Principal Financial CEO: DOL Fiduciary Rule Change Price Tag Is $1 Million Per Month
August 2, 2016 by Best's News Service
DES MOINES, Iowa – The U.S. Department of Labor’s fiduciary rule update is expected to cost Principal Financial Group Inc. an additional $1 million a month over the next 18 to 24 months, the company’s chief executive officer estimated.
Once the rule is fully implemented, the annual operational cost associated with it is expected to be in the $5 million to $10 million range, Dan Houston, chairman, president and chief executive officer, said during a conference call about second-quarter earnings.
The underlying cost includes training, education and development within Principal’s staff, call centers, adviser network and partners. The company will be working on adapting the current product and retrofitting it to work with the marketplace.
“It’s not going to require refiling,” Houston said. “A lot of what we have will be modified to work.”
In June, Principal said it had a large team in place looking at how to comply and implement the rule. The law’s intentions are that companies and advisers should act in the best interest of consumers buying their products, but a number of trade organizations have filed lawsuits to try to block the rule change, arguing the regulation unfairly targets certain types of fixed annuity products (Best’s News Service, Jun 28, 2016).
During the second quarter, Principal net income available to common stockholders rose 34% to $322.3 million, the highest year-to-date net income on record for the company, according to Terry Lillis, executive vice president and chief financial officer.
The company also reported record total company assets under management of $572.7 billion.
Specialty benefits premiums and fees were up 8% as a result of strong retention and sales, along with a favorable loss ratio, the company said. Individual life insurance premium and fees rose 5%, with business market sales making up 52% of second-quarter sales.
Principal International posted a 15% increase in assets under management to $130.9 billion.
When asked about the U.K. referendum vote to leave the European Union, the company said it will be watching the negotiations closely. There won’t be any current changes to the company’s business, Lillis said, but Principal is looking at its options if the outcome is negative.
While Principal’s substantial operation in London could be a factor longer term, the company’s main international fund product is domiciled in Dublin, which will remain in European Union, James McCaughan, president of global asset management and CEO of Principal Global Investors, said during the call. Principal also has offices in Munich, Amsterdam and Malta.
“That will allow us access throughout the European Union almost regardless of how the negotiations go,” he said.
The company’s No. 1 near-term concern is whether or not London employees from various nationalities will be able to remain in London. “It looks as if the ability of our various people in London to continue to be there will be unimpaired, but that’s something we’re watching very carefully,” McCaughan said.
He said the company has seen a boost to business in Europe because it sells global, dollar-based products that are attractive in the very low interest rate environment there.
On the afternoon of Aug. 1, shares of Principal Financial Group (NYSE: PFG) were $46.22, down 0.92% from the previous close.
Principal Life Insurance Co. and Principal National Life Insurance Co. have current Best’s Financial Strength Ratings of A+ (Superior).
(By Marie Suszynski, BestWeek Correspondent: Marie.Suszynski@ambest.com)