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
“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
Ohio National President Chris Carlson
Carlson had
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A civil filing by an IBD seeks damages for firms and reps “who devoted significant time and resources to building a book of business,” an attorney says.
November 13 -
LPL slammed the move by the exiting major issuer to cut off trails for advisors in certain existing contracts.
October 17 -
LIMRA now predicts VA purchases to increase for the first time in six years while fixed contracts reach unprecedented levels.
November 26
The largest firms’ combined VA and FA revenues hit a three-year low in 2017, but the products still make up a significant portion of their businesses.
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
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
“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
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.”
