American Portfolios to Repay $1.2 Million to UIT Customers

American Portfolios Financial Services, Inc., which merged into Osaic Wealth, Inc., agreed to a censure, a $400,000 fine, and $1,232,939.09 in restitution plus interest under a Letter of Acceptance, Waiver, and Consent (AWC) with FINRA. According to FINRA, from January 2018 to October 14, 2024, the firm failed to reasonably supervise its registered representatives' recommendations to sell unit investment trusts (UITs) before maturity. FINRA found that this violated FINRA Rules 3110 and 2010 and, beginning June 30, 2020, Regulation Best Interest (Reg BI). The firm consented to FINRA's findings without admitting or denying them.

American Portfolios became a FINRA member firm in 1987. Headquartered in Holbrook, New York, the firm had approximately 800 registered representatives and 350 branch offices and operated as a full-service introducing broker-dealer, including for retail customers. On October 15, 2024, American Portfolios merged into Osaic Wealth, Inc., which is the surviving entity. American Portfolios withdrew its broker-dealer registration in December 2024, and Osaic began supervising the former American Portfolios accounts after the merger.

FINRA Rule 3110 requires firms to establish, maintain, and enforce a supervisory system, including written procedures, reasonably designed to ensure that their representatives follow securities laws and FINRA rules. Reg BI requires brokers to act in the best interest of retail customers and to understand the costs of what they recommend, and it requires firms to adopt policies reasonably designed to achieve compliance. Before Reg BI took effect on June 30, 2020, FINRA Rule 2111 required recommendations to be suitable. For example, a firm would violate these rules if it had no alert to catch representatives who repeatedly sold customers' products early to buy new ones. A firm would also violate them if its reviewers approved trades without the information needed to spot a pattern of costly switches.

According to FINRA, a UIT holds a fixed portfolio for a set term, often 15 or 24 months, and charges most of its sales costs up front. Those costs include a deferred sales charge of about 1.35% to 2.30%, a 0.5% creation and development fee, and an organization cost of about 0.25% to 0.75%. FINRA explained that a customer who holds a 15-month UIT to maturity pays about 2.15% in upfront charges. A customer who buys and sells three UITs during the same 15 months pays 6.45% or more. From January 2018 to October 2024, American Portfolios handled about $470 million in UIT purchases, but its procedures gave supervisors no guidance on UITs' front-loaded costs. Before October 2018, the firm had no system to review UIT recommendations, and its later alerts did not show how long before maturity a UIT was sold. Two representatives working as a team allegedly sold customers' UITs early about 61% of the time, and their customers held UITs for only half of their terms on average. As a result, 139 customers paid at least $872,960.53 in avoidable costs. A third representative allegedly sold UITs early about 78% of the time, causing 156 customers to pay at least $359,978.56. In total, 295 customers paid $1,232,939.09 in unnecessary costs and fees, which the firm must now repay with interest.

Lufrano Law, LLC is a national investment litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. Please contact us at (800) 627-2179 for more information if you have been the victim of investment negligence or fraud.

The content on this site reflects personal opinions and does not constitute statements of fact. No findings have been made against the firms or individuals mentioned. This blog is intended solely for educational purposes, drawing on publicly available information to provide general insights and a basic understanding of the law. It is not a substitute for legal advice.