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November 01, 2009 at 08:00 PM
If you’re considering asking clients to fund the purchase of a security by refinancing their mortgage or taking out a home-equity loan, watch out. That’s because FINRA is concerned about advisors who use mortgages to generate cash for the purchase of unsuitable products.
The concern springs from a recent case in which FINRA fined Ameritas Investment Corporation for inadequately supervising one of its brokers. The advisor apparently recommended college-funding plans based on the use of variable universal life insurance. To pay for the policies, the broker encouraged her clients to take on additional home equity or mortgage debt.
“Brokerage firms must exercise vigilance when their brokers recommend that customers use mortgage proceeds to purchase securities,” says 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.”
