Ameritas Investment Corp. has been fined $100,000 and one of its brokers has been suspended and fined for convincing customers to borrow against their home to buy variable universal life insurance policies to fund college and retirement expenses.
The Financial Industry Regulatory Authority announced today that it has fined Ameritas for failing to adequately supervise New Jersey-based broker Nancy Ziering. FINRA suspended Ziering for nine months and fined her $60,000 for creating misleading financial plans and making unsuitable recommendations to customers to purchase VUL policies.
"Brokerage firms must exercise vigilance when their brokers recommend that customers use mortgage proceeds to purchase securities," said Susan L. Merrill, FINRA's 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 also found that Ameritas failed to adequately supervise Ziering's recommendations to use proceeds from mortgage refinancings or home equity loans to purchase VULs.
Ziering's recommendations to six customers to purchase VULs were unsuitable, FINRA said. 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.
Before 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.