An LPL Financial broker filed a lawsuit Tuesday, asking an Ohio court for an injunction to prevent Ohio National from eliminating trail commissions on select variable annuity contracts.
A lawsuit was expected, and one industry analyst said there will be more.
"This is just the beginning," said Sheryl Moore, president and CEO of Moore Market Intelligence. "I think the distributors will be the next to file."
Ohio National informed broker-dealers in a Sept. 28 letter that it will terminate "any and all servicing agreements" on Dec. 12. That means all compensation, specifically trail commissions, stops on that date.
The decision is believed to be the first of its kind in the industry and affects variable annuity contracts purchased with a guaranteed minimum income benefit rider. The GMIB is appealing to clients looking for guaranteed income in retirement.
"Ohio National is unlawfully trying to change the rules after the game has already started," reads the first line in the lawsuit by Lance Browning, a broker based in Whitehouse, Texas.
Browning sold annuities with Morgan Keegan and UBS/Paine Webber prior to joining LPL in 2012, court documents say. He has sold more than 100 annuities with trailing commissions that yield him $89,000 annually.
Browning's class-action lawsuit claims Ohio National is guilty of "breach of contract" and "unjust enrichment," among other claims.
"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," the lawsuit reads.
Ohio National did not reply to messages seeking comment.
The lawsuit asks for additional damages as determined by the court, and possibly, creation of a "constructive trust" from which class members can seek restitution or compensation.
'Unprofessional And Disrespectful'
Ohio National distributes life and annuities through an independent producing general agent channel with about 11,000 agents, and through a career agency channel with about 4,000 agents, the company said. Career agents are apparently unaffected by the decision to stop paying trails on VAs with a GMIB.
Some major broker-dealers are still deciding how to respond to Ohio National. LPL, the largest independent broker-dealer in the country, quickly signaled a willingness to fight for its brokers.
"LPL strongly believes this kind of behavior is unprofessional and disrespectful to business partners and clients," LPL wrote in a memo to its brokers. "We are actively challenging Ohio National to reverse their decision regarding compensation.
"We will make it clear to all of our other annuity partners that the Ohio National decision regarding future compensation is unacceptable. We are currently evaluating all annuity sponsor contracts and seeking to identify anything we can legally change or amend in order to protect your commissions in the future."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com.
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