Ohio National Trailing Commissions Litigation

Who Will Suffer the Most Harm as a Result of Ohio National’s Decision to Unilaterally Stop Paying Advisors on Variable Annuities with Guaranteed Income Riders? The Customers, Of Course.

Ohio Securities Attorneys Representing Financial Advisors Against Ohio National for Eliminating Trailing Commissions on Variable Annuities

For the past 20 years, I have been handling invested-related claims involving all types of securities and investments. Attorney Dennis Concilla, my co-counsel in the first lawsuit filed in federal court against Ohio National on behalf of advisors throughout the country, is a nationally recognized leader in securities law and has spent his 35-year career representing broker-dealers, registered representatives, and investment advisors.

Between the two of us, we’ve seen it all in this business.

He and I have battled against one another in many cases involving securities and investments of all types and we both know from our many years in the trenches, variable annuities are complicated products. Variable annuities with a guaranteed income rider are even more complex. That doesn’t make the product bad by any means, but the reality is that in order for the insurance company to offer guaranteed income riders, there are many complexities and nuances that must be understood.

One need look no farther than the products’ hundred-plus-page prospectus with small print and complicated concepts and calculations. Benefit base, sub-accounts, death benefit value, mortality expense, income rider charges, surrender value, lifetime income value. It is all but impossible for the typical investor to understand if this product is appropriate without professional guidance. These complexities require sophisticated analysis by investment professionals who are required to provide appropriate and suitable advice and counsel to customers - both when the products are presented to the customer and, even more importantly, throughout the life of the annuity. Enter the financial advisor.

Ohio National knew that the variable annuities with guaranteed income riders it offered were complex. They had a crew of wholesalers promoting these policies to advisors and encouraging them to sell them to their clients. Everyone knew that the complexities of these products required significant expertise and work by the advisors, both on the front end as well as throughout the life of the annuity, as the clients’ life circumstances changed. At the outset, before the advisors could recommend this investment to their clients, they were required (by industry rules and as a matter of good business) to evaluate whether the product was suitable for their clients.

Once the customer purchased the annuity, the work has just begun. Continuously monitoring their clients’ life circumstances, evaluating the benefit base, actuarial payout, fees, whether and when to annuitize, and much more. The customer is paying approximately 3% annually in fees in exchange for, in part, the advice and recommendation from their advisors on an ongoing basis. Of course, a portion of the fee is paid to the advisor to compensate the advisor for the work, both on the front end and during the life of the annuities.

Ohio National induced thousands of advisors to sell billions of dollars’ worth of its variable annuities with guaranteed income riders by promising annual, recurring commissions to the advisors. In exchange for recommending, selling, and services these annuities, Ohio National promised to pay the advisors trailing commissions (that continue to be paid by the customer as part of the 3% annual expense) on a yearly basis until and unless the annuities are surrendered or annuitized. Most importantly, customers purchased these policies believing that they will be able to rely on their trusted advisors to advise them on how to manage these complex policies.

On September 28, 2018, Ohio National announced, out of the blue, that it would no longer pay trailing commissions on the policies that have already been sold and are still in existence. In the face of its unilateral decision to no longer compensate the advisors for their ongoing obligations to the customers, Ohio National has reportedly indicated that it expects the advisors to continue to service these policies even though they will no longer be compensated for their work!

Does anyone think the executives at Ohio National would continue to perform their job duties if they were no longer being compensated for their work? Of course not.

It gets even worse. Ohio National’s decision to stop paying trailing commissions will not reduce the expense for the customers by even one penny. The annual expense that the customers agreed to pay in exchange for the expectation that they will have their trusted advisor by their side throughout the life of the annuities will remain the same. Ohio National has decided to simply pocket the money itself, rather than pay it to the advisors for the work they continue to perform. And, while Ohio National is stuffing its pockets with the money previously earmarked to pay the trailing commissions, the Ohio National expects the advisors to continue advising the customers without compensation.

Who is harmed the most by Ohio National’s egregious conduct? The insurance company is banking on mistakes being made, nuances being missed, and ongoing review and oversight declining as time passes so that customers will cash out of the annuities and Ohio National can save millions of dollars in future commitments.

A company in the business of making promises should not be breaking its promises.

Dennis Concilla and I are committed to fighting this wrong so that the customers who own these policies can receive proper analysis and advice from their trusted advisors, who are entitled to the fair compensation for their work that was promised by Ohio National when the products were sold.

Contact us today to get started!