Ohio National and Constellation

[AZSHIS]

You have to keep in mind, they were not a true mutual... they were a mutual holding company, that could be spun out at any time. Unfortunately that time has come. It will be interesting to see what happens with them, and I hope the effects aren't crushing on the clients.



Because they signed up for a quality div paying life insurance policy. There may be no dividend going forward, or if so it'll likely be very low.

About 12 years ago I got an invite like many of you to the Natti to get to know OHN. One of the speakers wrote over 5 mill in whole life and what I saw on all the garbage they mailed he continued to write very large amounts of OHN Whole Life. His clients are screwed moving forward. There is no way these policies will ever be able to pay the alleged promised and illustrated 5-8 percent dividends.

 

[pfg1]

It will be interesting to see to see where his breakaway league ends up putting their business.
Lafayette life is my bet.

Probably. There aren't alot of options and its only going to a company that will allow hierarchy pay and big overrides.
That's the other thing... ON pays HUGE amounts of commissions to big producers. Literally you can get 20-30-40% more than you can with Penn Mutual or some others, on similar products. That has to affect the company bottom line.

 

[scagnt83]

Moving huge amounts of money from 401k's into annuities, then taking 10% out each year to fund PLI... it doesn't take many clients to have a good year. This industry is full of those types of deals. I hope their E&O doesn't get tested on that stuff, I could easily see clients wanting to sue if it turns out the rug has been pulled out from under them. I hope not, that won't be good for anyone.

And that is my biggest issue with that whole set-up, besides the use of exaggerated assumptions on the equity side.

They pitch the 401k to Annuity play as a way to "maximize your earnings power". But it also shields the life carrier from knowing those funds are coming from a 401k. All the life carrier sees is its a Qualified Annuity.... assuming the proper disclosures are being documented on the app.

If the life carrier knew the majority of the clients life savings were being used to fund the policy, it would never pass Suitability. The Annuity hides the true Source of Funds.

And that is exactly how the Attorneys are going to nail the breakaway league when they enevitably get sued.

A client who has $50k per year to put into PLI... has $100k to hire a lawyer and sue your ass....

 

[scagnt83]

Probably. There aren't alot of options and its only going to a company that will allow hierarchy pay and big overrides.
That's the other thing... ON pays HUGE amounts of commissions to big producers. Literally you can get 20-30-40% more than you can with Penn Mutual or some others, on similar products. That has to affect the company bottom line.

And it affects why some producers use them. Especially ones who run big organizations pushing WL as a miracle investment for retirees.

 

[Allen Trent]

And that is my biggest issue with that whole set-up, besides the use of exaggerated assumptions on the equity side.

They pitch the 401k to Annuity play as a way to "maximize your earnings power". But it also shields the life carrier from knowing those funds are coming from a 401k. All the life carrier sees is its a Qualified Annuity.... assuming the proper disclosures are being documented on the app.

If the life carrier knew the majority of the clients life savings were being used to fund the policy, it would never pass Suitability. The Annuity hides the true Source of Funds.

And that is exactly how the Attorneys are going to nail the breakaway league when they enevitably get sued.

A client who has $50k per year to put into PLI... has $100k to hire a lawyer and sue your ass....

Really--do they disclose the differences in protections from creditors that are superior in a 401k compared to IRA-Annuity (I believe federal law protects unlimited 401k, but $1-1.5M IRA. Or do they disclose the ability to avoid 10% early distribution from the 401k plan at age 55 compared to 59 1/2 in an IRA? Not saying moving money from 401k to IRA should never be done, but those are a couple of major points that I see rarely ever discussed, let alone when the end plan is getting money into a life policy

 

[scagnt83]

Really--do they disclose the differences in protections from creditors that are superior in a 401k compared to IRA-Annuity (I believe federal law protects unlimited 401k, but $1-1.5M IRA. Or do they disclose the ability to avoid 10% early distribution from the 401k plan at age 55 compared to 59 1/2 in an IRA? Not saying moving money from 401k to IRA should never be done, but those are a couple of major points that I see rarely ever discussed, let alone when the end plan is getting money into a life policy

That is an excellent point Allen. Something that gest discussed a good bit in the ERISA advisor community.

The majority of 401k transfers to IRAs do fall within the creditor limits (from a statistical standpoint). But for those large ones, is that info disclosed?

A 401k is held in a trust. An IRA is not. So there is a much higher threshold to penetrate that barrier by a 3rd party. Much more than an IRA.

