FINRA has ordered American Portfolios, the broker-dealer now part of Osaic, to pay $1.6 million in restitution and fines for supervisory failures that allowed representatives to repeatedly recommend clients sell unit investment trusts (UITs) before maturity. The settlement, disclosed in a letter of acceptance, waiver and consent dated August 31 and made public Tuesday, includes $1,232,939 in restitution plus interest to nearly 300 customers and a $400,000 fine.
According to FINRA, from January 2018 through October 2024, American Portfolios customers purchased approximately $470 million in UITs, yet the firm never implemented a system to flag representatives whose recommendations pushed clients out of these products early. The regulator's investigation found that three registered representatives were responsible for the problematic recommendations. Two who worked as a team recommended early UIT sales in roughly 61% of their UIT transactions, with affected customers holding the investments for only half their term lengths on average. A third rep recommended early sales in about 78% of transactions.
FINRA determined that 295 investors were caused to pay unnecessary sales charges, with individual restitution amounts ranging from $102.27 to $399,055.29. The firm's written supervisory procedures required reviewers to assess whether UIT recommendations were suitable, but provided no actual method for doing so. Until October 2018, the firm had no system at all to flag early UIT sales; even after introducing trade alerts for UIT transactions above $1,000, those alerts did not indicate how close to maturity a UIT had been redeemed, leaving supervisors unable to detect churning.
Bill St. Louis, FINRA's executive vice president and head of enforcement, said in a statement: "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." He added that member firms have a clear obligation to supervise representatives' product recommendations, including identifying patterns that cause customers to incur unnecessary costs.
This action is part of FINRA's broader scrutiny of UIT sales practices. Following a 2016 industry sweep, the regulator issued penalties to several firms, including a $1.1 million fine against Cetera in 2017 and a $3.6 million sanction against Stifel in 2020. SagePoint Financial, another entity later absorbed by Osaic, also faced fines in 2020. The latest settlement underscores the regulator's continued focus on UIT supervision.
American Portfolios was a longstanding independent broker-dealer before Advisor Group agreed to acquire the Long Island-based firm in 2022, bringing roughly 850 advisers managing close to $40 billion in client assets into the larger network. Advisor Group rebranded as Osaic the following year, consolidating eight separate broker-dealers under one name and platform. American Portfolios was formally merged into Osaic Wealth Inc. in October 2024.
American Portfolios settled without admitting or denying FINRA's findings. An Osaic spokesperson said the firm has agreed to the terms, emphasizing that the matter occurred prior to American Portfolios' integration into Osaic. This case follows other regulatory actions involving Osaic, including a $9.4 million settlement over illiquid investment claims and recent team recruitments amid industry consolidation.
Advisors may want to review their own UIT supervision protocols, especially given FINRA's heightened scrutiny. The regulator's 2016 sweep and subsequent penalties signal that firms must have robust systems to identify unsuitable early UIT sales. As the industry evolves, ensuring compliance with supervisory obligations remains critical.
