Complying with the Department of Labor’s new fiduciary rule will cost an estimated $1 million a month for the next 18 months to 24 months, and between $5 million to $10 million a year afterwards, executives with Principal Financial Group said Friday.
Earlier in the week, executives from Ameriprise Financial said DOL rule compliance-related issues had cost the company $11 million in the first half of 2016.
“Since the release of the final rule, our cross-business unit teams have gained a clear understanding of the cost to cover training and system and product modification to ensure we can continue to serve advisors and customer post implementation,” said Daniel J. Houston, president, chairman and CEO of Principal Financial, in a conference call with analysts.
The first clauses of the DOL rule kick in next April, but insurance companies expect to be ready by the end of the year due to annual policy renewal cycles.
The rule raises advice standards for money flowing into and out of retirement accounts. Its remaining mandates take effect Jan. 1, 2018.
Comments from executives at Ameriprise and Principal Financial are among the first public estimates from companies about the precise cost of implementing the conflict of interest rule.
Distributors have seen their commission revenue drop in the wake of the rule.
Insurers are spending the money to upgrade their information technology systems, restructure products and features, alter fee and commission schedules and implement new training programs to meet the DOL requirements.
Principal Financial, with a network of 1,200 advisors, distributes proprietary and nonproprietary insurance, investment and retirement products.
Many of the company’s distribution channels are likely to sell products under the DOL’s Best Interest Contract Exemption, Principal Financial executives said.
The BIC requires hefty disclosures and a signed contract between agent and client committing the agent to acting in the client's best interest.
Principal Financial, based in Des Moines, reported second-quarter profit Thursday of $322.3 million on revenue of $3.04 billion.
The company also reported net income of $1.10 per share. Earnings, adjusted for investment costs, came to $1.15 per share, surpassing analysts’ estimates.
The average of four analysts surveyed by Zacks Investment Research was for earnings of $1.06 per share.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
© Entire contents copyright 2016 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.
How much does it cost individuals whose advisors act on behalf of themselves rather than on behalf of the individual?
If you want to be protected from the abuse of a dishonest person then vet that person or don’t invest. Most Brokers already operate with your best interest in mind. It is what allows them to look at their children at The Breakfast Table and themselves in the mirror every day. But when you ask your government to Shield you from such exposure the government will do so but at a cost to you. That cost is the loss of choice which introduces an entire new exposure. For instance when you walk into ABC company who sells only ABC products that company may be large enough to invest in meeting all of the legalities required under this new rule 2 now act as your fiduciary. But you now going to see only their products. You then must become your own broker and go search all of the other individual companies to compare and contrast. But you will not have the energy or time do this. As a result you’ll either decide not to invest which hurts you or you will make the wrong choice because you did not see what was right around the corner that you’re broker could have presented to you in one or two or three meetings giving you appropriate comparison ability. This is the trade between your freedom to advance yourself and your family vs protection granted to you by your government. The losers will be those who sought the protection and the winners will be the major Financial firms as usual, and of course the government which will ever expand to protect the consumer whose choices continue to diminish. Bottom line you should not ask your government to do for you what you will not do for yourself.
Don’t be fooled because the government tells you they are looking out for you. They tell the consumer they are paying too much. Really? When the government then influences what financial tools you can use and many instances not use without the risk of suit simply because of arbitrary “definitions” they are not looking out for the consumer. This is big government simply continuing down the path of over regulation and smothering creativity and capitalism.
Although the exact increase in the minimum salary level for overtime exemption will not be revealed until the final rule is published, the DOL s proposal sets this level at the 40 Many small business and nonprofit employees earning below the $50,440 threshold typically perform duties that would otherwise be considered professional or managerial. If the final rule follows the proposal, employers will have to make the unpalatable choice between giving these professional or managerial employees large salary increases or reclassifying them as nonexempt and begin paying overtime for work over 40 hours in a workweek. Either choice places an undue and costly burden on small businesses and non-profits, which the DOL has failed to accurately quantify. Although nonexempt employees are eligible for overtime pay, many professional and managerial employees will view reclassification as a demotion and could lose flexibility and other benefits of being exempt.