Warning Signs that Your Financial Advisor is Churning Your Account
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
“Trade churning” is the name given to a practice that many financial advisors use to abuse their investors’ trust and rack up high bills. The Financial Industry Regulatory Authority (FINRA) has rules and regulations governing financial advisors and other financial industry professionals to help prevent these kinds of unfair practices and stop advisors from taking advantage of their clients. If you or a loved one was taken advantage of by issues like trade churning, talk to the trade churning victim lawyers at Epperson & Greenidge today to understand your options for compensation.
What is “Trade Churning,” and How Does It Hurt My Investments?
Many financial advisors and brokers are paid based on the number of transactions they make. Some may have a retainer fee or regular fees for continuing with their services, as well as fees for managing your investments, but most brokers also use transaction-based fees. When your financial advisor is more concerned with making themselves money than they are with protecting and growing your investments, they may turn to tools like trade churning to give themselves increased profits and fees.
When brokers are paid based on the number of transactions they make for your account, they have a clear incentive to make more transactions. In some cases, this amounts to an illegal conflict of interest, but advisors are legally allowed to charge this way. In most cases, the financial advisor will work to minimize the number of transactions to help you save money. However, less trustworthy financial advisors and brokers may do the opposite.
“Churning” is the name of this practice, where brokers or advisors will incur repeated transactions on your account so that they can charge you for each transaction. In some cases, brokers may buy and sell the same investment multiple times to simply add to the total number of transactions they can charge you for. Like churning butter, they repeat these trades and purchases over and over again.
It is also important to be aware of the risks of “reverse churning.” Rather than charging per-trade, reverse churning occurs when a broker charges a fee for leaving an account dormant without trades, then ignores the account and allows it to accumulate excessive fees.
Churning on your account can cause you multiple problems. First, the brokerage fees for each transaction can grow to be extremely expensive. Second, you may face tax consequences for many of these transactions, which are repeated each time the transaction is made. Third, the broker’s actions may constitute a breach of contract or hurt your investments through negligent investing. Lastly, trade churning usually violates your autonomy when your broker or advisor makes unauthorized trades, substituting their judgment for your own and cutting you out of controlling your own investments.
What Can I Do to Stop Churning with My Investments?
If you were the victim of churning, you may have options to seek compensation – but you need to discover the issue first. Knowing what to look for can help you prevent churning on your own investments or help you to look out for older parents or grandparents who might be victims of churning. Many of the things to look for also become excellent evidence of trade churning if you take your case to arbitration before a FINRA board.
One obvious sign of churning on your account is excessive brokerage fees. It is important to look into the details of any bills or statements you get regarding your account. SEC and FINRA rules require a certain level of transparency regarding fees, and financial advisors can face consequences for failing to disclose important information. If you notice high transaction fees or mysterious brokerage fees, that may be the result of trade churning.
Some types of accounts and investments, like mutual funds, have penalties and fees associated with quick turnarounds. Sometimes, you may want to sell off an investment soon after purchasing it, but this may come with a penalty or fee for doing so within a certain timeframe. Churners may ignore these fees, meaning that you could be hit with the additional charges associated with these quick sales. If you never authorized a quick turnaround or knowingly approved that additional penalty, your advisor may be committing churning your accounts.
If you were the victim of trade churning or other unfair or illegal practices, you may be entitled to file a claim with FINRA for arbitration. This is an alternative to a lawsuit, which is often significantly cheaper and still produces binding outcomes that can help you recover damages and compensation for your losses. Talk to a FINRA claims lawyer today to discuss your case.
FINRA Arbitration Claims Lawyers Representing Victims of Churning
If your account faced extra fees or penalties, you might be the victim of trade churning. Check your paperwork and statements to see what transactions were made on your account, and if your account saw repeated, excessive sales and purchases, it might be time to contact an attorney. The FINRA claims lawyers at Epperson and Greenidge offer free consultations for investors to help them understand if they’ve been the victim of churning and to begin the process of filing with FINRA for arbitration claims. Our number is (877) 445-9261.