|Thursday, August 6, 2009
Herb Perone (202) 728-8464
Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Ameritas Investment Corp., of Lincoln, NE, $100,000 and has suspended and fined one of its brokers for inducing customers to take on additional mortgage and/or home equity debt in order to purchase variable universal life insurance policies (VULs). Those policies were pitched to customers as mechanisms for funding college expenses and retirement.
Ameritas was sanctioned for failing to adequately supervise broker Nancy Ziering, who was based in New Jersey, and for advertising violations related to her financial plans. FINRA found that the financial plans she created and were misleading and that her recommendations to customers to purchase VUL policies were unsuitable. Ziering was fined $60,000 and suspended for nine months.
"Brokerage firms must exercise vigilance when their brokers recommend that customers use mortgage proceeds to purchase securities," said Susan L. Merrill, Executive Vice President and Chief of Enforcement. "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. Their home is the biggest and most valuable asset that most Americans have. They should not be putting that asset at risk to buy securities."
FINRA found that Ziering used misleading financial plans with more than 220 customers whom she recruited through her separate college-planning business, Madison Financial Aid Consultants, between October 2003 and December 2005. Through Madison Financial Aid Consultants, she gave seminars on college planning at schools and other locations for parents with children approaching college age. Following her presentations, she would offer to meet with parents to discuss funding for college and other financial matters.
According to FINRA, the financial plans prepared by Ziering were extremely complicated and confusing and, to be successful, required customers to adhere strictly to all aspects of a detailed plan for 20 years. Although the plans were marketed as a way to demonstrate how customers could save for college and retirement, in nearly every instance they recommended that the customer purchase a VUL policy issued by an affiliate of Ameritas, using money obtained from a mortgage refinancing or home equity loan. Over 90 of the customers who received the financial plans purchased one or more VULs from Ameritas.
FINRA found that Ameritas became aware of Ziering's use of the misleading plans, but failed to take sufficient action to ensure that she did not continue to use the plans. FINRA found that Ameritas also failed to adequately supervise Ziering's recommendations to use proceeds from mortgage refinancings or home equity loans to purchase VULs.
FINRA found that Ziering's recommendations to six customers to purchase VULs were unsuitable. For instance, one customer had provided Ziering with information showing that she and her husband were spending more on expenses than they received in income, including nearly $80,000 in credit card and other debt, in addition to first and second home mortgages, car loans and anticipated college expenses for a child about to enter college. However, Ziering recommended that the customer purchase a VUL policy and take on the additional burden of funding the policy with large annual premium payments. In another instance, where a customer had significant assets to pay for college and also owned life insurance policies, Ziering nonetheless recommended the same plan for that customer, including the refinancing of a home mortgage and the purchase of a VUL.
Prior to FINRA's action, Ameritas rescinded the VUL policies purchased by the six customers who received unsuitable recommendations and refunded their premium payments.
In settling these matters, Ameritas and Ziering neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors interested in learning more about saving and investing to cover college expenses should consult the FINRA Investor Alert College Savings Plans - School Yourself Before You Invest and FINRA's Smart Investing Guide Smart Saving for College - Better by Degrees. To learn more about the risks of liquefying home equity to make investments, see the Investor Alert Betting the Ranch: Risking Your Home to Buy Securities.All are available on FINRA's Web site at www.finra.org.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.
For more information, please visit our Web site at www.finra.org.