Amid the outpouring of dour forecasts, grim analysis and outright confusion about the impact of the Labor Department's fiduciary rule among stakeholders in the financial services industry, some product providers see a silver lining.
Executives at insurers such as Lincoln National Corp. and
Principal Financial Group Inc. have pointed to business opportunities posed by broker-dealers trimming their product offerings to comply with the federal regulation, which raises investment advice standards in retirement accounts.
Some distributors have kept their products on their whittled-down list of approved products, presenting potential for greater sales, executives said during recent third-quarter 2016 earnings presentations.
It's simple math — fewer competitors means greater opportunity for the remaining providers.
“While the DOL fiduciary rule clearly presents challenges, it also presents opportunities,” said Daniel Houston, chairman and president at Principal.
In speaking of the company's retirement record-keeping business, Mr. Houston
said one of Principal's “top third-party distributors communicated a decision to reduce their approved record keeper list by more than 80%.”
Principal was selected as one of their approved providers, he said.
“We expect this
consolidation trend to continue,” Mr. Houston added. “In the meantime, we'll continue to strengthen relationships by helping our distributors work through implementation.”
As broker-dealers and other product distributors
decide how they will ultimately comply with the DOL fiduciary rule, the implementation period of which starts in April, some have expressed intent to reduce the number of product offerings available to advisers.
Many are considering this route for the sake of simplicity, so there's less effort involved in substantiating that a recommended product is in an investor's best interest, according to Denise Valentine, a senior analyst at Aite Group who covers wealth management.
Ameriprise CEO and chairman James Cracchiolo recently
said the firm, like other brokerages, would “likely need to narrow” its platform of investment products to help its roughly 10,000 brokers and advisers meet the rule's duties of prudence and loyalty.
Dennis Glass, president and CEO of Lincoln Financial Group, said the firm saw “a major distributor” retain its relationship with Lincoln following a reduction in choice on its platform.
“We're seeing some distribution partners narrow manufacturers and product offerings. We expect to benefit from this,” Mr. Glass said.
“In fact, we are already seeing early signs of this as a leading distributor announced that effective Jan. 1, they will be paring down the number of products and manufacturers they offer. Proudly, we have more products retained on their shelf than any other manufacturer,” he added.
Broker-dealers have been discussing product trimming in the context of their commission business, because that's where most of the perceived risk falls under the fiduciary rule. That's because products such as mutual funds and variable annuities sold on commission would require firms to enter into a contract with investors granting them the right to bring class-action lawsuits if they feel they've been wronged.
However, some providers may also see consolidation among non-qualified investment products, too.
Ms. Valentine said firms are reviewing all business lines, even on the non-qualified side, due to the expectation that it's only a matter of time before the Securities and Exchange Commission promulgates its own fiduciary regulation.
Ameriprise's Mr. Cracchiolo, for example, said the company plans to take this approach.
“We don't see a difference between the two. They are the same clients, and then we'll make that consistent,” he said during the company's Q3 earnings presentation.
