UBS lowered its rating for T. Rowe Price to sell from buy, predicting the government's fiduciary and fee transparency rules will hurt its earnings results next year.
"While TROW is negatively impacted by the DOL [Department of Labor] fiduciary rule, we view the 2010 DOL rule that increased transparency into 401(k) fees as the underappreciated threat," analyst Brennan Hawken wrote in a note to clients Wednesday. "TROW has a solid domestic franchise with strong investment performance but we see these positives as more than offset by the overhang from the DOL rule, headwinds from corporate 401k lawsuits, and shift towards passive."
The new fiduciary rule, which requires advisors to act in the best interests of clients, will take effect next month, but then may later be amended.
Hawken lowered his price target for T. Rowe Price to $61 from $77, representing 14 percent downside from Tuesday's close.
The analyst cited how outflows from the company's target date retirement funds (TDF), which represent 24 percent of the firm's asset under management, are "just beginning." He estimated T. Rowe Price lost more than $2 billion of assets in TDF funds during April.
As a result, Hawken lowered his 2018 earnings-per-share estimate for T. Rowe Price to $4.75 from $5.15 compared with the $5.16 Wall Street consensus.
"Lawsuits stemming from the 2010 DOL rule that increased transparency into 401(k) fees have accelerated in recent years and now there are signs that the trial bar is widening its targets to include smaller plans, which comprise the core of TROW's retirement offering," he wrote.
— CNBC's Michael Bloom contributed to this story.