InvestmentNews INsider

The INsiderblog

InvestmentNews reporters offer their take on intriguing or controversial articles from around the web.

Ironic twist in the Ohio National annuity saga

The insurer sent a disclosure to clients hinting that advisers may have a conflict of interest if they recommend the client accept an annuity buyout

Jan 11, 2019 @ 1:05 pm

By Greg Iacurci

The months-long feud between Ohio National and financial advisers has taken a strange and ironic twist.

The latest perplexity involves a recent notice sent to some annuity clients of Ohio National, which stunned the brokerage industry in September by announcing it would stop paying advisers trail commissions on some variable annuities.

The notice reminds policyholders of a buyout offer the insurer issued in November, in which the company offers extra cash to clients if they exchange or surrender their ONcore variable annuity purchased with a guaranteed minimum income benefit rider. The offer runs until Feb. 11.

Included in that reminder is a disclosure with the following title: "Recent changes that may affect your financial professional's compensation." It goes on to tell policyholders that Ohio National is no longer paying trail commissions to certain broker-dealers.

Here's the curious part: "As a result, certain financial professionals may no longer receive compensation from their broker-dealer if you maintain your ONcore variable annuity, which could affect their decision to recommend whether or not you should accept the Offer."

This seems to be a thinly veiled suggestion that advisers may have a conflict of interest if they recommend that a customer accept the buyout offer. Advisers have articulated this threat in previous InvestmentNews stories — that bad brokers may switch a client out of the annuity in order to preserve their own compensation, and not because it's in a customer's best interest.

But why is Ohio National going out of its way to make this case to clients? The move is especially confusing since Ohio National's new compensation policies are what landed advisers in this awkward position to begin with. Furthermore, the communication to clients says that when clients consider the buyout offer, they should consult with an adviser — the very party whose morals are being called into question.

"It's dripping with irony," said David Berman, co-founder and CEO of Berman McAleer.

One executive at a brokerage firm with several thousand advisers, who requested anonymity, called the disclosure "probably the most outrageous thing Ohio National has done of all the outrageous things [so far]."

The situation is also a head-scratcher because the main reason Ohio National — indeed, any insurer — would offer an annuity buyout is to get some of the policies off their balance sheet and save the company money on previously underwritten income guarantees. And yet, Ohio National's disclosure suggests to clients that offloading the annuity may not be in their best interests.

An Ohio National spokeswoman declined to comment or elaborate on the company's reasoning.

One possible reason advisers have identified: legal protection. The insurer, advisers said, may be trying to fend off any liability associated with the buyouts by making certain disclosures to clients ahead of the buyout deadline.

The company is already facing legal challenges from more than 10 parties, including brokers and a number of broker-dealers, who are suing over the new commission policy. One broker, Chris Noone, voluntarily dismissed his lawsuit Jan. 3.

Advisers have been thrown for a loop with this whole annuity commission saga. But this development adds a whole other wrinkle.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Regulators' gloves are coming off with cybersecurity. Put up your dukes with these tips

Updated guidelines and some of the first-ever rule enforcements signal that regulators are getting serious about holding firms accountable for data breaches, according to special projects editor Liz Skinner and technology reporter Ryan Neal.

Video Spotlight

We started as a boutique firm with huge ambitions. Schwab was a perfect fit.

Sponsored by Schwab: Advisor Services

Recommended Video

Keys to a successful deal

Latest news & opinion

Here's how advisory firms compensate their employees

Schwab’s report on RIA pay details median compensation for a range of positions

Raymond James buys Silver Lane Advisors, an investment bank for RIA mergers

Expanding unit taps into M&A trends in the wealth management space.

Final pass-through rules deliver good and bad news for advisers

The final regs are a boon to rental-property owners and some mutual fund shareholders, but some clients' deduction may be diluted.

Finra focuses exam priorities on investor-protection threats

Online distribution of private placements pops up; exchange-traded products cause suitability worries.

10 public companies that boosted their ESG ratings in 2018

These 10 companies increased their environmental, social and governance scores last year.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print