IPB 135: The Ohio National Variable Annuity Episode

Ohio National officially closed its VA biz and cut trail commissions (fees?) owed to B/D’s and brokers on December 13th, 2018 for any VA sold with a guaranteed minimum income benefit. We don’t know exactly how many VA’s this is but assume that it’s a large block of outstanding business sold within the last decade as these rides were extremely popular features for VA contracts.

As a result, a flurry of lawsuits came about claiming various insidious things against ONL for its refusal to continue payment to brokers who wrote VA business with the company.

Lawsuits we know about at the moment:

1. UBS

2. Lance Browning and LPL Broker

3. Veritas Independent Partners

In addition, the Insured Retirement Institute (IRI) has publicly voiced its concerns and contempt with the decisions ONL has made. ONL is a former member of the IRI.

IRI statement:

“Such moves may look good from an accounting and actuarial perspective, but they risk creating the perception of an industry reluctant to stand behind its products.”

Law firms have begun prospecting for plaintiffs, as you can see here.

ONL responded to at least the lawsuits filed by Veritas and Browning. For Veritas, ONL stated that it either denied claims or that there wasn’t sufficient evidence to substantiate the claim.

For Browning, ONL claimed that the agreement to pay trail commissions wasn’t with Browning, but with his B/D, so he has no authority to bring a claim against ONL because he and ONL were never contractually tied to one another. As a result, ONL moved to dismiss the case.

In late Oct, ONL began making buyout offers to VA policyholders. It wants out of old contractual obligations that provide guaranteed minimum income benefit riders.

While ONL is facing much backlash, MetLife attempted to cut VA commissions to advisors who did not follow to MassMutual.

You ever wonder if one of the reasons VA issuers always want to update VA packets and tell brokers to throw away old ones has something to do with eliminating litigation risk for a marketing comment made that they decide they’d rather not have to explain in court later?

The size of this discussion speaks to the way in which most investment salespeople get paid. The majority of them choose to be paid through trail commissions (essentially the same as an asset management fee) and messing with this compensation is a big deal to them.

I personally saw brokers during my career days who were worried about moving from one B/D to another b/c they feared problems with receiving trail commissions.

3 thoughts on “IPB 135: The Ohio National Variable Annuity Episode”

  1. Hello Brandon,

    If a small business owner wishes to purchase three Infinite Banking policies on his three employees, he can either: 1) be the owner of the three policies so he control the cash values, or 2) the corporation owns the three policies, but the business owner as the CEO can also get access to the cash value.

    In your opinion, are there tax or other advantages of him owning the policies versus his company owning them?

    Thank you,

    Isis and Pedro Palicio

    • Hi Isis, and Pedro,

      No tax advantage to the business owning them (unless the business is the beneficiary, see below), but I would foresee an insurable interest problem with the business owner owning the policies himself.

      Assuming he has no other relationship with the three employees, I’d seriously doubt the insurer would issue the policies under a plan where he owns the policies individually. He wouldn’t want to own the policy, insure the employees, and name the business as the beneficiary of the policies as this would create a Goodman Triangle.


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