FINRA ordered Securities America, now part of Osaic Wealth, to pay more than $2 million in customer restitution after finding that the brokerage firm failed to supervise more than 1,000 Class A mutual-fund switches and over 2,000 short-term sales.

The Financial Industry Regulatory Authority ordered Securities America, Inc. to pay $2,019,040 in restitution and fined the brokerage firm $1 million over supervisory failures involving Class A mutual-fund recommendations.

According to FINRA, Securities America failed to implement a supervisory system reasonably designed to identify potentially unsuitable – or potentially not in the customer’s best interest – recommendations involving:

  • Switching between different mutual-fund families; and
  • Selling Class A mutual-fund shares shortly after customers purchased them.

These transactions can impose unnecessary costs because Class A shares typically carry an upfront sales charge. When investors are moved between different fund families or advised to sell shortly after purchasing Class A shares, they may pay substantial charges without receiving the long-term benefits that could justify those costs.

The relevant conduct occurred from at least January 2018 through June 14, 2024, when Securities America merged into Osaic Wealth. Securities America accepted FINRA’s findings without admitting or denying them. (FINRA)

More Than 3,000 Mutual-Fund Transactions Were Involved

FINRA found that Securities America failed to supervise recommendations involving:

  • More than 1,000 Class A mutual-fund switches; and
  • More than 2,000 short-term sales of Class A shares.

According to FINRA, the transactions caused customers to pay a combined $2,019,040 in commissions and fees. FINRA ordered Securities America to return that amount to the affected customers.

During the relevant period, Securities America effected approximately $3.8 billion in Class A mutual-fund purchases. Revenue from these products reportedly accounted for approximately 26% of the firm’s total brokerage revenue. (FINRA)

What Is a Class A Mutual Fund?

Many mutual funds are available in different share classes. Each class invests in the same underlying portfolio but may impose different sales charges and ongoing expenses.

Class A shares typically impose an upfront sales charge—commonly called a front-end load—when the customer purchases the fund. Part of this charge is generally used to compensate the financial professional and brokerage firm that recommended and sold the investment.

Class A shares may be appropriate for certain long-term investors because they frequently have lower ongoing expenses than other share classes. However, the upfront charge means an investor generally needs to hold the shares for a sufficient period to justify the initial cost.

Problems may arise when a broker recommends that a customer:

  • Sell Class A shares shortly after purchasing them;
  • Move from one mutual-fund family to another;
  • Pay repeated front-end sales charges;
  • Divide investments in a way that prevents the customer from qualifying for discounts;
  • Purchase Class A shares despite having a short investment horizon; or
  • Buy and sell mutual funds primarily to generate additional commissions.

Whether a recommendation was appropriate depends on the customer’s objectives, age, financial circumstances, liquidity needs, anticipated holding period and the costs and benefits of reasonably available alternatives.

Why Switching Fund Families Can Create Unnecessary Costs

A mutual-fund family is a group of funds offered by the same investment company. Investors can frequently exchange one fund for another within the same family without paying another front-end sales charge.

For example, an investor may be able to move from a growth fund to an income or bond fund offered by the same fund company without incurring a new sales load.

When a broker recommends moving the investor into a fund offered by a different company, the investor may be required to pay another front-end sales charge.

The new charge can reduce the amount of money that is actually invested. The customer may then need to earn a meaningful return simply to recover the cost of switching funds.

According to FINRA, Securities America’s procedures did not provide adequate guidance explaining how supervisors should evaluate whether a recommended Class A share switch was suitable or in the customer’s best interest. (FINRA)

Why Short-Term Sales of Class A Shares Can Harm Investors

Class A shares are generally designed as long-term investments. Selling them shortly after purchase creates a risk that the investor paid an upfront sales charge without holding the investment long enough to benefit from its potentially lower ongoing expenses.

For example, an investor who pays a 5% front-end load begins with only approximately 95% of the original purchase amount invested. If the broker recommends selling the fund several months later, the investor may never recover that initial cost.

If the proceeds are then used to purchase another Class A mutual fund, the customer may pay a second sales charge.

A pattern of purchasing and quickly selling load-bearing mutual funds may indicate:

  • An unsuitable investment horizon;
  • Failure to consider transaction costs;
  • Mutual-fund switching;
  • Excessive trading;
  • Commission-driven recommendations;
  • Failure to compare available alternatives; or
  • Inadequate brokerage supervision.

A short holding period does not automatically establish wrongdoing. Market conditions and changes in a customer’s financial circumstances can sometimes justify an early sale. The complete account history and reason for each transaction must be examined.

FINRA Identified a Problem With Securities America’s Alert System

FINRA found that Securities America used an automated system designed to generate alerts when mutual-fund purchases were preceded by mutual-fund sales within a designated review period.

However, a vendor error allegedly caused the system to generate an alert only when the sale and purchase occurred on the same day. As a result, the system failed to identify thousands of Class A mutual-fund switches.

