It's been a few weeks since Ohio National Financial Services Inc.'s bombshell announcement around annuity trail compensation, and financial advisers are still trying to make sense of its implications for them and the broader industry.
One question seems to be on the minds of most: Will other insurers follow Ohio National's lead?
"This announcement was unprecedented," said Brian Kroll, head of annuity solutions for Lincoln Financial Group, one of the largest sellers of variable annuities. "I don't know that we've seen this in the industry in the past, so there's definitely some concern among advisers and broker-dealers."
InvestmentNews
reported earlier this month that Ohio National had informed distributors of plans to shut off brokers' trail commissions on certain variable annuities in mid-December. The move, which covers VAs purchased around a decade ago with a guaranteed minimum income benefit rider, sparked an uproar from advisers and some of the largest broker-dealers in the country.
Now, advisers are beginning to fear that other insurance companies, especially those that have
stopped underwriting new VA business, like Ohio National, will feel emboldened to do the same in order to cut costs.
Insurers that have
stopped writing new variable annuity business include Genworth Financial Inc., John Hancock Life Insurance Co.,
Voya Financial Inc. and The Hartford Financial Services Group. Voya and Hartford
sold off their closed blocks of variable annuity business to private-equity investors.
Such companies, advisers said, have less to lose from reneging on previous compensation promises because brokers wouldn't be writing future annuity business with the companies anyway.
"I believe in conversations I've had with multiple firms that there is sensitivity to those large closed-off blocks of business," said Joe Maringer, national sales vice president at Great American Insurance Group, a large fixed-annuity shop.
Allison Proud, a spokeswoman for Venerable Holdings Inc., which purchased Voya's business, declined to comment. Julie Westermann, a spokeswoman for Genworth, also declined to comment, as did John Hancock spokeswoman Melissa Berczuk. A spokesperson for the six investors that bought Talcott Resolution, the Hartford's runoff annuity business, didn't return a request for comment.
Some insurers that are still in the annuity business are beginning to take steps to assuage adviser concerns.
For example, the president of Great American Insurance Group, Mark Muething, sent a letter to broker-dealers Oct. 17 saying that Ohio National's decision "continues to be the talk of the industry" and that it has "naturally raised questions as to whether other insurers may do something similar in the future."
Mr. Muething said his firm will honor its obligations to distributors who selected a trail rather than upfront commission during an annuity sale.
Some insurance executives and advisers don't believe that other firms, either those that are still in or have exited the business, will follow Ohio National's lead, particularly given the prospect that such a move could damage their reputation across all product lines.
"Ohio National will probably take a pretty big reputational hit from advisers," said Jacob Soinski, an annuity planner at ValMark Financial Group. "Would I really sell their life or disability insurance in the future? If it were me, I'd be a little more wary of that."
Mr. Kroll, of Lincoln Financial Group, believes the fears of similar moves by other insurers are unfounded, especially when it comes to those that are active in the annuity business. An executive at another major annuity company, who spoke on the condition of anonymity, agreed, calling Ohio National's strategy a "scorched-earth policy."
Experts also said broker-dealers are likely to revise their selling agreements with insurers to try to prevent other firms from taking similar action. Until the Ohio National announcement, broker-dealers were largely unaware that an insurance company could terminate existing agreements and shut off compensation for brokers across the board. Contract language technically leaves room for such an action, advisers said, but had been acted upon only on an individual basis for cause, such as a regulatory snafu.
"It's every man for himself," said Thomas Doncaster, president of Doncaster Insurance & Financial Services Inc. "That's becoming more apparent in this industry."
But another adviser, who requested anonymity, questioned why an insurer with a closed block of annuity business would voluntarily rewrite a contract with a brokerage firm to give the brokers additional protections.
"They're licking their chops," the adviser said of such insurers.