A 401k has Fiduciary oversight, which is a much higher standard than most IRA accounts have. Especially an annuity.

There are often multiple layers of oversight in fund selection in a 401k Plan.

Pooled assets should create a lower fee structure if properly leveraged. Not just in the plan expense charge, but also in the funds. Many 401k Plans offer institutional share classes not available to retail investors.

Then there are the new lifetime income options available in 401k Plans. Some in the form of annuities, others in the form of funds. But are these being compared by the new advisor in the recommendation? Highly doubtful. Especially combined with all the other benefits of staying in the Plan.

Then there is another benefit to the 401k. You can sue the employer for breach of Fiduciary Duty. Its much easier to sue the employer than a broker who has made you sign an Arbitration Agreement. And it has much more teeth to it in court vs. failure of suitability standards, or BICE, or whatever it may fall under. Lawyers jump at breach of Fiduciary Duty cases and often take them on contingency.

And none of that is it to say an IRA is bad or not the right choice. Plenty of benefits in moving it out of the 401k. But is any of that being disclosed during the sales process? And if it were, how much would it affect decision making?

And perhaps the more relevant question to this thread, is how would a jury of normal citizens view those lack of disclosures when the clients 401k funds were siphoned into a WL policy that is now dead in the water from a growth standpoint? The agent made $30k in comp from the annuity and the WL ... how much in earnings has the client made on the WL so far? Not a fun question to answer in court...

 

[Allen Trent]

That is an excellent point Allen. Something that gest discussed a good bit in the ERISA advisor community.

The majority of 401k transfers to IRAs do fall within the creditor limits (from a statistical standpoint). But for those large ones, is that info disclosed?

A 401k is held in a trust. An IRA is not. So there is a much higher threshold to penetrate that barrier by a 3rd party. Much more than an IRA.

A 401k has Fiduciary oversight, which is a much higher standard than most IRA accounts have. Especially an annuity.

There are often multiple layers of oversight in fund selection in a 401k Plan.

Pooled assets should create a lower fee structure if properly leveraged. Not just in the plan expense charge, but also in the funds. Many 401k Plans offer institutional share classes not available to retail investors.

Then there are the new lifetime income options available in 401k Plans. Some in the form of annuities, others in the form of funds. But are these being compared by the new advisor in the recommendation? Highly doubtful. Especially combined with all the other benefits of staying in the Plan.

Then there is another benefit to the 401k. You can sue the employer for breach of Fiduciary Duty. Its much easier to sue the employer than a broker who has made you sign an Arbitration Agreement. And it has much more teeth to it in court vs. failure of suitability standards, or BICE, or whatever it may fall under. Lawyers jump at breach of Fiduciary Duty cases and often take them on contingency.

And none of that is it to say an IRA is bad or not the right choice. Plenty of benefits in moving it out of the 401k. But is any of that being disclosed during the sales process? And if it were, how much would it affect decision making?

And perhaps the more relevant question to this thread, is how would a jury of normal citizens view those lack of disclosures when the clients 401k funds were siphoned into a WL policy that is now dead in the water from a growth standpoint? The agent made $30k in comp from the annuity and the WL ... how much in earnings has the client made on the WL so far? Not a fun question to answer in court...

Even if the rep involved is not equities licensed, most states are now in a best interest annuity state that would have to disclose some of these issues if moving it from a 401k to an Annuity IRA before putting it in life insurance. Would also have to disclose conflicts of interest, etc, etc.

 

[DHK]

Let's get this straight:

The carrier and the C-suite has known all along what we do in The Breakaway League. It passes underwriting. It passes suitability. There's also a form called "Life Insurance Form of Understanding".

Don't try to pretend that we're doing this stuff "under the table" garbage.

Everything we do is above board, compliance, and in full disclosure. When a group is responsible for about 10% of a company's total business... it gets noticed.

Don't speculate about what you don't know about.

 

[DHK]

It will be interesting to see to see where his breakaway league ends up putting their business.
Lafayette life is my bet.

I won't speculate yet. We'll be having a team conference meeting tomorrow morning.

I know where I'm looking, but I'm waiting to see what Tom says first.

 

[DHK]

I'll mention that Rich Wesselt (who ended up being terminated by Ohio National a couple years back), I think he's placing his business with Lafayette.

If it was up to me, it would either be Penn or Mass.

Still got to hear how the company plans to treat current policy holders and their "vision" moving forward.