According to FINRA, the firm became aware of the problem only after it was identified by a FINRA examination team.

FINRA also found that even when a transaction generated an alert, Securities America failed to give supervisors sufficient guidance for evaluating whether the switch was suitable or in the customer’s best interest. (FINRA)

Certain Short-Term Sales Were Excluded From Review

FINRA also found that Securities America categorically excluded a substantial number of short-term Class A share sales from supervisory review.

The firm used monthly reports to identify potentially problematic sales. However, FINRA found that its system and procedures were not reasonably designed to detect and evaluate all potentially concerning transactions.

Although Securities America’s procedures instructed supervisors to consider a representative’s broader trading behavior, the procedures did not adequately explain how supervisors should conduct that review.

FINRA consequently found that the firm failed to supervise more than 2,000 short-term sales that were potentially unsuitable or not in the customer’s best interest. (FINRA)

Securities America Is Now Part of Osaic Wealth

Securities America was previously headquartered in La Vista, Nebraska, and had approximately 3,400 registered representatives operating through around 1,900 branches.

On June 14, 2024, Securities America merged into Osaic Wealth, Inc. Osaic acquired Securities America’s assets and current and future liabilities. Securities America’s withdrawal from broker-dealer registration became effective on August 19, 2024. (FINRA)

This history matters for customers reviewing older records. Brokerage statements or correspondence from the relevant period may contain the Securities America name, while more recent documents may reference Osaic Wealth.

Potential customers may therefore search using either name:

  • Securities America mutual-fund losses
  • Securities America FINRA claims
  • Osaic Wealth mutual-fund claims
  • Former Securities America broker complaint
  • Osaic Wealth investment-loss attorney

Warning Signs of Potentially Improper Mutual-Fund Switching

Former Securities America customers should consider reviewing their accounts if they experienced repeated mutual-fund purchases and sales.

Potential warning signs include:

  • A Class A fund was sold shortly after it was purchased.
  • The proceeds were used to buy another Class A fund.
  • The new fund was offered by a different mutual-fund family.
  • The customer paid a new sales charge after each switch.
  • The broker recommended several fund-family changes.
  • The account statements contain recurring “sales charge” or “load” entries.
  • The broker did not explain the cost of switching.
  • The broker did not discuss exchanging funds within the existing family.
  • The customer was not told how long the fund needed to be held to justify the upfront charge.
  • Several Class A funds were purchased without considering available discounts.
  • The transactions did not match the customer’s objectives or anticipated investment horizon.
  • The recommendations generated commissions while providing no clear economic benefit to the investor.

No single factor automatically proves a violation. A securities attorney must evaluate the timing, costs, stated reasons and economic consequences of the transactions.

How Can Investors Identify Mutual-Fund Sales Charges?

Front-end sales charges may not appear as obvious withdrawals on an account statement. Instead, the charge may be deducted from the investment when the Class A shares are purchased.

For example, if an investor directs $100,000 into a Class A mutual fund carrying a 5% front-end sales charge, approximately $95,000 may actually be invested.

Customers should review:

  • Transaction confirmations;
  • Mutual-fund prospectuses;
  • Account statements;
  • Cost-basis records;
  • Fund symbols and share classes;
  • Gross and net purchase amounts;
  • Sales-charge disclosures;
  • Commission information; and
  • Communications with the financial professional.

An account analysis can identify each mutual-fund purchase and sale, calculate holding periods and determine whether repeated sales charges were incurred.

Were Customers Entitled to Mutual-Fund Discounts?

Some investors may qualify for reduced Class A sales charges through breakpoint discounts. These discounts commonly apply when the amount invested in one fund family reaches specified thresholds.

An investor may also qualify through:

  • Rights of accumulation;
  • Letters of intent;
  • Investments held in related accounts;
  • Accounts belonging to qualifying household members; or
  • Previous investments in the same fund family.

Although FINRA’s Securities America settlement primarily addresses switches and short-term sales, any complete account review should also determine whether the customer received all available sales-charge discounts.

Failure to apply appropriate discounts can increase investor costs even when the underlying fund recommendation is otherwise suitable.

What Is a Mutual-Fund Switch?

A mutual-fund switch generally occurs when a broker recommends selling one mutual fund and using the proceeds to purchase another.

Switching funds is not inherently improper. A switch may be appropriate when:

  • The customer’s objectives have changed;
  • The original fund is no longer appropriate;
  • A lower-cost alternative provides a meaningful benefit;
  • The portfolio requires legitimate rebalancing; or
  • The new fund offers features that justify the transaction costs.

A switch becomes concerning when its costs outweigh its expected benefits or when the recommendation appears designed to generate another commission.

A reasonable evaluation should consider:

  • The customer’s anticipated holding period;
  • The original fund’s performance and expenses;
  • The new fund’s expenses and risks;
  • The amount of the new sales charge;
  • Tax consequences;
  • Available exchanges within the current fund family;
  • Whether the new fund duplicates existing investments; and
  • The customer’s age, income, liquidity needs and risk tolerance.

