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.”

FINRA found that the Ameritas broker recommended VUL as the college funding mechanism in nearly every instance. However, FINRA said in six of those cases, the sale of VUL was unsuitable. For example, one client already had sufficient assets to pay for college and owned several other life insurance policies. Yet the broker still recommended a mortgage-financed VUL purchase. In another case, a couple was spending more than they brought in and was heavily loaded with credit card and mortgage debt. Yet the broker recommended they take on extra debt to buy a VUL policy for college saving.

Although funding a securities purchase with mortgage money isn’t illegal, per se, it is a high-risk gambit. If you opt to go down this path, make sure that the sale is 100 percent suitable and that clients understand they could lose their house if the investment goes sour.