Churning is an illegal and unethical practice of excessive trading in a customer’s investment account, designed to generate commissions to benefit the broker.
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You may be entitled to compensation
When excessive trading or churning results in a significant loss, you may be able to recover the damages incurred. A FINRA arbitration claim against the financial advisor or the financial advisor’s employer is often the best way to recover compensation for your broker’s excessive trading.
Top signs that your broker may be churning your account
Sales of securities that don’t appear necessary to fulfill the your investment goals may be evidence of churning. If you notice any of the following activity in your account, contact an investment attorney for a free case review.
- Uptick in trading slips – Brokerage firms are required to send you confirmations after every transaction. Unless you are an active, sophisticated trader, a “buy-and-hold” strategy is usually the best way to go. If you are receiving confirmations once or twice a week, or 10 or more times per month, this may be a warning sign that your broker is engaging in excessive trading.
- Mutual fund switching – Mutual Funds work best as a long-term hold because they incur substantial trading charges that do not exist for common stocks. Switching among funds with similar investment objectives is usually a violation if it has no legitimate investment purpose and may needlessly impose a commission charge and increases tax liability for an investor.
- Your account is underperforming relative to the market – Excessive trading means more commissions for your broker, which can quickly eat away at your account. Large losses, especially in an up market, can be the best indicator your account is being churned. However, an account value that is declining faster than a downward moving market may also be symptomatic of churning.
Do I have a churning claim?
For churning to occur, a broker must exercise control over the investment decisions in your account, such as through a formal written discretionary agreement. Frequent “in-and-out” purchases and sales of securities that don’t appear appropriate for and/or necessary to fulfill your investment goals may be evidence of churning.
Ohio Securities Attorney
Churning claims can be complex and difficult to prove. If you believe your broker has engaged in churning, excessive trading or other negligent practices, you owe it to yourself to have professional representation. Retaining a seasoned attorney is your best chance against a high-priced team of Wall Street lawyers.
Elk & Elk works on a contingency-fee basis, which means there is no attorney fee unless we obtain compensation for your losses. Call 1-800-ELK-OHIO for a free, no-obligation consultation and portfolio review.