Can Securities America Customers File FINRA Arbitration Claims?

Investors who suffered losses or incurred unnecessary charges because of unsuitable mutual-fund recommendations may be able to pursue compensation through FINRA arbitration.

Potential claims may include:

  • Unsuitable investment recommendations;
  • Regulation Best Interest violations;
  • Mutual-fund switching;
  • Excessive trading;
  • Failure to disclose sales charges;
  • Failure to apply breakpoint discounts;
  • Misrepresentation or omission;
  • Negligence;
  • Breach of fiduciary duty;
  • Breach of contract; and
  • Failure to supervise.

The appropriate claims depend on when the transactions occurred, the nature of the customer’s relationship with the financial professional and the applicable law.

FINRA’s regulatory settlement is separate from a customer-initiated arbitration. Investors who believe their losses or costs extend beyond the restitution they received should have their accounts independently evaluated before concluding that all potential damages have been addressed.

What If an Investor Already Received Restitution?

The FINRA order requires the return of identified commissions and fees to affected customers. Any restitution received must be considered when evaluating a separate claim, and investors generally cannot recover twice for the same damages.

Nevertheless, customers may need to determine whether the regulatory restitution fully addresses the financial consequences of the recommendations.

Depending on the individual facts, an account review may consider:

  • Commissions and sales charges;
  • Investment losses;
  • Lost investment opportunities;
  • Tax consequences;
  • Additional fees;
  • Excessive trading;
  • Other recommendations not included in the restitution calculation; and
  • Transactions outside the accounts or review period covered by the settlement.

Receiving restitution does not itself establish that a customer has a viable additional claim. It also should not replace an individualized review when the investor sustained substantial losses or experienced a broader pattern of questionable trading.

Which Brokers Were Involved?

FINRA’s settlement does not publicly identify every financial professional whose transactions were included in the firm’s restitution calculation.

That makes the article’s intake process especially important. Potential clients should be asked to provide:

  • The broker’s full name;
  • The branch location;
  • The dates of the mutual-fund transactions;
  • The names of the original and replacement funds;
  • The amount invested;
  • The sales charges paid;
  • Whether the broker discussed alternative funds; and
  • Whether the customer received restitution.

The absence of a broker’s name from the settlement does not establish wrongdoing by any individual Securities America representative.

Documents Former Securities America Customers Should Preserve

Customers concerned about mutual-fund switching should preserve:

  • Monthly and quarterly account statements;
  • Trade confirmations;
  • New-account documents;
  • Mutual-fund prospectuses;
  • Fund-switch forms;
  • Records identifying share classes;
  • Commission and sales-charge disclosures;
  • Emails and text messages with the broker;
  • Written investment recommendations;
  • Tax returns and Forms 1099;
  • Records of complaints submitted to Securities America;
  • Communications from Osaic Wealth;
  • Restitution letters or payments; and
  • Documents showing investment objectives and risk tolerance.

A chronological transaction analysis can help determine how long each investment was held, how much the customer paid and whether the switches produced a meaningful financial benefit.

Time Limits Apply to FINRA Claims

FINRA Rule 12206 generally provides that a claim is not eligible for arbitration when six years have elapsed from the occurrence or event giving rise to the claim.

Other statutes of limitation may apply and may impose shorter deadlines. The analysis can also be affected by when an investor discovered—or reasonably should have discovered—the relevant conduct.

Because the Securities America findings cover transactions beginning in January 2018, older claims may present significant eligibility or limitation questions. Investors should not assume that FINRA’s enforcement action, the Securities America–Osaic merger or a restitution payment pauses or extends an individual filing deadline.

Speak With a Securities America Investment-Loss Attorney

Sonn Law Group is reviewing potential claims involving Securities America, Osaic Wealth, Class A mutual-fund switches, short-term trading and unnecessary sales charges.

Former Securities America customers should consider having their accounts reviewed if:

  • Their broker repeatedly switched mutual funds;
  • Class A shares were sold shortly after purchase;
  • They paid multiple front-end sales charges;
  • Their money was moved between different fund families;
  • They were not offered lower-cost alternatives;
  • Their broker did not explain the economic benefit of each switch; or
  • Their losses and costs may exceed any restitution received.

A detailed review of account statements and trade confirmations can determine the frequency of mutual-fund switching, the applicable holding periods and the total commissions and charges paid by the investor.

Securities America accepted FINRA’s findings without admitting or denying them. The firm’s consent is not an admission of wrongdoing.

FINRA’s settlement addresses supervisory deficiencies at the firm level and does not identify or establish liability against every broker whose transactions may have been included in the review.

This article summarizes public regulatory records and does not constitute a finding that any particular customer has a viable legal claim. Every matter depends on its facts, records, governing law and filing deadlines.