The Financial Industry Regulatory Authority (FINRA) has fined financial services firm American Portfolios Financial Services $400,000 and ordered it to pay $1,232,939 in restitution, plus interest, to customers for violations.
The firm was fined for failing to reasonably supervise recommendations that customers sell unit investment trusts (UITs) before their maturity dates. This 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 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,” Bill St. Louis, executive vice president and head of Enforcement at FINRA, said. “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, American Portfolios failed to implement a system that was reasonably designed to supervise UIT recommendations for compliance with FINRA Rule 2111 and Regulation Best Interest’s Care Obligation. During this period, American Portfolios customers purchased approximately $470 million in UITs.
FINRA stated that American Portfolios’ supervisory system was not reasonably designed to identify representatives who repeatedly recommended that their customers sell UITs before maturity. On average, these customers held their UIT investments for just half of their term lengths. Overall, the violations 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.
American Portfolios consented to the entry of FINRA’s findings, without admitting or denying the charges.