In Advisor Group lawsuit, the right hand is suing the left

It's a tale perhaps only possible in an era when the financial services industry is awash in private equity money: A large network of broker-dealers, Advisor Group Inc., is claiming in a lawsuit that an annuity manufacturer, the former Voya Insurance and Annuity Co., is in breach of contract and has turned its back on a marketing agreement that paid Advisor Group $300,000 per year.

The weird, private equity kicker? Reverence Capital Partners, one of the PE managers that bought the annuity business of Voya Financial Inc. in 2018, is also the controlling owner of Advisor Group.

In other words, at Advisor Group, the right hand is suing the left.

"The issue is that these private equity managers have substantial financial interests in multiple entities or businesses that are highly regulated, yet there are no controls in place to make sure all the children are working together and even cooperating in business and marketing efforts," said Scott Silver, a plaintiff's attorney.

"The typical argument is, there are so many synergies for the joint ownership of financial services companies," Silver said. "But this case highlights the fact that the parent companies are not required to be registered with [the Financial Industry Regulatory Authority Inc.] as a control person."

Advisor Group this month in federal court in Philadelphia sued the former Voya insurance companies for allegedly tearing up a marketing agreement worth $300,000 per year that the insurers were to pay for marketing, including access to Advisor Group's large network of thousands of advisers.

The Advisor Group lawsuit alleges that Venerable Insurance and Annuity Co., until recently the Voya Insurance and Annuity Co., and another Venerable company, Directed Services, had a marketing deal beginning in 2015.

Such marketing agreements — where product makers, like mutual fund or annuities companies, give payments to broker-dealers — are common and potentially lucrative for large networks like Advisor Group because of their size and role as product gatekeeper to thousands of financial advisers.

But such agreements are coming under pressure in the industry due to increased scrutiny from regulators and shrinking margins at product makers.

That Advisor Group marketing deal at the heart of the claim allegedly fell apart three years later, according to the complaint. Voya Financial Inc. sold its annuity business to Venerable Holdings Inc. in June 2018 and a year later it was rebranded to Venerable Insurance and Annuity Co.

Venerable Holdings is backed by several investors, including Apollo Global Management, Crestview Partners and Reverence Capital Partners, according to its website. None are named in the Advisor Group lawsuit.

According to the complaint, Ken Brown, CEO of Directed Services, in June 2018 wrote to Advisor Group and told the network the marketing agreement was ended. A year later, Advisor Group responded and told Venerable it expected five years of payments, according to the complaint, which claims a breach of contract by the Venerable Holdings companies.

A spokesperson for Venerable Holdings said that the company does not comment on pending litigation. "We value our relationships with our distributors and are committed to honoring our obligations to them," the spokesperson added.

A spokesperson for Advisor Group said the broker-dealer network does not publicly discuss legal matters.

Advisor Group is a giant broker-dealer network of six firms and nearly 11,500 registered reps and financial advisers.