FINRA Orders American Portfolios to Pay $1.2 Million in Restitution and $400,000 in Fines for UIT Supervision Failures

Firm Failed to Reasonably Supervise Recommendations That Customers Sell Unit Investment Trusts Before Maturity

WASHINGTON--(BUSINESS WIRE)--FINRA has ordered American Portfolios Financial Services, Inc. to pay $1,232,939 in restitution, plus interest, to customers and has fined the member firm $400,000 for failing to reasonably supervise recommendations that customers sell unit investment trusts (UITs) before their maturity dates, which resulted in customers paying unnecessary costs and fees.

UITs are investment products that hold a fixed portfolio of securities and terminate on a specified maturity date, often after 15 or 24 months. UITs are generally intended to be held to maturity and the structure of sales charges reflects that assumption. A registered representative’s recommendation for a customer to sell a UIT before maturity and purchase a new UIT with the proceeds results in sales charges that would not be incurred when holding the UIT to maturity.

“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,” said Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA. “Member firms have a clear obligation to supervise their representatives’ product recommendations, including identifying patterns that appear to cause customers to incur unnecessary costs."

From January 2018 to October 2024, when it became part of Osaic Wealth, Inc., American Portfolios failed to implement a system—including written policies and procedures—that was reasonably designed to supervise UIT recommendations for compliance with FINRA Rule 2111 (Suitability) and Regulation Best Interest’s Care Obligation. During this period, American Portfolios customers purchased approximately $470 million in UITs.

American Portfolios’ supervisory system was not reasonably designed to identify representatives who repeatedly recommended that their customers sell UITs before maturity. This included two representatives who worked as part of a team and recommended customers sell UITs prior to maturity approximately 61% of the time. On average, these customers held their UIT investments for just half of their term lengths. The two representatives also generally recommended that their customers use the proceeds from these early sales to purchase new UITs with additional sales charges. A third representative recommended customers sell their UITs prior to maturity 78% of the time, with these customers holding their investments on average for just over half of the UITs’ term lengths. Together, these three representatives caused 295 investors to pay $1,232,939 in unnecessary costs and fees, which will now be returned to them. Individual restitution will range from $102.27 to $399,055.29.

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

Historically, FINRA has focused on how member firms supervise UIT recommendations, including early sales and subsequent purchases that caused customers to incur excess sales charges. After a 2016 sweep focused on this area of concern, FINRA reached settlements with six member firms. Those actions returned more than $16.8 million in restitution to approximately 10,000 investors. This current matter is a result of FINRA’s continued vigilance on this and other investor protection issues.

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 member 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.