A U.S. brokerage firm has agreed to pay US$5 million in fines and restitution to clients who were deprived of interest, or paid excess fees on their uninvested cash.
In a settlement with the U.S. Financial Industry Regulatory Authority Inc. (FINRA), the firm — American Portfolios Financial Services Inc. — agreed to pay US$4.6 million in restitution and a US$550,000 fine in connection with the operation of its bank deposit program, which automatically sweeps clients’ excess cash balances from their brokerage accounts to interest-paying bank accounts.
According to the self-regulatory organization, between April 2018 and September 2022, the firm “provided customers with inaccurate disclosures about how it calculated per-account fees for customers enrolled in its bank deposit program,” which resulted in it collecting over US$3 million in excess fees. In addition, it didn’t disclose that it held onto surplus interest that was generated when interest rates rose, amounting to another US$1.25 million retained by the firm.
The SRO also alleged that APFS lacked adequate supervisory systems to ensure that clients were provided with accurate disclosures, or that the bank deposit program was operated in accordance with its disclosures to clients.
The firm — which was acquired by Osaic Holdings, Inc. in November 2022, and merged into Osaic Wealth, Inc. in October 2024 — consented to the entry of FINRA’s findings, without admitting or denying the charges.
FINRA said that the fine imposed in the case reflects the fact that the firm disclosed the overcharging to the regulator back in 2022, that it voluntarily began paying restitution to clients, and that it provided “substantial assistance” to the SRO in calculating the appropriate restitution.
“Firms must ensure accuracy in customer communications, including how fees are calculated and what interest customers will earn,” said Bill St. Louis, executive vice president and head of enforcement at FINRA, in a release. “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.”