LPL assures advisors other VA issuers won’t copy Ohio National

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A major variable annuity issuer’s move to cut off trailing commissions for advisors in certain contracts won’t be repeated — as far as the nation’s largest independent broker-dealer is concerned.

The 15 VA carriers who have selling agreements with LPL Financial have pledged to pay advisors their agreed-upon commissions, Rob Pettman, LPL’s executive vice president for product and platform management, said in a Jan. 24 message to the firm’s more than 16,000 advisors. Ohio National Financial Services stopped paying the trails on Dec. 12 for variable contracts with a guaranteed minimum income benefit rider.

“To ensure your trail commissions are contractually protected, we recently partnered with our variable annuity carriers to reaffirm their commitment to compensating you,” Pettman said in the email blast. “Your confidence in these carriers is important to us so you can maintain your focus on doing what you do best, which is taking care of your clients.”

He cited “unfortunate business decisions” by the Cincinnati-based insurance firm — which raked in more than $1 billion in total annuity sales in 2017 but stopped writing new annuity contracts in September. Ohio National's decision to stop the trails prompted LPL to focus on “protecting the important revenue streams you’ve built from variable annuity business,” Pettman said.

Ohio National President Chris Carlson left the firm at the end of November after 25 years but only about three months after taking over the role. He retired from Ohio National for personal reasons, according to the firm, giving way to Barbara Turner, the CEO of the firm’s IBD.

Carlson had announced the firm would stop issuing annuities or taking on new retirement plan business on Sept. 15, aiming its growth efforts instead on its life and disability product lines and Latin America. The firm notified IBDs and other selling partners weeks later that it would end the trails.

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Since then, the issuer has reached out to clients who have its ONcore variable annuity to offer buyouts of their contracts until Feb. 11. The notices included a disclosure warning clients that the cutoff of commission trails “could affect” their advisors’ recommendations, according to a report in Investment News.

Ohio National spokeswoman Lisa Doxsee declined to discuss the situation, saying in an email that the company is “not commenting on issues related to pending litigation.”

Individual advisors, Commonwealth Financial Network and other broker-dealers have filed lawsuits against the major issuer over the decision, which experts have called rare or unprecedented. Cetera Financial Group’s six IBDs with 7,700 advisors have also filed FINRA arbitration claims against Ohio National.

“While Ohio National has the right to discontinue future sales of the annuities, it may not unilaterally terminate its obligation to pay trailing commissions on existing annuities,” LPL advisor Lance Browning said in his lawsuit against the issuer in U.S. District Court for the Southern District of Ohio.

LPL has made its views known to Ohio National, but it hasn’t filed its own lawsuit out of concern it could have an impact on other annuity product categories, Pettman said in an interview. The firm hasn’t ruled out a lawsuit but isn’t pursuing one at the moment, he says.

Pettman declines to name any of the other VA companies who pledged not to mimic Ohio National’s conduct, saying he wasn’t authorized to disclose them. He also didn’t say how many LPL advisors had clients with contracts affected by the cutoff — which he describes as posing a potential impact on all of its advisors.

LPL sent letters and held phone calls and meetings with its issuer partners, Pettman says. The No. 1 IBD requested that the annuity companies “contractually reaffirm their commitments to protecting trails,” he says.

LPL also “stood up processes and procedures immediately to assess how we supervise those offers” after Ohio National sent the buyout notices, he adds.

Pettman also referenced LPL’s leadership position in the sector — along with its substantial resources and capabilities — as a reason for its outreach to the other annuity companies. The firm plans to contact issuers of other types of annuities as well to obtain similar commitments.

LPL’s revenue from annuity sales by its representatives dropped by 7% in 2017 to $854 million, which still makes up about 20% of its $4.28 billion in revenue. It is the largest annuity revenue in the IBD sector.

Annuities generated $4.4 billion in revenue at the 50 largest IBDs in 2017, the most recent available data in Financial Planning’s annual FP50 survey. The products made up 17% of their more than $25.7 billion in revenue, compared to their 21% share in 2014.

“I think everyone was caught off guard by the Ohio National action,” Pettman says. “We needed to make sure this didn't happen again. There was an incredible amount of nervousness out there that this could be precedent-setting.”

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Variable annuities Annuities Insurance Lawsuits Independent BDs LPL Financial Ohio National