The Department of Labor (DOL) fiduciary rule will be “manageable” for the purposes of life insurers' bottom lines. That's the operating phrase from a host of life insurance company executives over the past several weeks.
That should come as good news to investors, even if the rule will mean important tweaks to products and changes to the way some products are sold.
A year ago, industry lobbyists, gearing up for a battle royale with DOL regulators, were starting to craft response letters objecting to the DOL’s “Conflict of Interest” rules designed to crack down on industry “self-dealing.”
Opponents of the rule — among them financial services companies and commission-based distributors — outlined how higher costs and massive compliance requirements risked running thousands of retail advisors out of the industry.
That may still come to pass. However, after hearing top executives answer Wall Street analysts’ questions about how the rule ultimately will affect corporate profits, it’s not as if the DOL compliance requirements are going to clog the back office into a standstill.
“We continue to believe that the overall impact in Voya as an enterprise will be manageable,” Rod Martin, chairman and CEO of Voya financial, said in a conference call with analysts earlier this month.
Changes to some procedures to comply with the DOL rule “will make the work more manageable” in the face of upfront implementation costs, said Mark Stephen Casady, chairman and CEO of LPL Financial Holdings.
A Precedent Far More Sweeping
It’s not as if insurance companies haven’t been though a similar compliance exercise before. Remember the Sarbanes-Oxley Act 2002.
The law, also known as SOX, was far more sweeping in its scope than anything put forward last month by the DOL.
SOX required new and detailed reporting requirements as part of public company accounting reforms Congress deemed necessary in the wake of the Enron and Worldcom bankruptcies.
At the time, many complained about drowning under reams of paperwork connected to SOX compliance. Companies spent tens of millions of dollars in consulting fees and information technology upgrades to comply.
In comparison to SOX-related compliance requirements, the DOL rule seems like a mere footnote.
“There will be some manageable cost increase,” Dennis R. Glass, president and CEO of Lincoln National, said in response to a question about the compliance aspect of the DOL’s fiduciary rule.
“I think most companies who are effective in how they implement the requirements of new regulations can do it on an economical manageable basis, and certainly at Lincoln we think we can implement on a manageable basis,” he said.
Translation: If you’re any good as top insurance company manager, then the cost-related compliance issues shouldn’t be much of a problem for the corporate bottom line. The challenges are, in short, eminently manageable.
Much the same came from Ameriprise Financial Chairman and CEO Jim Cracchiolo.
The DOL rule will mean more disclosure and documentation but, “based on what we know at this time, we believe that these requirements will be manageable,” Cracchiolo said in his company’s April 28 earnings call.
“And while we cannot predict client advisor behavior in response to the rule, our business model has proven to be adaptable,” he said.
Analysts took it upon themselves to pin down the executives. Does “manageable” mean that company growth targets are still achievable, asked one analyst?
Exactly right — with some adjustments, Cracchiolo said.
Costs and revenue will work themselves through the financial statements from one quarter to the next, Cracchiolo said.
“I would not say that it would be significant, that’s why we say manageable, but I can’t say it won’t be anything.”
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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