Variable Annuities are Still Being Recommended — Despite Ohio National Fallout
It appears many top retirement advisors who recommend variable annuities to their plan sponsor clients haven’t soured on the product despite the wider ramifications of Ohio National Financial Services’ decision to terminate its variable annuities selling agreements with broker-dealers and stop paying trailing commissions.
Surveyed in December by FA-IQ sister publication Ignites Research, most of the top retirement advisors who provide variable annuities as an investment option for their plan sponsor clients said they will continue to provide the product as an option.
Around 71% of the 80 of the Financial Times’ Top 401 Retirement Advisors surveyed said they won’t reconsider their stance on the product despite Ohio National Financial Services’ recent actions and subsequent questions on the reliability of variable agreement selling agreements.
On September 28, Ohio National sent a letter to broker-dealer firms informing them it was terminating its variable annuities selling agreements effective December 12, and that it would no longer pay trailing commissions stemming from annuities already sold.
Top retirement advisors surveyed weren’t asked to identify the insurance providers they use for variable annuities.
Only 6% of those surveyed said they’ll reconsider recommending variable annuities. The rest — or 22% — said they were undecided as to what action to take.
The 80 retirement advisors surveyed had a total of around $57 billion in assets under advisement in defined contribution plans as of Sept. 30, 2018.
In a previous interview with FA-IQ, Dennis Concilla, Columbus, Ohio-based head of Carlile, Patchen & Murphy’s securities litigation and regulation practice group, said Ohio National’s actions have “fairly serious ramifications” for the broker-dealer industry and the customers. He said brokers have questions about the reliability of selling agreements with variable annuities providers.
“They sold these products with the belief that it was in the best interest of their clients and they are going to be compensated for not selling other things while their clients’ assets are tied up in these products,” he said.
Concilla noted that the trailing commissions are the broker’s compensation for “assisting their clients in selecting annuities, in selecting the sub-accounts, in advising them when it’s time to start drawing money or to annuitize, et cetera.”
Customers — particularly “average” investors who don’t have a significant amount of other assets in their brokerage accounts — will lose the advice of their brokers who will no longer be paid trailing commissions, Concilla said.
In November, Lance Browning, an LPL Financial broker, brought a class action suit against the Ohio National Life Insurance Company, the Ohio National Life Insurance Company and Ohio National Equities before the U.S. District Court Southern District of Ohio Western Division.
“Ohio National is unlawfully trying to change the rules after the game has already started,” according to the complaint.
The lawsuit reveals that while some broker-dealer groups may be suffering heavy losses in annuities trailing commissions, wirehouse Morgan Stanley is still getting preferential treatment from Ohio National. It is understood that Morgan Stanley will continue receiving its trailing commissions because of the wording of Ohio National’s selling agreement with the wirehouse.
Meanwhile, LPL Financial has taken steps to ensure advisors on its network don’t suffer the same fate as brokers who can no longer receive trailing commissions on annuities from Ohio National Financial Services, as reported.
LPL has amended contracts with all 15 insurance companies whose variable annuities are sold by its brokers. The firm informed its more than 16,000 advisors last month it had renegotiated the contracts considering Ohio National’s “recent unfortunate business decisions,” according to Rob Pettman, the firm’s executive vice president of products and platform management.
The Ignites Research feedback on the use of variable annuities products was part of a broader survey of 209 of the Financial Times’ Top 401 Retirement Advisors.
Of those 209 retirement advisors, only 38% offer variable annuities as an option for their plan sponsor clients. Those 209 advisors had a total of around $456 billion in assets under advisement in defined contribution plans as of Sept. 30, 2018.
To be included in the elite FT Top 401, qualified retirement plan advisors are scored on seven criteria: DC plan assets under management, DC plan growth, focus on the DC business, experience, advanced industry credentials, employee participation and compliance records.