In late September, Somerset Securities in Portland, Ore., received a letter from Cincinnati-based Ohio National Financial Services. Addressed "To Whom It May Concern," it read, in part: "This letter is to provide notice of termination of any and all selling agreements . . . All individual annuity trail compensation will cease."
"Cold-blooded," is how Tom Hamlin, Somerset's CEO, describes it.
In an unprecedented move, Ohio National was informing the firm—and, indeed, the majority of other brokerage firms—that as of December 12 it was ending established, ongoing commissions and trail compensation for broker-dealers of its individual (as opposed to group) variable annuities (VAs). Ohio National has nearly $25 billion worth of such assets on its books, representing some 59 percent of its total assets under management.
"I’m losing about $100,000 of recurring revenue per year," as a result, says Hamlin. "I’ve been in this business for over 28 years and have never seen an insurance company be so ruthless. If they’re going to confiscate what is rightfully ours, the least they could do is reduce the policyholder fees by the same amount. But of course, that would defeat the purpose of this money grab. No one will ever trust them again!"
Lawsuits have already been filed on behalf of LPL Financial, Veritas Independent Partners, Cetera Financial Network and Commonwealth Financial Network. More are likely to follow.
"LPL is actively challenging Ohio National to reverse their decision regarding compensation," says LPL spokesperson Lauren Hoyt-Williams. "The firm is exploring all legal and regulatory options to take meaningful action."
Besides impacting distribution relationships, the change could impact customers as well.
"These agents signed commission contracts and opted for trail commissions so that they could continue to be compensated for serving their clients' VA needs" says Kim O'Brien, vice chairman and CEO of the Phoenix, Arizona-based Americans for Annuity Protection (AAP). "Unlike fixed annuities, which are 'set it and forget it' products, VAs need ongoing management of the subaccounts and investment choices. Consumers need help with those choices, and the agents are there to provide it. Now, without compensation to pay their bills, it is likely consumers will lose." (AAP does not represent VAs.)
In a statement, Ohio National said it would continue servicing existing clients, though how—or even if advisors will be compensated for this—isn’t clear.
"The majority of our selling agreements are being replaced with a service agreement or service letter," says Ohio National spokesperson Lisa Doxsee, adding, "All advisors continue to have access to their client information and can continue to service them."