UBS has sued The Ohio National Life Insurance Co. and its subsidiaries for the insurer's new policy of ending adviser trail commissions on some variable annuity products. The wirehouse joins several other broker-dealers fighting the cessation of annual compensation.
Ohio National last week terminated the trail compensation advisers receive for selling and servicing variable annuity products with a guaranteed minimum income benefit rider. The policy,
announced at the end of September, applies across the majority of brokerage firms that sell Ohio National annuities.
Industry executives say the move is a first of its kind among annuity providers, and it has left advisers
questioning how to deal with the fallout.
UBS Financial Services Inc., the bank's U.S. wealth management division, and UBS Financial Services Insurance Agency Inc. are suing Ohio National for "material breaches" of its selling agreement, which "unambiguously" provides for continued commission payments until clients surrender or annuitize their variable annuities, according to UBS.
UBS also alleges Ohio National's conduct constitutes "unlawful deceptive practices" under New Jersey law, where the firm is based. The lawsuit seeks monetary damages and renewed payment of trail commissions.
The firm filed its lawsuit last Thursday in New Jersey district court and joins several other broker-dealers in lobbying either the federal courts or the Financial Industry Regulatory Authority Inc. to intervene and reverse the insurer's policy.
Cetera Financial Group, Commonwealth Financial Network and Veritas Independent Partners
filed complaints in November, as did an LPL Financial broker, Lance Browning, who said he
stands to lose $89,000 a year in commission payments. NEXT Financial Group Inc. filed a lawsuit last Monday.
[More: Complaint claims Ohio National Financial Services poses ‘danger’ due to its ‘illegal’ activity]
Ohio National spokeswoman Angela Meehan declined to comment specifically on the UBS lawsuit. Broadly, the firm believes the policy falls within its contractual rights.
"We note that while many advisers develop relationships with their clients, providing advisory and other services, those services and relationships fall outside of Ohio National's contractual agreements with its policyholders," Ms. Meehan said. "Specifically, there is no language in our contracts or product prospectuses that provide for this type of arrangement."
The UBS lawsuit alleges Ohio National determined in or around 2017 that its variable annuities sold with GMIBs "were uneconomical in an environment of high regulation and low interest rates."
The firm is currently
offering clients who own these annuities a buyout offer, which is a monetary incentive to get rid of their current policy, which Ohio National acknowledges would be a financial benefit to the company. The offer stands through mid-February, and some are worried that, absent continued trail payment, advisers may leave investors to fend for themselves.
Ohio National
stopped writing new annuity business in mid-September and laid off 300 employees. The firm
subsequently laid off its chief distribution officer, H. Douglas Cooke. Its president and chief operating officer, Christopher Carlson, decided to retire only three months after being promoted.
