FINRA Orders American Portfolios Financial Services to Pay $4.6 Million in Restitution for Overcollection of Fees, Retention of Surplus Interest

Firm Failed to Accurately Calculate Bank Deposit Program Fees and Failed to Disclose Retention of Surplus Interest Earned from Customers’ Funds

WASHINGTON--(BUSINESS WIRE)--FINRA has ordered American Portfolios Financial Services, Inc. (APFS) to pay $4.6 million in restitution to customers impacted by the firm’s inaccurate representation of how it calculated its fees and its retention of undisclosed, surplus interest. The fees and surplus interest were earned from customers’ funds in the firm’s bank deposit program between April 2018 and September 2022. The firm was also fined $550,000 for the violations.

Bank deposit programs allow broker-dealers to automatically transfer customers' uninvested cash balances from their brokerage accounts into interest-bearing, Federal Deposit Insurance Corporation-insured bank accounts. These programs are designed to help customers earn interest on cash that might otherwise sit idle. During the period at issue, APFS enrolled approximately 85,000 customers in its bank deposit program.

From April 2018 through September 2022, APFS provided customers with inaccurate disclosures about how it calculated per-account fees for customers enrolled in its bank deposit program. Rather than using a formula tied to the Federal Funds Target rate, as stated in the disclosures, APFS first determined customer yields based on factors such as the rates paid by its competitors and retained the remaining interest paid by the participating banks, less other administrative fees, as its fee. Over the entire relevant period, APFS collected more than $3 million in aggregate fees beyond what the disclosed formula would have yielded.

APFS also did not disclose that it retained surplus interest—totaling approximately $1.25 million—when interest rate changes created excess proceeds. Finally, APFS incorrectly credited the retained excess administrative fees and surplus interest as revenue in its net capital calculation, resulting in the firm filing inaccurate monthly reports with FINRA.

“While bank deposit programs may offer useful features to customers, it is important for firms to ensure compliance with a range of relevant FINRA and SEC rules,” said Bill St. Louis, Executive Vice President and Head of FINRA Enforcement at FINRA. “Firms must ensure accuracy in customer communications, including how fees are calculated and what interest customers will earn. When firms fail in that obligation—whether through inaccurate formulas, undisclosed interest retention or inadequate supervisory controls—customers can suffer real financial harm, as demonstrated by the substantial restitution required in this case."

From April 2018 to May 2023, APFS lacked a system reasonably designed to supervise the bank deposit program. APFS had no supervisory system, including written procedures, to ensure that the customer disclosures accurately communicated all material information about the bank deposit program or that the firm calculated its fees in accordance with disclosures sent to its customers.

APFS was acquired by Osaic Holdings, Inc. in November 2022, and was merged into Osaic Wealth, Inc. in October 2024. The fine imposed in this matter reflects that Osaic provided substantial assistance to FINRA in calculating the appropriate restitution, that APFS disclosed the underpayments to FINRA in October 2022, at which time it began applying the disclosed formula to calculate its fee, and that Osaic began paying restitution to affected customers before the settlement in this matter was finalized.

In settling this matter, APFS consented to the entry of FINRA’s findings, without admitting or denying the charges.

FINRA makes available disciplinary actions and other information on its Disciplinary Actions Online database. In addition, FINRA publishes on its Monthly Disciplinary Actions page a summary of disciplinary actions against firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board. FINRA’s use of fine monies is limited to specific purposes set forth in its public Financial Guiding Principles, which are approved by its Board of Governors. FINRA publicly itemizes and discloses how it uses fine monies each year.

About FINRA

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. FINRA regulates one critical part of the securities industry—member brokerage firms doing business in the U.S. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.