Exceptional and accessible legal representation across Kentucky and Nationwide

Exceptional and accessible legal representation across Kentucky and Nationwide

EXCEPTIONAL AND ACCESSIBLE LEGAL REPRESENTATION ACROSS KENTUCKY AND NATIONWIDE

Beware of excessive trading of your securities

| Dec 5, 2019 | Representing Investors |

If you have an investment portfolio, then you likely realize that the primary way your financial advisor earns money is by taking a commission by buying and selling securities on your behalf. While your financial advisor has a fiduciary duty to make choices that are in your best interest, some portfolio managers engage in impropriety such as excessive trading or churning accounts. This isn’t only illegal, but it can be costly for investors.

Churning refers to a process by which an investment portfolio manager frequently buys and sells off securities. If a money manager does this excessively to increase their commission, then their actions may be deemed to be illegal.

The types of brokers that are most apt to engage in such unethical behaviors are those who have clients who know very little about buying and selling securities. Money managers, in this instance, count on their investor clients knowing very little about how often trades should be made to deceive them. Brokers who engage in such impropriety generally have extensive knowledge of how to trade securities and decide to purposefully go against their clients’ best interests.

There are many securities laws on the books on the federal level that prohibit the practice of churning. One of the most notable pieces of legislation that disallows this type of behavior is the U.S. Securities & Exchange Commission (SEC) Rule 15c1-7. This federal regulation spells out how brokers shouldn’t act in a fraudulent, deceptive or manipulative way while maintaining control over a customer’s account.

Pinpointing whether excessive trading or churning occurred isn’t easy. Someone in the industry can identify whether some missteps were taken based on what an individual’s initial capital investment and stated goals were. The SEC warns that any frequent purchases and sales of securities that don’t align with an investor’s end goals may be a sign that churning has occurred.

If you suspect that your investment portfolio has been mismanaged, whether due to churning or something else, then an attorney can help. Your Louisville lawyer can help you determine if your professional financial adviser has been less than transparent in handling your finances here in Kentucky.