MetLife is second major insurer to exit the brokerage business, in the sale of adviser unit to MassMutual

Mergers may increase even more among brokerage firms due to the Labor Department's proposed fiduciary rule

Feb 29, 2016 @ 2:33 pm

By Christine Idzelis

+ Zoom

A second major insurance company has decided to exit the brokerage business this year as MetLife Inc. announced Monday it is selling its U.S. adviser unit to Massachusetts Mutual Life Insurance Co.

The sale includes the firm's Premier Client Group, consisting of about 4,000 advisers across the U.S. who sell insurance, annuities and other investment products such as mutual funds, plus its broker-dealer MetLife Securities Inc., according to the company's announcement.

MetLife is shedding the unit as brokerage firms face higher compliance costs tied to the Labor Department's proposed fiduciary rule requiring advisers to act in the best interest of their clients when providing investment services for retirement accounts.

Last month, American International Group Inc.'s CEO Peter Hancock cited the Department of Labor's proposed fiduciary rule as part of its decision to sell its broker-dealer unit to private-equity firm Lightyear Capital and Canadian pension manager PSP Investments.

It can be challenging for insurers to turn wealth management services stemming from securities sales into a lucrative revenue stream, according to Ron Edde, co-founder and CEO of recruitment firm Millennium Career Advisors.

“I think they found it was a lot harder to make money in that space than they thought it would,” said Mr. Edde, who's based in San Diego, Calif. It's difficult recruiting “top talent to an insurance first, securities second, type of firm.”

Advisers at insurers tend toward mid-market clients, while traditional brokers employed by wirehouses and independent brokerage firms typically focus on higher net worth clients and don't view insurance products as core to their financial advice, according to Mr. Edde.

A wave of merger activity is expected to continue because of the new DOL fiduciary rule, which is currently being reviewed by the Office of Management and Budget.

Economies of scale gained through an acquisition can help bring down related costs for firms choosing to keep their brokerage business.

“We're going to need to make the investment in compliance and back office,” Michael Fanning, executive vice president of MassMutual's U.S. Insurance Group, said in a phone interview. He said that the deal with MetLife will allow it to spread regulatory costs out over 9,600 advisers versus about 5,600 currently.

“Clearly this gives us scale,” he said, adding that the fiduciary rule is expected to prompt a “tremendous amount of merger activity.”

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