Investment Fraud | Illegal Investment Practices

Churning News

Watch out for Reverse Churning

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At a glance:

While "churning" is the practice of creating excessive transactions in order to reap commissions, "reverse churning" is the term for putting clients who trade infrequently into fee-based accounts as opposed to commission-based accounts. 
 
This is often not in the client's best interests and is currently one of the issues examined when a firm is audited. 
 
This article goes into much detail about the history and technical aspects of this issue but is useful for the consumer as an indication of something to watch out for when dealing with a broker.

Taking Aim at Reverse Churning

On Wall Street - 5/31/2006 12:17 PM

June 1, 2006 - Reverse churning--the practice of putting clients who trade infrequently into a fee-based brokerage account--grabbed headlines two years ago when regulators went after brokerage firms for promoting the accounts with what they saw as too-little regard for the customers' interests. Regulators were concerned that clients would end up paying more in fee-based accounts than in traditional commission-based accounts, with little extra advice or service to show for the higher price tag.
 
Only two firms have been fined so far, but regulators and industry observers say that reverse churning is a key item on regulators' watch-list in audits. "It's here, and you have to deal with it," says Pete Michaels, a Boston-based securities attorney
 
· Read The Full Churning Article From On Wall Street -->

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