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Has churning impacted your investment portfolio?

On Behalf of | Oct 18, 2021 | Financial Fraud |

You rely on your investment account manager to make decisions with your best interest in mind. However, not every broker fulfills their duty to their clients.

One potential concern is churning, an illegal practice where brokers make excessive purchases and sales. These transactions prioritize a broker’s ability to collect commission on those sales but do not reflect their client’s long-term goals. What should you know about churning and its potential to harm your investment portfolio?

What signs might indicate churning?

Because churning is performed through excessive trading, evidence of this illegal activity can be found in the documents related to your stock portfolio. Some of the many red flags that could indicate churning include:

  • Your broker suddenly making more trades
  • Your broker making trades that you did not authorize
  • Your broker suddenly pursuing a much broader portfolio where your stock purchases had previously been focused
  • Your broker makes trades or purchases that do not align with your investment strategy and not explaining why their strategy changed
  • Your portfolio generating particularly high fees

Not every portfolio can experience churning. However, brokers that charge a flat fee may engage in reverse churning. In these cases, brokers make little or no transactions in an effort to perform as few transactions as possible while collecting the same fee.

What can you do about this inappropriate broker behavior?

While seeing the signs of churning can be concerning for any investor, it is possible to hold brokers responsible for this fraudulent behavior. By collecting documentation about your account and related transactions, seeking the guidance of outside professionals and exploring your legal options, you can right this wrong and protect your future financial health.