FINRA orders Osaic-owned firm to repay millions after cash sweep fee failures

FINRA has ordered American Portfolios Financial Services to return millions of dollars to customers and pay a civil penalty after finding that the broker-dealer overcharged investors and failed to properly disclose how it made money from a cash sweep program.

Under the settlement, American Portfolios must pay $4.6 million in restitution to affected customers and a $550,000 fine. The action centers on the firm’s bank deposit program, which automatically swept uninvested customer cash into interest-bearing, FDIC-insured accounts.

The firm was acquired by Osaic Holdings in November 2022 and later merged into Osaic Wealth in 2024. FINRA said the acquiring firm cooperated with regulators in calculating restitution, and repayments to customers began before the settlement was finalized.

FINRA found that between April 2018 and September 2022 the firm calculated fees in a way that differed from what it told customers. Disclosures said fees would be based on a formula tied to the Federal Funds Target rate, but the regulator says that American Portfolios used competitive interest rates to determine what clients received and kept the excess interest for itself, resulting in customers earning less than promised.

FINRA says that this practice led to more than $3 million in excess fees charged to clients and, during periods of rising interest rates, the firm also retained roughly $1.25 million in additional interest without clearly informing customers that it was doing so. The regulator said that undisclosed interest retention was a material fact that investors should have known when deciding whether to participate in the program.

FINRA’s order also notes that American Portfolios improperly reflected the retained interest and excess fees in its net capital calculations, creating inaccuracies in reports filed with FINRA. These errors, combined with the disclosure problems, pointed to broader weaknesses in the firm’s compliance infrastructure.

FINRA said the firm lacked adequate supervisory systems to oversee the program. From April 2018 through May 2023, the broker-dealer did not maintain procedures reasonably designed to ensure that fee formulas were applied as described or that customer disclosures were accurate and complete.

“While bank deposit programs may offer useful features to customers, it is important for firms to ensure compliance with a range of relevant FINRA and SEC rules,” said Bill St. Louis, Executive Vice President and Head of FINRA Enforcement at FINRA. “Firms must ensure accuracy in customer communications, including how fees are calculated and what interest customers will earn. When firms fail in that obligation—whether through inaccurate formulas, undisclosed interest retention or inadequate supervisory controls—customers can suffer real financial harm, as demonstrated by the substantial restitution required in this case."

Around 85,000 customers were enrolled in the bank deposit program during the period reviewed by FINRA, making the case one of the regulator’s more significant restitution actions tied to cash sweep arrangements.

American Portfolios consented to the findings without admitting or denying the allegations.