Valenti Hanley PLLC

What is churning and what are its warning signs?

Your financial adviser is supposed to be looking out for your best interests. But what if this doesn’t happen? While most financial advisers act appropriately, there are bad apples out there that may decide to engage in conduct that disregards their clients’ interests and is instead aimed at padding their own pockets.

One such conduct is churning. This is when a financial professional who has the authority to make investment decisions regarding a client’s account engages in excessive securities trading with the primary aim of generating more commissions.

Churning can be very damaging to an investor. For one, it can drain his or her assets through excess commissions. Also, any time an adviser makes investment decisions for a client with anything other than the client’s best interests in mind, there is the potential for the client to be exposed to financial harm.

So, investors may want to keep an eye out for red flags of churning. Here are some things that could be warning signs of churning:

  • An adviser engaging in frequent buying and selling when it comes to a securities portfolio
  • An adviser, out of the blue, suggesting more or different securities products than he or she usually does
  • An adviser refusing to provide explanations of a trade-heavy investment strategy

What can a person do if he or she suspects his or her financial adviser is engaging in churning?

People can fire financial professionals that they feel they can no longer trust to serve their best interests.

Also, legal action may be a possibility. Churning is against the law and there are legal routes available to victims of this misconduct to pursue compensation for financial harm they suffered. Whether an investor has a strong churning claim depends on a range of factors. Skilled securities law attorneys can advise investors who suspect they are churning victims on their options.

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Valenti Hanley PLLC
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Louisville, KY 40202

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