—

1. A. The customer’s financial status,

including annual income, financial situation and needs, and existing assets;

1. B. The customer’s tax status;
2. C. The customer’s financial objec-

tives, including investment objectives, reasonably anticipated income needs, and risk tolerance;

1. D. The customer’s investment time

horizon, liquid net worth, and current and reasonably anticipated needs for liquidity; and

1. E. Such other information used or

considered to be reasonable by such producer in making recommendations to the customer.

1. (2) The standards of conduct in this rule shall not apply to the following:

   1. (A) Unless a producer is making a recommendation to an individual plan participant, any annuity used to fund—

      1. 1. An employee pension or welfare ben-

efit plan that is covered by The Employee and Retirement Income Security Act (ERISA);

1. 2. Any tax-qualified, employer spon-

sored retirement or benefit plan that meets the requirements of Internal Revenue Code, Sections 401(a), 401(k), 403(b), 408(k), or 408(p);

1. 3. Any government or church plan that

meets the requirements of Internal Revenue Code, Section 414;

1. 4. Any government or church welfare

benefit plan, or any deferred compensation plan of a state or local government or tax exempt organization, that meets the requirements of Internal Revenue Code, Section 457; or

1. 5. Any nonqualified deferred compensa-

tion arrangement established or maintained by an employer or plan sponsor; or

1. (B) Any annuity transaction used to fund settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.

1. (3) Record Keeping. The determinations required by this rule shall be documented by the producer recommending the transaction.
2. (4) No person shall materially aid any other person in any violation or failure to comply with any standard set forth in this rule.

AUTHORITY: sections 374.040, 374.045, and 375.013, RSMo 2000 and sections 375.143 and 376.309.6, RSMo Supp. 2007.* Original rule filed July 5, 2005, effective Jan. 30, 2006. Amended: Filed Nov. 30, 2007, effective July 30, 2008.

*Original authority: 374.040, RSMo 1939, amended 1967; 374.045, RSMo 1967, amended 1993, 1995; 375.013, RSMo 1993, amended 1995; 375.143, RSMo 2007; and 376.309, RSMo 1963, amended 1969, 1983, 1992, 1993, 2007.