Cetera broker-dealers latest to file legal claim against Ohio National

Six Cetera broker-dealers allege the insurer will be breaching its contractual obligations by withholding millions of dollars in trail commissions from their brokers

Nov 21, 2018 @ 1:26 pm

By Greg Iacurci

This story has been updated to include additional information not available when originally published.

The six broker-dealers in the Cetera Financial Group network have filed arbitration claims against Ohio National Life Insurance Co. and affiliates, seeking to prevent the loss of millions of dollars in annuity trail commissions that they allege are in jeopardy due to a new policy being implemented by the insurer.

Cetera Advisor Networks, First Allied Securities Inc., Cetera Advisors, Cetera Investment Services, Cetera Financial Specialists and Sumitt Brokerage Services filed the arbitration claims with the brokerage industry's regulator, the Financial Industry Regulatory Authority Inc. The six firms have about 8,000 advisers, according to InvestmentNews data.

Ohio National stunned broker-dealers and insurance firms in September when it announced it would stop paying trail commissions to brokers who had sold variable annuities with a guaranteed minimum income benefit rider. This feature pays investors a guaranteed level of income in retirement regardless of the value of the annuity's underlying investments. The policy is set to take effect Dec. 12.

The Cetera brokerages are among several parties that have petitioned for an intervention. An LPL Financial broker, Lance Browning, as well as independent broker-dealer Veritas Independent Partners, filed lawsuits in federal district court. Another broker-dealer, Commonwealth Financial Network, filed a lawsuit as well as an arbitration claim.

Similar to the other claims, the six Cetera broker-dealers allege Ohio National is breaching its contractual obligations by not paying "millions of dollars in compensation." They also claim the insurer is depriving thousands of investors (many of them seniors or retirees) of financial advice, and simultaneously trying to "coerce" those investors into surrendering their variable annuities by offering them buyout offers.

In a parallel action, the brokerages allege Ohio National is pressuring them to enter into a new agreement that would forfeit brokers' contractual compensation by threatening to stop paying commissions on all variable annuity contracts — even those without a GMIB rider.

The claimants request that an arbitration panel declare that Ohio National is obligated to pay all trail compensation on GMIB contracts, in addition to damages.

Ohio National spokeswoman Lisa Doxsee declined comment, citing the firm's policy around pending litigation or arbitration. Cetera spokesman Chris Clemens also declined comment. The attorney representing the Cetera broker-dealers, Timothy Fredericks of Winget Spadafora & Schwartzberg, didn't return a request for comment.

The litigation is the latest in a tumultuous couple months for the insurer. Prior to its decision about trail commissions, the firm announced it would stop writing new annuity and retirement-plan business in mid-September in order to focus on its life and disability insurance businesses.

Variable annuities represent $23.6 billion, or 56%, of the firm's total assets under management.

InvestmentNewsreported Tuesday that the firm laid off its chief distribution officer, H. Douglas Cooke, whose position was eliminated as part of the strategy to change its business strategy. It was also revealed that the firm's president and chief operating officer, Christopher Carlson, has decided to retire just three months after being promoted into the role. Mr. Carlson will continue to consult for the company.

The firm's board of directors elected Barbara Turner, chief administrative officer, to succeed Mr. Carlson effective Nov. 30.


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