First Trust Portfolios Fined $10 Million Over Improper Gifts & Misleading Records

Key Takeaways

• $10 Million Fine: First Trust Portfolios will pay $10 million and accept a censure after FINRA found widespread violations tied to non-cash compensation practices.
• Improper Incentives: The firm provided gifts and entertainment—including courtside tickets, luxury suites, and expensive meals—in amounts that exceeded FINRA limits and, at times, were tied to sales targets.
• False Records and Reporting: More than 40 wholesalers falsified expense reports, and the firm sent client broker-dealers understated or incomplete reports of the compensation provided.
• Supervisory Gaps: FINRA determined that First Trust lacked adequate systems to monitor entertainment spending, verify expense entries, or prevent post-approval changes to records.
• Remedial Measures: The firm has implemented new controls, disciplined employees, and must provide annual compliance certifications for three years.

Deep Dive

First Trust Portfolios has agreed to pay a $10 million fine and accept a censure after the Financial Industry Regulatory Authority (FINRA) found the firm provided lavish gifts and entertainment to broker-dealer representatives in violation of longstanding limits on non-cash compensation tied to investment product sales. The settlement is outlined in a Letter of Acceptance, Waiver and Consent (AWC) that First Trust submitted without admitting or denying the findings.

The Illinois-based firm, a wholesale distributor of investment company securities, has been a FINRA member since 1991 and works with hundreds of registered representatives across the country.

According to FINRA, from at least 2018 through early 2024, First Trust wholesalers regularly provided tickets, meals, alcohol, and other perks to representatives of retail firms that sold First Trust investment products. In many cases, the value and frequency of these benefits far exceeded the $100-per-person annual gift limit set under FINRA Rule 2341.

In some instances, the perks went beyond being excessive, they were explicitly tied to sales performance.

One example highlighted by FINRA involved a wholesaler offering a broker tickets to a professional hockey game if the broker’s customers purchased $1 million in First Trust unit investment trusts. After that sales target was met, the tickets were delivered.

Other examples included:

• Courtside NBA tickets worth more than $3,000 given as gifts with no First Trust personnel present.
• Broadway tickets costing over $1,800 used the same way.
• Dozens of meals, sporting events, golf outings, and suite tickets for certain brokers over multi-year periods, sometimes totaling tens of thousands of dollars.

FINRA has long warned that non-cash incentives of this kind can influence product recommendations and undermine the obligation to match customers with investments that are right for them.

False Expense Reports and Misleading Information Sent to Broker-Dealers

FINRA also found that more than 40 First Trust wholesalers filed false or misleading expense reports covering more than $650,000 in entertainment spending. Some expense reports listed people who did not attend events, including individuals who were deceased, or dramatically understated the value of tickets and hospitality.

Those inaccurate reports then flowed into quarterly disclosures First Trust provided to client broker-dealers, many of which rely on these reports to ensure their own registered representatives are not receiving excessive gifts or entertainment. FINRA found that at least 25 quarterly reports understated more than $500,000 in non-cash compensation.

In one example, First Trust spent more than $20,000 hosting representatives of a single broker-dealer in luxury suites at football games in late 2019, expenses that were not reported to the firm at all.

Although First Trust had policies addressing non-cash compensation, FINRA determined that the firm lacked meaningful oversight to ensure the policies were followed. Wholesalers were largely trusted to report expenses accurately, and the firm did not have systems to verify whether ticket recipients were actually present or whether expenses were being modified after approval.

These failures led to violations of several FINRA and federal recordkeeping and supervision rules.

The Firm’s Remedial Actions

According to the AWC, First Trust has since taken steps to strengthen its controls. The firm created a new compliance audit function, introduced systems to track entertainment and ticket use, and disciplined dozens of employees through suspensions, fines, and heightened supervision.

In addition to the fine and censure, First Trust must provide annual compliance certifications to FINRA for the next three years, confirming that its supervisory and recordkeeping frameworks are functioning as intended.

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