A U.S. proposal for stricter rules on retirement-product sales helped spur American International Group Inc.’s decision to sell its broker-dealer operation, according to Chief Executive Officer Peter Hancock.
“It’s a business we are not the best owner of, particularly in the light of potential Department of Labor rules,” Hancock said Tuesday in a conference call updating investors on AIG’s strategy. “With the new DOL rules, that was a big factor in thinking whether this was better owned by somebody independent of us.”
President Barack Obama’s administration has said that new rules are required so advisors put their clients’ best interests first for retirement accounts. The proposal could increase compliance costs for the industry. Hancock announced a deal Tuesday to sell AIG Advisor Group to investment funds affiliated with Donald Marron’s Lightyear Capital LLC and PSP Investments, a Canadian pension investment manager.
The insurer’s comments show that the industry believes the rule is going to move forward, according to Barbara Roper, director of investor protection for the Consumer Federation of America.
“There will be a lot of hyperbole from the firms on the effects of the rule and blaming the rule for things that they would have done otherwise,” Roper said. “That doesn’t mean they will stop fighting it. It just means those efforts move into a new phase.”
Hancock said the broker-dealer network earned about $40 million in 2014, yet consumed a “disproportionate amount” of AIG’s compliance cost. The sale was part of a larger plan the insurer announced Tuesday to simplify operations and improve results, as the New York-based company faces pressure to break up from activist investor Carl Icahn.
The rule is “basically going to increase the risk and cost of distributing a number of retirement products, and so therefore it could have a chilling effect on sales and commissions,” Randy Binner, an analyst at FBR Capital Markets, said in a phone interview. “Relative to everything else that’s going on at AIG — which is a lot — this is just a distraction they don’t need.”