The Department of Labor's fiduciary rule is barely 5 months old, but it's already shaking up the industry, and in a big way: Industry giant Nationwide Financial disclosed today its intent to buy Jefferson National.
The acquisition will avail Nationwide of Jefferson National's registered investment advisors (RIAs) and fee-based advisors, a distribution network of 4,000-plus financial professionals who sell investment products and services. Chief among them: Monument Advisor, a flat-fee variable annuity platform that offers consumers access to 380-plus tax-advantaged investment options from over 30 mutual fund families.
"After launching Monument Advisors 10 years ago, we recognized that we wanted to do two things," says Jefferson National CEO Mitchell Caplan. "One was to turbo-charge our 4,000-strong advisor distribution channel, boosting the number to 10, 20 or 30 thousand advisors. Second, by partnering with Nationwide, we're able to take our organization to the level: allowing us to serve clients in the way they want to be served—whether through a fee-based advisor, or a broker working on commission."
Nationwide Financial President and Chief Operating Officer Kirt Walker echoed the point, noting that, in the wake of the DOL rule, more investors will be turning to fee-based advisors for retirement plan products and advice. As the transition accelerates, insurers like Nationwide will need to be able to service consumers through their preferred distribution channel, whether agents, broker-dealer reps, RIAs or other fee-based financial professionals.
By acquiring Jefferson National, said Walker, Nationwide can do business with clients "on their terms." As Nationwide mostly sells through insurance agents and brokers, the addition of Jefferson National's 4,000 RIAs and fee-based advisors, he added, "makes for a perfect complement" to the carrier's distribution force.
Under the agreement, Nationwide Life Insurance Company will purchase all of the stock of Jefferson National, which will become a wholly owned subsidiary of Nationwide. The companies did not disclose other terms of the purchase agreement. Both parties, which are privately held, expect the transaction to close early in 2017.
According to company spokesperson, Nationwide has relationships with more than 33,000 advisors and 7,000 agents at 1,500-plus firms. Company sales and net income last year totaled $43 billion and $1.2 billion, respectively.
Specific to financial services, Nationwide's 2015 sales were $23.7 billion; net operating income was $1.1 billion and managed customer assets grew to $210.1 billion. As of June 30, 2016, Jefferson National reported $4.7 billion in GAAP assets.
Just how much did the DOL fiduciary rule play into the companies' decision to merge? The executives interviewed by LifeHealthPro said that it was a key factor — but not the only one. Also integral to the decision was a desire to expand the companies' footprint (a strategic goal predating the DOL rule) in part by expanding products available to consumers.
"We now can offer a greater variety of products and services, all engineered to fit a fee-based model," says Jefferson National President Larry Greenberg. "That will allow us to build on our existing relationships with clients."
That said, the executives acknowledge that the pace and size of mergers and acquisitions within distribution channels catering to retirement space will likely increase in the coming years. Rising compliance costs (both DOL and non-DOL-related), rapidly evolving technologies (think "robo advisors and direct-to-consumer initiatives), as well as consumer demand for a broader array of low-cost investment and retirement products will fuel company buyouts and partnering.
