How To Tell If Your Broker Is Churning Your Investment Account

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Financial advisors are like any profession – there are good ones and there are bad ones. As long as financial advisors are compensated by commissions, some of the unscrupulous ones will continue to attempt to enrich themselves by excessively trading accounts.

Churning is excessive trading by a broker in a client’s account largely to generate commissions. Churning claims arise out of the inherent conflict of interest involved when a financial advisor is compensated by commissions earned in buying and selling securities on behalf of a client.

So what are the warning signs that your broker may be churning your account? The best clues are usually the documents that you receive from your brokerage firm.

Brokerage firms are required to send you confirmations after every transaction. Unless you are an active, sophisticated trader, there should not be that much trading in your account. For conservative, long-term investors, it is considered general wisdom that buy and hold strategies are the best way to go. So, 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 excessively trading your account.

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