FINRA has ordered American Portfolios Financial Services, Inc. to pay $1,232,939 in restitution plus interest to customers and imposed a $400,000 fine for failing to reasonably supervise recommendations that customers sell unit investment trusts (UITs) before maturity. The enforcement action, concluded in October 2024 when American Portfolios became part of Osaic Wealth, Inc., addresses systemic supervisory failures spanning from January 2018 that resulted in customers paying unnecessary sales charges.
- Restitution Amount: $1,232,939 to 295 affected investors
- Fine Amount: $400,000
- Customer UIT Purchases (2018–2024): Approximately $470 million
- Individual Restitution Range: $102.27 to $399,055.29
- Three Representatives Involved: 61%, 61%, and 78% early-sale recommendation rates
UITs are investment products holding a fixed portfolio of securities with specified maturity dates, typically 15 or 24 months. These products are structured to be held to maturity, with sales charges reflecting that assumption. When a registered representative recommends a customer sell a UIT before maturity and purchase a new one, customers incur additional sales charges that would not occur if held as designed. Three representatives at American Portfolios systematically recommended early sales, with one recommending premature sales 78% of the time and two others recommending such sales approximately 61% of the time. Customers of these representatives held their UITs for just half of their intended term lengths on average.
Protecting investors and ensuring market integrity is central to FINRA’s mission, and this action will return more than $1.2 million to customers who paid unnecessary costs. Member firms have a clear obligation to supervise their representatives’ product recommendations, including identifying patterns that appear to cause customers to incur unnecessary costs.
– Bill St. Louis, Executive Vice President and Head of Enforcement, FINRA
FINRA found that American Portfolios failed to implement a supervisory system with adequate written policies and procedures reasonably designed to supervise UIT recommendations for compliance with FINRA Rule 2111 (Suitability) and Regulation Best Interest’s Care Obligation. The firm’s system could not identify representatives who repeatedly recommended premature UIT sales, allowing the pattern to persist unchecked. This action reflects FINRA’s continued focus on UIT supervision following a 2016 sweep that resulted in settlements with six firms and returned more than $16.8 million in restitution to approximately 10,000 investors. American Portfolios consented to the entry of FINRA’s findings without admitting or denying the charges.
Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA. Source: LinkedIn
