A Massachusetts' federal judge has ruled that Finra arbitration is appropriate to settle one of several legal challenges to Ohio National's decision to end trail commissions on a specific variable annuity.
Judge Denise J. Casper ruled that an addendum to the Ohio National selling agreement commits them to arbitration with Commonwealth Equity Services. An independent broker-dealer, Commonwealth and one of its advisors, Margaret Benison, are plaintiffs.
They allege "breach of contract, breach of the implied covenant of good faith and fair dealing."
Ohio National informed broker-dealers in a Sept. 28 letter that it would terminate "any and all servicing agreements" on Dec. 12, 2018. That means all compensation, specifically trail commissions, stopped 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.
While Commonwealth and Ohio National Equities are Finra members, and Benison is a "Finra associated person," Ohio National Life Insurance Company and Ohio National Life Assurance Corp. are not.
But Casper ruled that the selling agreement addendum "contains a valid, enforceable arbitration agreement between the parties, not just those entities already bound to Finra arbitration under the Finra rules."
Ohio National never comments on legal matters, a spokeswoman has said. In court papers, the insurer claimed that ONLIC and ONLAC are not subject to Finra arbitration and there is no "'dispute' involving ON Equities for which arbiration is needed."
At least three other broker-dealers are suing the insurer in federal courts in Ohio and New Jersey. Those lawsuits are not seeking Finra arbitration, however.
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 protected].
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