Nationwide to Acquire Annuities Company Jefferson National
September 28 2016 - 10:40AM
Dow Jones News
Nationwide Mutual Insurance Co. is acquiring an annuities
company that specializes in fee-based products, a sign of how new
federal retirement-savings rules are starting to transform parts of
the financial-services industry that rely on commission-paid
agents.
The Columbus, Ohio, property-casualty and life-insurance company
is buying Jefferson National Insurance Co., an issuer of annuities
that are marketed to financial advisers who prefer fee-based
compensation arrangements with their clients, rather than sales
commissions.
The transaction is to be announced Wednesday. The companies,
which aren't disclosing the terms of the deal, said they expect to
complete the transaction early next year.
The Labor Department's new fiduciary rule, set to take effect in
April, holds advisers who work with tax-advantaged retirement
savings to a "fiduciary" standard, meaning they must work in the
best interest of their clients and generally avoid conflicts, which
can come about with commissions. Previously, advisers were required
to offer only "suitable" guidance, a less-rigorous standard.
The stiffer rules for sales to millions of Americans are
expected to make life tougher for many different types of financial
firms, including insurers that sell annuities. Many companies say
they are still trying to figure out what changes they will have to
make in their compliance departments, in addition to possible
acquisitions or divestitures.
Some types of annuities are savings contracts for risk-averse
consumers who otherwise might buy bank certificates of deposit.
Another type, a variable annuity, provides a tax-advantaged way to
invest in stock funds. Some versions provide guarantees of lifetime
income streams.
The acquisition of Jefferson gives Nationwide access to a
flat-fee variable-annuity platform that will help it adapt to the
new regulation, Nationwide President Kirt Walker said in an
interview. He said half of Nationwide's business is affected by the
new rule.
The deal will help "meet the needs of investors and retirement
savers who want to do business in a fee-based adviser environment
after implementation of the DOL fiduciary standard," he said.
"We're giving everyone in the chain the option to choose."
Jefferson, based in Louisville, Ky., has been a pioneer in
fee-based versions of these products. Chief Executive Mitchell
Caplan said in an interview that part of Jefferson's focus on a
fee-based model was an attempt to carve out space in a landscape
dominated by bigger players.
Then, "we got to a point where we saw the power of this
distribution and saw the [Labor Department] as a force emerging,"
he said.
Mr. Caplan, a former CEO at E-Trade Financial Corp., said
Jefferson was looking for a buyer for the past nine or 10 months,
and sees in Nationwide a chance to attract more registered
investment advisers, fee-based advisers and their clients.
Jefferson counts about 4,000 registered investment advisers on
its Monument Adviser platform.
Firms must become compliant with the spirit of the new Labor
Department rules by April 2017 and are required to be fully
compliant by the start of 2018.
Under the new standard, to continue to earn such sales-based
compensation with retirees in tax-advantaged accounts, advisers
will generally need to have these clients sign a "best-interest
contract" that includes detailed disclosure of the adviser's
compensation and obligations to the client.
Erin Sweeney, an attorney at Miller & Chevalier Chartered
who represents parties in litigation regarding fiduciary
obligations, said the new standard "essentially imposed
requirements that [annuity sellers] could never accomplish."
Leslie Scism contributed to this article.
(END) Dow Jones Newswires
September 28, 2016 10:25 ET (14:25 GMT)
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