Instead of handling your retirement investments, you trust your broker to manage your portfolio wisely and according to your goals. In return, you pay them a commission or fee for each purchase or sale they make on your behalf.
A responsible broker will only make one of these transactions to help you build wealth and avoid financial losses. But unscrupulous brokers can give into the temptation to make money for themselves by making as many transactions as they can, even if those deals cost you money in the long run. This is known as excessive trading or “churning.” And it can do severe damage to your investment and retirement accounts.
Three signs your broker is churning your account
Wondering if your broker might be committing churning on your account? The U.S. Securities and Exchange Commission provides three red flags to watch out for:
- Unauthorized trades. Your broker should not be making any trades without your permission. Spotting unauthorized trades on your statement can be a major red flag.
- Overly frequent trades. Frequent sales and purchases that do not seem in line with your financial goals and risk tolerance could be about your broker’s desire for commissions, not securing your retirement nest egg.
- Excessive fees. Fees should not be overly high, and one part of your portfolio should not be generating an oddly high amount of fees. These could be signs of churning.
If you have suffered significant investment losses and suspect that churning was a major reason why you need to know your legal options for possible recovery. Besides filing a complaint against your broker with the SEC, you might be able to sue them for compensation.