California's Best Interest Rule: What Every Annuity Buyer (and Seller) Needs to Know
Beginning January 1, 2025, California joins a growing list of states adopting a "best interest" standard for annuity sales. This regulatory change aligns the state's rules with the National Association of Insurance Commissioners (NAIC) model and aims to ensure that insurance agents recommend annuity products that are truly in the best interest of consumers.
For both consumers and professionals in the annuity space, understanding the implications of this law is critical.
What Does the Rule Require?
The new standard mandates that agents:
Act with reasonable diligence, care, skill, and prudence when making recommendations.
Disclose material conflicts of interest.
Consider consumer needs, financial objectives, and risk tolerance.
Provide detailed documentation explaining the rationale for each recommendation.
Agents must also complete a revised four-hour annuity training course that reflects the updated standards.
Why It Matters Now
California is home to nearly 12% of the U.S. population and is one of the largest markets for financial services. Its adoption of the best interest rule will influence carrier compliance processes, advisor practices, and potentially accelerate similar legislation in other states.
The law represents a middle ground between a full fiduciary rule (like the Department of Labor once proposed) and the traditional suitability standard. It aims to eliminate product pushing and reward thoughtful, client-centered planning.
What It Means for Advisors
More Documentation: Agents must clearly document their recommendation process, not just justify it after the fact.
Increased Training: Even experienced professionals will need to update their credentials.
Greater Liability: Advisors acting under the new rule face potential scrutiny if their practices aren't aligned with the consumer's best interest—especially in the event of a dispute.
Implications for Carriers
Insurance companies operating in California must also ensure:
Product design reflects a clear value proposition to various consumer segments.
Sales literature and disclosures are updated for compliance.
Their contracted agents meet the new education requirements.
For Consumers: What to Expect
If you're purchasing an annuity in 2025:
You'll receive more disclosures about fees, commissions, and product structure.
Your advisor should provide multiple options and explain how each meets your goals.
Expect more detailed paperwork—but also greater peace of mind.
Case Example: Jasmine, 61, is recommended a fixed indexed annuity with a 7-year surrender period and an income rider. Under the new rule, her agent must:
Explain why the 7-year term fits her liquidity needs.
Disclose the rider cost and alternatives considered.
Provide documentation of her risk profile and retirement income goals.
This ensures Jasmine isn't sold a product just for its commission value—but one that aligns with her financial picture.
What Advisors Should Do Now
Complete or update the mandatory 4-hour training.
Revise internal documentation processes.
Audit current client files to ensure recommendations align with the new standard.
Adopt planning software or tools that formalize annuity assessments.
The best interest rule marks a meaningful shift in how annuities are sold in America's most populous state. Advisors who adapt early and put clients first will not only stay compliant—they'll earn more trust and long-term business.
This wraps our 6-part series on annuities in 2025. Want them all combined into a single PDF? Just say the word.