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A lawyer for one of the brokers involved in the litigation with Ohio National Life Insurance Co. over trail commissions says the lawyers involved in the cases have been in contact with one another.

Dennis Concilla — a partner at Carlile Patchen & Murphy in Columbus, Ohio — is part of the team representing Lance Browning, a Texas broker who filed a putative class action against Ohio National in November, in the U.S. District Court for the Southern District of Ohio.

(Related: What Advisors, BDs Should Do About Ohio National’s End of Trailing Commissions)

Concilla said in a recent interview that he has reviewed several of the selling agreements that Ohio National had with its broker-dealers, and that — although there are differences between the agreements — “they all basically say, ‘Here’s our product, you’re going to sell it, we’ll pay you commissions and our obligation to pay extends beyond the life of the contract.’”

Ohio National reserved the right in some of the agreements to change the commission rate, but the agreements did not give Ohio National the right to simply stop paying the commissions, Concilla said.

Concilla noted that the broker-dealers were offered the option of taking a larger up-front lump commission and smaller trailing commissions, or bigger commissions over the life of the annuity. Concilla said it made no sense for any of the broker-dealers to select the second option if there were the possibility of the insurer simply cutting the trail commissions off.

There has been no discussion of consolidating the litigation, Concilla said.

The Background

In 2012, outside observers were saying that Ohio National was in a good position to expand its variable annuity business, because of the cautious approach the company had taken to issuing annuities in the past.

Ohio National reported steady growth in annuity sales.

According to court filings, Ohio National and its subsidiaries sold more than $10 billion in new variable annuities from 2012 through 2018, with between 50,000 and 75,000 independent broker-dealers receiving regular commissions in connection with the sales.

Ohio National’s variable annuity contracts hold $24.9 billion in assets, and that amounts to 59% of the company’s total assets, according to broker-dealer advisor Jon Henschen.

In September 2018, Ohio National announced that it would “exclusively focus on growing its life and disability income insurance product lines going forward,” citing a “continuously changing regulatory landscape, the sustained low interest rate environment, and the increasing cost of doing business, as well as growth opportunities and the company’s competitive strengths.”

Ohio National sent termination letters to broker-dealers, saying it was cancelling their contracts to sell variable annuities — and would no longer pay ongoing “trail commissions” to the brokers and advisers who had sold and serviced its variable annuities from 2012 through 2018 — effective Dec. 12, 2018.

Browning, who filed one of the first suits in response to the termination letters, asserted that the cancellation of annuity trail commissions would cost him about $90,000 per year.

The Browning case was filed by David Meyer, Matthew Wilson, John Camillus and Michael Boyle Jr. of Meyer Wilson’s Columbus office, along with Concilla.

Plaintiffs have filed additional lawsuits over the trail commission cutoff in federal courts in Alabama, California, Indiana, Massachusetts, Minnesota, Mississippi, New Jersey, Texas and Ohio.

The annuity contracts at issue came with a “Guaranteed Minimum Income Monthly Benefit Rider,“ a feature that promises the annuity holder a monthly retirement payment, regardless of how well the underlying investments perform.

The brokers and dealers were offered several options for what percentage of their commissions they would take up front and how much would be paid in an ongoing trailing commission. According to selling agreements cited in the cases, the trailing commissions were to be paid “until the contract is surrendered or annuitized.

The plaintiffs in the suits claim Ohio National breached agreements under which the brokers were guaranteed to receive trail commissions until the annuities were surrendered or annuitized.

The suits name Ohio National Life insurance, Ohio National Life Assurance Corp., Ohio National Equities Inc. and Ohio National Financial Services Inc. as the defendants.

Ohio National’s Views

Ohio National declined to comment for this article.

In the Browning case, Ohio National filed for judgment on the pleadings, arguing that the plaintiff was not a party to the agreement between the insurer and the broker-dealer firm with which he was under contract. Because Browning was not a party to the agreement between Ohio National and the broker-dealer, he has no standing to bring a claim, according to Ohio National.

The Arkansas-based financial brokerage and financial advisory firm Veritas Independent Partners has filed a separate putative class action in the U.S. District Court for the Southern District of Ohio.

In a motion for summary judgment in the Veritas litigation, Ohio National pointed to language in the selling agreement indicating that it “remains in force and will be paid on a particular contract [individual annuity] until the contract is surrendered.”

“Such language unequivocally establishes that the termination of the selling Agreement also terminated any obligation of the [Ohio National] contracting parties to continue paying trail commissions as to individual variable annuity products,” according to the Jan. 21 motion, which was filed for Ohio National by Marion Little and Christopher Hogan of Columbus’ Zeiger, Tigges & Little.

The agreement contained a provision allowing the agreement to be terminated “at the option of any party upon 60 days written notice to the other parties,” Ohio National said. The company said it met that condition when it sent the Sept. 21 termination letters.

The Veritas litigation was filed by James Hadden, Geoffrey Moul, Brian Murphy and Joseph Murray of Columbus’ Murray Murphy Moul & Basil, who did not respond to a request for comment.

Concilla Is an Annuity Owner

Concilla said that Ohio National was not alone in getting out of the annuity business.

“Other companies are no longer offering them,” he said. “But none have told their broker-dealers, ‘We’re no longer going to pay you for the products you sold.’”

Before Ohio National started its termination program, it repeatedly pressured annuity holders to cash the annuities out and invest in other options, Concilla said.

“I knew about it early because I own some of these contracts,” he said.

Concilla said he bought the annuities when he heard that he could get a guaranteed 6% annual return on his investment, with a higher percentage if the market went up, but that the rate of return would stay the same even if the market dipped.

“I thought it was a good addition to my portfolio,” he said.

Once Ohio National decided to get out of the annuities business, he said, the insurer sent him several letters urging him to dump his annuities in favor of another investment option, which he declined to do.

“I think [Ohio National] finally realized it wasn’t a good deal for them, but it was a good deal for the buyers,” he said.

— Read Ohio National Executive to Lead MIB, on ThinkAdvisor.

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