Kestra Financial recently settled with Ohio National, ending the broker-dealer’s lawsuit over trail commissions on certain annuity contracts.
The companies filed a notice Jan. 8 in the U.S. District Court of the Western District of Texas that they had reached a settlement, indicating that they planned to file dismissal documents within 45 days. The court has since stayed the case pending the submission of the request to dismiss, which is due Feb. 24.
The broker-dealer’s Kestra Investment Services subsidiary filed the lawsuit in July, one of many filed against Ohio National in the wake of its highly controversial decision to end trail commissions for advisers who sold variable annuities with guaranteed minimum income benefit riders. The decision, which was unprecedented in the industry, affected most brokerages that sold the insurer’s annuities.
Other firms, including UBS, RBC and Veritas, also sued Ohio National.
Terms of the settlement were not disclosed in court records. A representative for Kestra could not be reached by press time.
“We have reached a resolution with this broker-dealer regarding trail commissions,” an Ohio National spokeswoman said in a statement. “The terms are confidential, but the matter was resolved to the mutual satisfaction of all parties.”
The insurer declined to comment on other active litigation against it.
In its complaint, Kestra leveled numerous charges, alleging breach of contract; breach of implied covenant of good faith and fair dealing; tortious interference with contracts; and unjust enrichment. The broker-dealer sought monetary damages, interest, punitive damages and attorneys’ fees. It also asked the court for a declaration that Kestra had rights to ongoing trail commissions pursuant to its selling agreement with Ohio National.
The insurer began making attempts to offload some of its GMIB contracts in 2017 and offering buyouts, as that business was reportedly unprofitable, Kestra wrote in the complaint.
However, Ohio National was unsuccessful in its bids to get clients to surrender their contracts, which led the insurer to take the drastic step of terminating its selling agreements with broker-dealers, according to Kestra.
“Ohio National sought to make it harder and more expensive for Kestra to service the GMIB Contracts,” the complaint stated. “This, defendants hoped, would encourage Kestra to recommend that its customers accept the buyout offer and move into another product for which Kestra could be compensated.”
In 2018, Ohio National stopped writing new annuities and laid off 300 employees.
There are still several high-profile lawsuits pending, including a class action brought by Veritas Independent Partners and Avantax Investment Securities. The plaintiffs in that suit filed an amended complaint on Dec. 20.
The outcome of that case will likely have an effect on other litigation, including a lawsuit brought by Next Financial Group. In November, the judge overseeing the Next Financial case ordered a stay pending resolution of the Veritas class action.
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