FINRA Orders American Portfolios to Pay $1.2 Million Over UIT Supervision Failures

Key Takeaways

• $1.2 Million Going Back to Investors: FINRA ordered American Portfolios Financial Services to pay $1,232,939 in restitution, plus interest, to 295 investors and imposed a $400,000 fine.
• Supervision Failed to Catch Early UIT Sales: FINRA found the firm lacked a system reasonably designed to identify representatives who repeatedly recommended that customers sell unit investment trusts before maturity.
• Three Representatives Drove the Restitution: Two representatives recommended early UIT sales approximately 61% of the time, while a third did so 78% of the time, causing customers to incur unnecessary costs and fees.
• $470 Million in UITs Purchased: American Portfolios customers purchased approximately $470 million in UITs from January 2018 through October 2024, the period covered by FINRA's supervisory findings.
• FINRA Has Pursued UIT Rollovers for Years: Earlier enforcement following a 2016 FINRA sweep resulted in more than $16.8 million being returned to approximately 10,000 investors.

Deep Dive

FINRA has ordered American Portfolios Financial Services to pay more than $1.2 million in restitution and fined the firm $400,000 over supervisory failures that left hundreds of investors paying unnecessary costs and fees on unit investment trusts.

The regulator said American Portfolios failed for nearly seven years to maintain a system reasonably designed to identify representatives who repeatedly recommended that customers sell UITs before maturity. Three representatives alone caused 295 investors to incur $1,232,939 in unnecessary costs and fees, according to FINRA. That money, plus interest, will now be returned to the affected customers.

Two representatives who worked together as a team recommended that customers sell UITs before maturity approximately 61% of the time. Their customers held the investments for only half of their term lengths on average. The representatives also generally recommended putting the proceeds into new UITs, bringing another round of sales charges. A third representative recommended early sales 78% of the time. Those customers held their UITs for just over half of their term lengths on average.

For investors, the consequences varied considerably. FINRA said individual restitution payments will range from $102.27 to $399,055.29. UITs hold fixed portfolios of securities and terminate on specified maturity dates, often after 15 or 24 months. Their sales-charge structure generally assumes investors will hold them until maturity.

When a representative recommends selling early and using the proceeds to buy another UIT, the customer can incur sales charges that would not have been paid by simply holding the original investment to maturity. That makes repeated early sales something a supervisory system should be capable of seeing. FINRA found that American Portfolios' system was not reasonably designed to do so.

From January 2018 through October 2024, when American Portfolios became part of Osaic Wealth, the firm failed to implement a supervisory system, including written policies and procedures, reasonably designed to oversee UIT recommendations for compliance with FINRA Rule 2111, the regulator's suitability rule, and the Care Obligation under Regulation Best Interest. American Portfolios customers purchased approximately $470 million in UITs during that period.

“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, FINRA's executive vice president and head of enforcement, said in announcing the action.

The emphasis on patterns is important. FINRA's case was not built around the mere fact that a customer sold a UIT before maturity. It was the frequency of those recommendations, how long customers actually held the investments and, in the case of the two-person team, the general practice of directing the proceeds into new UITs carrying additional sales charges.

Those are precisely the kinds of facts that can become clearer across a book of business than they are when transactions are considered one at a time. FINRA has been looking at UIT rollover practices for years. The regulator conducted a sweep in 2016 examining how member firms supervised early UIT sales and subsequent purchases that caused customers to incur excess sales charges. Settlements with six firms stemming from that work returned more than $16.8 million to approximately 10,000 investors.

The American Portfolios action shows that the supervisory issue has not disappeared. When a product is generally intended to be held to maturity, repeated recommendations to leave early deserve attention, particularly when customers are then moved into another product carrying fresh sales charges. Here, FINRA found that the firm's controls were not reasonably designed to provide it.

American Portfolios consented to FINRA's findings without admitting or denying the charges.

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