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AIG Sells Advisor Group In Anticipation of DOL’s New Fiduciary Rule

By George C. Miller, Esq.  of Shustak Reynolds & Partners, P.C. posted on Tuesday, February 2, 2016.

Late last week, American International Group Inc. (AIG) CEO Peter Hancock announced the firm’s plans to spin off its independent broker-dealer division.  Private equity group Lightyear Capital and a Canadian pension manager, PSP Investments, will purchase the unit.  Mr. Hancock cited the Department of Labor’s (DOL) proposed fiduciary rule as “part of” the company’s decision to sell its broker-dealer arm.  That rule, if approved, would impose heightened fiduciary obligations on certain advisors who manage retirement funds.

According to a recent Investment News article, broker-dealers owned by insurance companies face the greatest risk of running afoul of the DOL’s new proposed rule, as they often act as sales portals for the parent company’s proprietary products.  An AIG adviser may, for example, feel pressured to offer the firm’s own proprietary investment products over other, more suitable or less expensive products.  Such a clear conflict of interest would violate the DOL’s new proposed regulations.

Industry experts predict heightened merger activity, particularly among smaller to regional broker-dealers if, as is expected, the DOL’s new rule is approved.  Larger independent firms, meanwhile, may be on the lookout for potential acquisitions.  The reason why is simple:  Costs.  The cost to implement compliance, operational and technology changes necessary to comply with the DOL’s new rule could run into the tens of millions.  One large independent brokerage firm, Cambridge Investment Research, Inc., estimates it will spend $15 - $17 million just to comply with the DOL rule.  A tough pill to swallow for independent firms who typically operate on very thin margins.  Time will tell whether AIG’s sale is the first in a series of sales and acquisitions preceding the DOL’s new rule. 

Shustak Reynolds & Partners, P.C.’s securities attorneys and FINRA attorneys represent investment advisers, stockbrokers, brokerage firms and investors in claims involving employment and promissory note disputes, investment disputes and FINRA and SEC regulatory proceedings.  Contact us today for a confidential analysis of your situation.  

 

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