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."

Arrangements with individual broker-dealers "may differ due to a range of factors," she says. "While a vast majority of policies are unaffected, generally the changes made were to older generation products written prior to May 2010."

This, Doxsee explains, is part of a "strategic decision to focus [on] life insurance and disability income insurance." A few weeks earlier, the company announced it would no longer sell new annuity contracts and was laying off some 300 employees.

"It's not just a matter of not getting paid," says Mark Cortazzo, senior partner at MACRO Consulting Group in Parsippany, N.J. "We spend a six-figure sum each year to help clients understand what they own. If the executives at Ohio National want to save money, why don't they forgo their pay?"

Cortazzo pointed out that other companies "that were trying to de-risk their books" have offered clients "reasonable deals. [But] Ohio National isn't acting in the best interests of its policyholders," he contends.

Some caution this could be just the first domino. "Ohio National won't be the last company to do something like this," says Stan "The Annuity Man" Haithcock, of Ponte Vedra Beach, Fla. He adds that it's a shot across the bow for advisors and broker-dealers.

"Carriers view them as not needed in an Amazon direct-to-consumer sales world,” he says.

What happens next is anyone's guess.

"It certainly hurts Ohio National's sales of any other products if those selling them don't know if they'll get paid in the future," says Herbert Daroff, an attorney and certified financial planner at Baystate Financial in Boston. "The best outcome [would be] for another company to come in and buy the block of business. The buyer may not be able to amend the provisions of the contract that caused Ohio National to back out, but the annuities could be rescued."