Ohio National’s decision to stop trail payments has started a wave of legal actions — and this is before the change is set to take effect on Dec. 12, 2018.
Here’s a list of some of the legal actions being taken against Ohio National:
- LPL Financial representative Lance Browning filed a lawsuit in federal district court;
- Veritas Independent Partners filed a lawsuit in federal district court;
- Commonwealth Financial Network has filed a lawsuit as well as an arbitration claim;
- Cetera Advisor Networks and First Allied filed suit, claiming breach of contractual obligations for Ohio National’s failure to pay millions of dollars in compensation; the suit also raises the issue of thousands of investors being deprived of financial advice, coupled with heavy-handed tactics to get those clients to opt for buyout offers and surrender their variable annuities in exchange for products that are less generous to the client.
Ohio National’s $24.9 billion worth of variable annuity contracts equates to 59% of it total assets. Like many insurance companies, Ohio National is under financial duress due to offering overly generous guarantees in the VA contracts it sold in years past.
With an overly extended period of low interest rates, these guarantees have become a drain on its bottom line, so the company’s solution has been to cut expenses by cutting trailing commissions paid to advisors for managing VA contracts.
The takeaway from this actuarial nightmare is that the once-dependable insurance companies are not so dependable anymore, which will require additional due diligence by advisors and, more importantly, by broker-dealers.
More layers of insurance-company due diligence will now become the norm.
Jodee Rager, chief compliance and operations officer of Geneos Wealth Management, recommends “broker-dealers attempt to amend selling-agreements to include strong language binding their carriers to adhere to the compensation agreement whether or not they choose to cancel selling/servicing agreements.
“If certain carriers refuse to sign amended agreements, proceed with a servicing agreement only,” Rager adds. “No new sales! This may not fly with the carriers, but it should be tested.”
On top of the additional due diligence, there are new levels of liability for broker-dealers.