The Financial Industry Regulatory Authority (FINRA) wants investors to be smarter about how they decide to save for their kids' college years. They are making the point with some tough talk to brokers.
Recently, FINRA announced that Ameritas Investment Corp. located in Lincoln, Nebraska was fined $100,000, and one of its brokers fined $60,000 and suspended for nine months, for inducing investors to "take on additional mortgage and/or equity debt in order to purchase variable universal life insurance policies (VULs)" and in turn use those policies to fund retirement and college expenses. The policies have large annual premium payments and were unsuitable for many investors.
Where did Ameritas go wrong? FINRA alleged that Ameritas not only failed to adequately supervise one of its brokers, but also allowed advertising violations related to the broker's financial plans. Specifically, FINRA claimed the broker's financial plans were misleading to customers and often her recommendations that they purchase VUL's were unsuitable.
FINRA's Executive Vice President and Chief of Enforcement, Susan L. Merrill, has a solid lesson plan for firms and brokers. "Brokerage firms must exercise vigilance when their brokers recommend that customers use mortgage proceeds to purchase securities." She warns that "FINRA will aggressively pursue firms and individuals who use misleading financial plans to induce customers to purchase securities, particularly when those plans propose that customers refinance their homes or take out home equity loans to pay for the purchase of securities."
This seems obvious really. But unfortunately the Ameritas broker in question used misleading financial plans with over 220 customers that she had recruited in a separate college planning business. The plans were very complicated and to be successful, investors would have had to follow strict details for 20 years.
Investors were urged to buy a VUL from Ameritas and it was also recommended that investors refinance their home mortgages or take out home equity loans to pay for the VULs. This recommendation was targeted at those customers who had the means to pay this expense and those who were already having difficulties paying their expenses.
Don't bet the ranch. FINRA is particularly concerned about investors placing their homes at risk in the process of investing for college plans. They urge that college fund investing requires a bit more study on the part of investors seeking to save for their kids' tuitions. They suggest investors learn more about college savings plans by reviewing on-line materials on this subject as well as the risks of buying securities with the use of home equity mortgages. These materials can be found at www.finra.org.
Related Web Resources
Click here to see the FINRA press release on the college school plan fines against Ameritas and its broker.
If you would like more information on broker defense and related areas of regulatory and enforcement representation, please contact Gusrae, Kaplan, Bruno & Nusbaum, PLLC.
