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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.


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