According to FINRA, three reps repeatedly recommended that clients sell unit investment trusts early and buy new ones, thereby racking up unnecessary fees for customers.
American Portfolios Financial Services will pay about $1.6 million to settle FINRA charges alleging it failed to oversee registered reps whose recommendations caused clients to incur unnecessary costs and fees.
According to FINRA, American Portfolios’ policies and procedures weren’t designed to catch red flags of reps working with unit investment trusts, investment products with a fixed portfolio of securities that are typically set to mature after 15 to 24 months.
“Member firms have a clear obligation to supervise their representatives’ product recommendations, including identifying patterns that appear to cause customers to incur unnecessary costs,” FINRA Enforcement Head Bill St. Louis said about the settlement
According to the order, the time period in question occurred from 2018 through October 2024. The firm was one of eight broker/dealers under the Advisor Group, which rebranded to Osaic and rolled its eight b/ds into one entity over the course of several years.
UITs offer a one-time public offering and are typically not actively managed, and impose several upfront charges. While they can be beneficial for investors, those who sell before the maturity date will lose part of the benefit, may not have enough to recoup the costs of the upfront charges, and can be more in the hole if the rep acting on behalf of the client uses the sales proceeds to purchase a new UIT, with more upfront charges.
During the time in question, American Portfolios reps bought about $470 million in UITs. Still, FINRA claims its supervisory systems were not up to par, running afoul of FINRA rules and the Securities and Exchange Commission’s Regulation Best Interest.
The firm’s policies required supervisors to assess whether UIT recommendations were suitable, but didn’t detail how to conduct such an analysis, according to FINRA. Starting in October 2018, the firm instituted trade alerts that escalated UIT sales and purchases above $1,000 for supervisory review, but the alerts didn’t specify how long the UITs had to maturity, among other necessary information.
“Therefore, reviewers had no basis to identify red flags associated with representatives who repeatedly recommended that their customers sell UITs early in order to purchase new UITs, even though they may have caused customers to pay unnecessary sales charges,” the order read.
In particular, FINRA cited three reps who regularly recommended that clients sell UITs before their maturity dates. A pair of reps working as a team recommended that customers sell purchased UITs before maturity about 61% of the time, with clients typically holding UITs for only half of the term. The duo also typically recommended using the proceeds to buy new UITs with additional charges, resulting in 139 customers paying at least $872,960 in costs and fees.
A third rep recommended clients buy about $15 million in UITs and sell them before maturity, about 78% of the time (those clients typically held the UITs for about 56% of the term lengths). Like the duo of reps, this unnamed advisor recommended using the proceeds of the UIT sales to purchase new UITs (with upfront charges).
After the 2024 merger, Osaic began using its system to supervise American Portfolios accounts.
In a statement, an Osaic spokesperson said the firm had agreed with FINRA to resolve the matter that occurred before Osaic’s integration.
“Osaic Wealth’s supervisory policies and procedures were not the subject of this investigation,” the spokesperson said. “We are glad to put this matter behind us.”
American Portfolios did not confirm or deny the findings, but in addition to over $1.23 million in restitution plus interest, the firm will pay a $400,000 fine.
FINRA has long focused on UIT recommendations, including a 2016 focused sweep that led to six settlements against firms, including Oppenheimer & Co., Stifel, Citigroup, Merrill Lynch, Wells Fargo and SagePoint.
The agency fined Morgan Stanley $13 million for supervisory lapses in UIT sales, and in 2019, the SEC fined Raymond James $15 million for similar issues. In 2023, FINRA fined Centaurus Financial for failing to supervise a rep’s recommendations related to UIT products.
Facts Only
* American Portfolios will pay a $400,000 fine and over $1.23 million in restitution plus interest to FINRA.
* The violation concerns supervision of registered reps whose recommendations caused clients to incur unnecessary costs and fees related to unit investment trusts (UITs).
* The time period under investigation was from 2018 through October 2024.
* American Portfolios’ policies were found not to have designed systems to catch red flags regarding reps working with UITs.
* The firm bought about $470 million in UITs during the relevant period.
* Three representatives were cited for regularly recommending clients sell UITs before maturity dates.
* A pair of reps recommended selling purchased UITs before maturity approximately 61% of the time, often leading clients to purchase new UITs with additional charges.
* A third representative recommended clients buy about $15 million in UITs and sell them before maturity about 78% of the time.
* The firm was one of eight broker/dealers under the Advisor Group, which rebranded to Osaic.
* Osaic began using its system to supervise American Portfolios accounts after the 2024 merger.
Executive Summary
American Portfolios agreed to pay a $400,000 fine and over $1.23 million in restitution plus interest to FINRA regarding supervisory failures concerning registered representatives' recommendations related to unit investment trusts (UITs). The violation stemmed from the recommendation of clients to sell UITs early and subsequently purchase new ones, which resulted in unnecessary costs for customers. FINRA found that American Portfolios’ policies failed to adequately supervise these recommendations and identify patterns causing clients to incur extra fees.
The investigation covered a period from 2018 through October 2024. The firm was part of a group undergoing a rebranding and merger process into Osaic. A specific finding involved three representatives who repeatedly advised clients to sell UITs before maturity dates. One pair of reps recommended selling about 61% of the time, often leading clients to purchase new UITs with additional charges. Another advisor recommended selling about 78% of the time, where clients held the products for only a fraction of the term, and also directed the use of sale proceeds for further purchases. Despite the firm selling approximately $470 million in UITs during this time, supervisory systems were deemed insufficient to catch these patterns, which violated FINRA rules and Regulation Best Interest.
Full Take
The findings reveal a systemic failure in internal controls designed to monitor sales practices within a brokerage environment. The core issue is not just individual misrecommendations, but the inability of supervisory systems to identify a recurring pattern that maximized customer costs related to complex investment products like UITs. The fact that supervisors lacked the necessary details—specifically regarding maturity dates—to assess suitability suggests a fundamental gap in the design of compliance infrastructure rather than mere oversight deficiency.
The pattern highlights a critical imbalance where the structure of the transaction (selling before maturity and reinvesting) creates an incentive for conflict between representative advice and client benefit, which existing policies failed to mitigate. The fact that specific patterns emerged involving selling UITs multiple times by representatives suggests these were not isolated incidents but repeated behaviors embedded within the advisory stream. The outcome—a large financial penalty combined with restitution—indicates that mitigating systemic risk through regulation was deemed necessary because internal safeguards proved inadequate against predictable, repeatable behavior.
The subsequent statement from Osaic suggesting their own policies were not subject to investigation introduces a layer of organizational separation; it suggests an attempt to compartmentalize accountability following the integration. This raises questions about where true responsibility lies when supervisory structures are rolled into larger entities and how precedent-setting regulatory actions are handled across corporate transitions. The contrast between FINRA's long history of focusing on UIT recommendations and this specific enforcement action underscores that complex, structured products often require specialized, ongoing regulatory attention to protect investor agency from predictable exploitation mechanisms.
Bridge Questions:
What were the structural limitations in designing supervisory policies that specifically failed to account for time-sensitive product structures like UIT maturity dates?
How does the practice of layering sales (selling one UIT to buy another) change the fiduciary burden on a broker/dealer when dealing with fixed-term products?
If the internal structure changes, how can regulators ensure continuity and transparency in supervisory accountability across merged entities?
Sentinel — Human
The text reads like a factual summary of a regulatory settlement, characterized by precise data and structured context rather than narrative flair.