T. Rowe Price May Have A Hard Time Running In Place, Let Alone Achieving Growth

The U.S. Department of Labor's new fiduciary rule partially kicks in on June 9 (fully implemented on January 1, 2018) and will impact financial professionals who advise retirement investors.

According to a Forbes report, the "DOL" rule dictates that advisers must give advice that is in the best interest of the client, charge reasonable compensation and refrain from misleading statements.

UBS' Brennan Hawken commented in a report that T. Rowe Price Group Inc (NASDAQ: TROW) will be negatively impacted by the new DOL fiduciary rule. However, the 2010 DOL rule that required increased transparency into 401k fees is an "underappreciated threat."

Hawken said that once the rule was created, there was a spike in 401k-related lawsuits and the industry shifted to a passive investment style. But now it seems the "trial bar is widening its targets to include smaller plans" and this happens to be T. Rowe's core retirement business.

As such, the analyst believes outflows from T. Rowe's Target Date Funds (TDFs) in which $2 billion flowed out of the firm in April is just the beginning of what will be seen.

Hawken also noted that the new rules could lead wealth management firms to change their revenue sharing policies to avoid potential conflicts. In T. Rowe's case, the company hasn't paid revenue sharing to brokers but it may now begin paying net distribution which will create another earnings headwind.

Bottom line, T. Rowe's new woes makes it difficult for the company to just "read water, much less grow."

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