FINRA has ordered American Portfolios Financial Services to pay $1,232,939 in restitution plus interest and imposed a $400,000 fine over failures to supervise recommendations that customers sell unit investment trusts before maturity. The firm consented to FINRA’s findings without admitting or denying them.
The supervisory failures ran from January 2018 until October 2024, when American Portfolios became part of Osaic Wealth. Customers purchased about $470 million in unit investment trusts during that period.
Three Representatives Accounted for the Restitution
Unit investment trusts hold a fixed portfolio and terminate on a specified date, often after 15 or 24 months. Their sales-charge structure generally assumes that the investor will hold the product until maturity. Selling early and using the proceeds to buy another trust can impose a new set of sales charges.
FINRA found that American Portfolios lacked a supervisory system, including written procedures, reasonably designed to detect repeated early sales. The regulator assessed the conduct under its suitability rule and the care obligation in Regulation Best Interest.
Two representatives working as a team recommended that customers sell before maturity about 61% of the time. Those customers held the investments for an average of half their stated term. A third representative recommended early sales 78% of the time, with average holding periods only slightly longer than half the term.
Together, the three representatives caused 295 investors to incur $1,232,939 in unnecessary costs and fees, according to FINRA. Individual restitution ranges from $102.27 to $399,055.29.
Restitution and the Fine Serve Different Purposes
The case involves more than $1.63 million before interest when restitution and the fine are added, but that sum should not be described as one penalty. The $1.23 million is intended for affected customers, while the $400,000 fine is paid under FINRA’s disciplinary framework.
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.”
American Portfolios has faced a separate recent FINRA matter. FinanceFeeds reported that the firm was previously ordered to pay $4.6 million in restitution over its bank-deposit program, alongside a $550,000 fine.
FINRA Has Pursued UIT Rollovers for a Decade
FINRA began a targeted review of unit investment trust rollovers in 2016 and later settled with six firms, returning more than $16.8 million to about 10,000 investors. The concern is not that every early sale is improper. The risk arises when repeated recommendations cause customers to pay charges without a reasonable investment basis.
FinanceFeeds covered an earlier case in which Merrill Lynch paid $8.4 million in restitution and a $3.25 million fine over early rollovers. More recently, IFP Securities was fined over Regulation Best Interest controls that included review of mutual-fund and unit-investment-trust activity.
The same supervisory issue appears across products carrying upfront or repeated transaction charges. FINRA ordered Securities America to pay $2 million in restitution over mutual-fund supervision failures, while a separate case required Morgan Stanley to compensate customers after repeated sales of products designed for longer holding periods.
The American Portfolios order shows why a review based only on individual transactions can miss the problem. The warning signal was the pattern: high proportions of early sales, shortened holding periods and repeated purchases that generated additional charges.