District Court Rules Against Advisors in Ohio National Commission Cases

In late 2018, Ohio National said it was getting out of the variable annuity business, focusing on the sale of life insurance and disability insurance, and ending its annuity sales compensation arrangements, including arrangements to pay trail commissions on annuities already in force.

The Browning and Cook selling agreements ended Dec. 12, 2018. Browning asked the court for standing to represent a class of all LPL securities reps who had sold an Ohio National guaranteed minimum income benefit variable annuity that had not been surrendered or securitized.

Cook sought standing to represent a class that included all reps who had sold individual Ohio National variable annuities with a guaranteed minimum income benefit rider, that had not been surrendered or annuitized, under any selling agreements between Ohio National and any broker-dealers, and who were affected by the sudden end of trail commissions.

Magistrate Judge Stephanie Bowman recommended in June that the court let the reps' actions proceed. Ohio National argued that letting Bowman's recommendations prevail would  "open the floodgates to litigation initiated by corporate employees/agents on all sorts of corporate contracts."

Dlott writes in the new Browning and Cook orders that Bowman had based her recommendations on the conclusions in a related case, Commonwealth Equity Services LLC and Margaret Benison v. The Ohio National Life Insurance Company et al.

In that case, the judge found that reps were the intended third-party beneficiaries of a selling agreement between Ohio National and a broker-dealer.

Dlott writes that she disagrees both with the Benison conclusion and Bowman's use of that conclusion in her recommendations.

In the Browning and Cook cases, the broker-dealers were the parties responsible for enforcing the selling agreements, not the reps, Dlott writes.

"Ohio National did not hire the representatives, was not their employer, and did not pay them compensation," Dlott writes.

"The court concludes that the securities representatives were not intended third-party beneficiaries under the selling agreement," Dlott writes.

— Related on ThinkAdvisor:

• RIA Wins $347K Arb Award From Schwab
• Advisors Switching Firms Face Another Obstacle After Court Ruling
• 6 Overlooked Criteria for Broker-Dealer Due Diligence