Prudential CEO: Labor’s ‘Fiduciary Rule’ May Have Unintended Consequences
August 10, 2015 by Dennis Gorski, managing editor-online, BestWeek
NEWARK, N.J. – Saying he wants to “ensure that consumer access to important retirement products is not impeded,” Prudential Financial’s Chairman and Chief Executive Officer John Strangfeld used part of the company’s Aug. 6 conference call to detail its concerns over the Department of Labor’s fiduciary rule proposal.
Prudential filed a letter with the department July 21, requesting clarification on certain provisions within the proposed regulation and making suggestions for modifications, he said. “While we embrace effective regulation, like others, we are concerned about unintended consequences that could result from these proposed regulations,” Strangfeld said.
Labor’s proposal is meant to keep brokers who advise clients on retirement solutions from steering them into high-commission products without considering lower-fee items. The insurance industry insists the proposal is too broad. Strangfeld said the proposal would “effectively redefine who will be considered a fiduciary in transactions that involve certain plans, plan participants and IRAs.”
Later in the call, Stephen Pelletier, executive vice president and chief operating officer, U.S. businesses, said, “We see it as a net-negative on the marketplace that we serve. We see the risk of individuals having restricted access to advice and certain types of solutions, in particular around guaranteed retirement income solutions.”
Pelletier said Prudential’s letter pointed out that the proposal would affect “traditional marketing that (was) really never viewed as or intended to be fiduciary in nature.” He added that the “best interest contract exemption” regarding how producers are compensated, “would be highly problematic and could entail higher compliance burdens and costs and potentially higher legal exposures for industry participants.”
And, he noted, the department “really needs to clarify and sharpen the distinction between education and advice.”
The department will hold four days of public hearings on the proposal beginning Aug. 10.
“We benefit from a diversified business model by geography, by product, and by distribution channel,” Strangfeld added. “And so while the process is still very much in flux, we remain confident that we will successfully navigate whatever the ultimate outcome may be.”
The company notched across-the-board improvements in its business units in the second quarter, posting second-quarter net income of $1.4 billion, versus $1.04 billion a year ago (Best’s News Service, Aug. 5, 2015).
Prudential Financial is the world’s fifth-largest insurance company, based on 2013 total assets of $731.7 billion, according to BestLink.
Insurance units of Prudential Financial have a current Best’s Financial Strength Rating of A+ (Superior).
At the close of trading Aug. 7, shares of Prudential Financial (NYSE: PRU) were $89.41, down 1.38% for the day.
(By Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com)