Ohio National Financial Services Inc. is offering buyouts to some variable-annuity customers, a move that some industy experts believe is related to a recent announcement that it would be cutting advisers' trail commissions by the end of the year.
Around Nov. 12, Ohio National will begin offering clients the ability to surrender some variable annuities sold with a "guaranteed minimum income benefit" rider, according to a filing with the Securities and Exchange Commission. The offer will run through mid-February, according to the filing, made Oct. 26.
The buyout will take the form of an "enhancement amount" — essentially, additional cash — Ohio National will pay to holders of eligible ONcore variable annuities if they either surrender their contract or exchange it for a different product with another carrier.
Ohio National recently announced it would stop writing new annuity business and then notified broker-dealers that, beginning Dec. 12, it would terminate its existing servicing agreements and stop paying advisers trail commissions associated with variable annuities with GMIBs, a move many advisers and insurance executives criticized and called unprecedented.
Experts fear the new buyout offer will incentivize some brokers to exchange their clients' Ohio National annuities for another company's product in order to continue receiving trail compensation.
"I think it's very calculated by Ohio National and I think it's really disingenuous," said Kevin VanDyke, president and founder of Bloomfield Hills Financial. "The bottom line is, they made promises to clients, and they don't want to keep those promises, and they're doing anything they can to get them to pull their money out."
"Their behavior is the worst type of Wall Street-type behavior," he added.
Several insurers, such as AXA Equitable Life Insurance Co., Transamerica Life Insurance Co., Voya Financial and The Hartford Financial Services Group Inc., have offered similar incentives to investors in recent years to try get out of generous benefits underwritten around the time of the financial crisis. These benefits have proven costly for insurers, largely because of a decade of rock-bottom interest rates.
Ohio National acknowledges in its buyout offer that it stands to "gain a financial benefit" from the offer since supporting the current product guarantees may be more expensive for the firm. It also said customers are not required to accept the offer, and contract benefits would remain unchanged if the offer isn't accepted.
"Today this offer could be attractive to contract owners whose life needs, retirement goals and aspirations may have changed," Ohio National spokesperson Lisa Doxsee said of the offer, which she referred to as a "normal business practice" among insurance carriers.
The company is encouraging clients to discuss this offer with their adviser, Ms. Doxsee said. The insurer will also notify the advisers of record for eligible clients and provide them with information to help advise their clients, she added.
One LPL Financial adviser, who requested anonymity because he was not authorized to speak publicly about the issue, said after examining the buyout offer that it's a "very aggressive offer" with some "substantial" monetary payments for some of his clients.
However, he said a surrender or exchange probably still wouldn't be in clients' best interests in "most scenarios."
Ohio National completed a similar annuity exercise earlier this year for its ONcore variable annuities bought with the GMIB feature, which offers investors a lifelong guaranteed income stream. That offer took the form of a product exchange, whereby investors could shift assets to an Ohio National indexed annuity with a different type of rider.