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Cetera Files Arbitrations Against Ohio National Over Annuity Contracts

The firm is the latest to take legal action against the insurer for cutting commissions on annuities with guarantees.

All six Cetera Financial broker/dealers have filed FINRA arbitration claims against Ohio National Life Insurance Company and its affiliates for cutting trail commissions on annuity contracts with guaranteed minimum income benefit riders. The firm filed three arbitration claims on behalf of its b/ds, which include Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services (marketed as Cetera Financial Institutions), Cetera Financial Specialists, First Allied Securities and Summit Brokerage Services. 

The move is the latest in a string of similar legal actions against the insurer: Veritas Independent Partners filed a suit in the Ohio Southern District Court; an LPL Financial broker, Lance Browning, also filed a suit in that court; and Commonwealth Financial Network is suing the company in a Massachusetts district court.  

“There seems to be a growing wave of this, so I would imagine you wouldn’t see this quantity of litigation against Ohio National unless they felt it had legs,” said Jonathan Henschen, president of the recruiting firm Henschen & Associates in Marine on St. Croix, Minn. “My hope is that they do get a lot of lawsuits and that the amount of litigation against them would scare other insurance companies from ever considering what Ohio National is doing to reps and broker/dealers here with cutting off trails.”

In September, Ohio National notified b/ds that it was terminating selling agreements as of Dec. 12 and ceasing payments of trail commissions on annuity contracts with a GMIB rider. An Oct. 29 email from Ohio National says the company will offer clients a buyout of their variable annuity contract with GMIBs from Nov. 12, 2018 to Feb. 11, 2019.

“Ohio National’s improper conduct is designed to pressure Claimants’ Representatives to recommend that their clients surrender their GMIB Rider annuities,” one statement of claim reads.

Spokespeople for both Ohio National and Cetera declined to comment.

In early September, the insurer announced plans to exit the annuities and retirement plan business and focus solely on its life and disability income insurance lines. Other insurers have taken similar steps; in August 2017, Metlife completed the spin-off of its life insurance and annuities businesses, creating Brighthouse Financial, a separate entity. 

Henschen said Ohio National cut the commissions because it can no longer afford the guarantees on those annuities, and it’s not having success with the buybacks of the old policies. 

“This is a way for them to stem the outflow of revenue by cutting off these trails. But you make a deal, you make a deal,” he said.

Cetera claims that Ohio National stopped paying commissions on all variable annuity contracts, “even those that do not have a GMIB Rider—unless Claimants sign a servicing contract agreeing to continue to service Ohio National’s GMIB Rider contracts on an ongoing basis without receiving any compensation,” one claim says.

The firm is suing for breach of contract, unjust enrichment and breach of the implied covenant of good faith and fair dealing. It’s seeking declaratory and injunctive relief as well as legal fees.  

According to the contract, Cetera and its reps receive a 1 percent upfront commission, as well as ongoing trail commissions of 1 percent per year after year two of the annuity being in place. The agreement says that any change to compensation must be made in writing and can only apply prospectively.

“I anticipate we’ll see more and more of this,” Henschen said.

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