The fiduciary rule strikes again, this time in the M&A arena.

Set to be implemented in less than seven months, the Department of Labor's game-changing regulation played a key role in Nationwide Mutual Insurance’s acquisition of Jefferson National, one of the leading life insurance companies offering variable annuities to RIAs.

With approximately half of Nationwide's business about to be impacted by the new rule, Jefferson's focus on offering fee-based annuity products to 4,000 RIAs on its platform gives the Columbus, Ohio-based insurance giant a critical distribution boost in the new regulatory environment.

“Partnering with the Jefferson National team will enable Nationwide to expand our distribution footprint and meet the needs of investors and retirement savers who want to do business in a fee-based adviser environment after implementation of the DoL fiduciary standard,” Nationwide CEO Steve Rasmussen said in a statement announcing the deal.

FEE-BASED TREND PUSHES NATIONWIDE

Nationwide Mutual Insurance has purchased Jefferson National.
Nationwide Mutual Insurance has purchased Jefferson National.


Nationwide, which has $43 billion in sales and until now has targeted its annuities business to brokers working on commission, needed to "do more in the fee-based advisory space" says COO Kirt Walker.

That strategic goal, along with the need to "get in front of the current trend [to offer fee-based products]" sparked by the fiduciary rule, "came together perfectly" in the Jefferson National deal, according to Walker.

"The acquisition is complementary but also additive," Walker says.

SALES SOAR FOR JEFFERSON, BUT COMPETITION FORMIDABLE
After a management buy-out in 2011, Jefferson National has focused on marketing Monument Adviser, a variable annuity product to fee-based advisers.

Led by Chief Executive Mitchell Caplan, a former CEO at E-Trade Financial, sales for Monument Adviser have jumped to $800 last year, from about $400 million in 2012.

Led by CEO Mitchell Caplan, sales for Monument Adviser have jumped to $800 last year, from about $400 million in 2012.

But Jefferson, a privately-held company based in Louisville, Kentucky, faced stiff competition from industry powerhouses such as Jackson National Life Insurance, Prudential and Lincoln Financial Group.

There was also internal dissension along the way.

Veteran executive David Lau, the company's COO who oversaw Monument Adviser, reportedly clashed with Kaplan and Jefferson National President Laurence Greenberg and abruptly left the company two years ago.

NEW PRODUCTS FOR ADVISERS COMING
Kaplan maintains that the company's formidable competition "had little to do" with the decision to put Jefferson up for sale early this year.

Because Jefferson National was "mission-driven exclusively for RIAs," company executives decided to look for a partner with whom it could achieve scale and "offer complimentary products and solutions," Kaplan says.

Those new offering to RIAs and Monument Adviser clients may include an option living benefit rider, an optional death benefit, fixed index annuities and life products, according to Walker.

Jefferson National will become a wholly owned subsidiary of Nationwide, but no decision has been made about whether to retain the Jefferson National brand, Kaplan says. But he did add that "It would be hard not to ignore the power of the Nationwide brand."

Charles Paikert

Charles Paikert

Charles Paikert is a senior editor with Financial Planning, a SourceMedia publication.