MetLife Inc. is cutting compensation on annuities sold by former advisers who moved to other broker-dealers after MetLife sold its Premier Client Group last year to Massachusetts Mutual Life Insurance Co.
And the cut in pay is drastic. According to a memo from LPL Financial last week to the former MetLife Premier Client Group advisers who now work at LPL, asset based trail compensation rates will be reduced to approximately 27% of current levels.
That means if an adviser received an upfront commission of 1% to 2% and an annual 100 basis point trailing commission after selling a variable annuity to a client, that annual trailing payment would be reduced to 27 basis points, or 0.27% of assets. The change could reduce some advisers' income by tens of thousands of dollars.
LPL in its memo said it had nothing to do with the pay cut. "Please note: These changes are not LPL Financial directed or related, but rather independent decisions made by" MetLife, according to the memo. The change to ex MetLife advisers' asset-based trail compensation takes effect after the market closes on Friday.
Five variable annuity contracts and 11 fixed annuity contracts are affected by the change.
Meanwhile, MetLife is not cutting compensation to advisers who remain at Massachusetts Mutual's independent broker-dealer, MML Investors Services, according to a memo in June from Massachusetts Mutual. "Trail payments will remain unchanged for legacy Premier Client Group advisers who transitioned to MassMutual on July 1, 2016," according to the memo.
It's not clear how many former MetLife advisers left MML Investors Services after MetLife sold the group, which had about 4,000 advisers. It's common for brokers and advisers to move to another firm when their firm is sold. A sale typically motivates brokers and advisers to explore their options and shop for another firm.
Cutting compensation for advisers who formerly worked for MetLife is highly unusual, industry sources said.
"Where is the rest of the trail going, as a rebate to the client or in the pocket of the firm," asked Jonathan Henschen, a recruiter for independent broker-dealers.
"MetLife communicated compensation changes to third-party firms in the same time-frame at the end of June 2017," wrote Judi Mahaney, a spokeswoman for MetLife, in an email Tuesday afternoon. "While MetLife is unable to discuss the compensation paid to a firm under a specific agreement, it is the company's goal to maintain consistency in its approach to compensation it pays to third-party firms."
Ms. Mahaney did not immediately respond to the question about whether clients will or will not receive rebates once advisers' trailing compensation has been cut.
"This is a MetLife decision and not a decision made by Massachusetts Mutual," said company spokesman Michael McNamara.
MetLife said in February 2016 it was selling its U.S. adviser unit to Massachusetts Mutual, with the deal closing last summer. Insurance companies have been dumping their independent broker-dealers since the credit crisis because of the rising costs of compliance and increasing restrictions on sales of proprietary products, including variable annuities.