Is your Financial Advisor Churning your Account?
What is churning? According to the SEC, churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement.
Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence of churning.
What’s the problem with churning?
Churning is illegal and unethical. It can violate SEC Rule 15c1-7 and other securities laws.
FINRA also has rules that include interpretative material on churning, or what FINRA calls “quantitative suitability.”
Churning claims arise out of the inherent conflict of interest involved because a financial advisor is compensated by commissions earned in buying and selling securities on behalf of a client. As long as financial advisors are compensated by commissions, the unscrupulous ones will continue to attempt to enrich themselves by excessively trading accounts. When this happens, a FINRA arbitration claim against the financial advisor or the financial advisor’s employer is often the best way to recover the damages incurred as a result of the broker’s excessive trading.
Churning claims can be complex and sometimes difficult to prove. Brokerage firm almost always hire experience securities defense firms to defend them in these claims. If you believe that you are the victim of churning by your brokerage firm or financial advisor, it is recommended that you consult with an experienced securities attorney. For a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.
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