How to Stop Churning: Ways to Safeguard Your Investments

Do you rely on a financial professional to invest your money in your best interest? Do you have concerns that your advisor is playing fast and loose with your cash with what looks like excessive trading? That’s where broker churning comes in – a sneaky trick some not-so-honest financial professionals use that can seriously drain your savings. At Meyer Wilson, our team of experienced lawyers have seen firsthand how this can wreck people’s retirement savings. With our guide, let’s break down what churning is, why it’s such bad news, and how to stop churning to protect your hard-earned money moving forward.

The Dangers of Too Much Trading You Should Know About

Churning happens when brokers trade way too much in your account, mostly to make money for themselves, not you. It’s not just wrong, it’s against the law. The SEC and other watchdogs have rules against it because it can cost you big time. Think about your broker making tons of trades, taking a cut each time. Those little bites add up fast, and before you know it, your savings are shrinking.

Here’s a tip: if you see lots of trades that don’t make sense for your plans, or if you’re drowning in trade notices, something might be fishy. If your investments are being bought and sold, or if your account is losing money for no good reason, that could be churning. Some trading is okay, but it should fit what you want and how much risk you’re okay with. If things seem off, asking questions or talking to an attorney who has experience in churning would be a great option.

Common Shady Trading Tricks

• High turnover ratio: This is when your whole investment gets traded over and over in a year. It’s usually not great for long-term plans.
• In-and-out trading: Buying and selling the same thing in a short period of time, often for no good reason. It can cost you extra and be risky.
• Mutual fund switching: Jumping between different mutual funds a lot. It might rack up fees and eat into your returns.
• Reverse churning: In accounts where you pay a flat fee, this is when they barely trade at all but still charge you, not really managing your money.

Too much trading becomes churning when it’s way more than what you signed up for or are comfortable with. Financial professionals say if your account is turned over 4 times a year or costs up 10% of your account, that’s probably churning.

How to Stop Churning by Spotting Red Flags in Your Investment Account

We want to help you catch financial advisor churning before it wrecks your savings. Keep an eye out for these warning signs:

1. Excessive Trading Activity: If there’s way more buying and selling than makes sense for your account, something’s up.

2. Flooding Trade Notices: Getting bombarded with trade confirmations? That could mean too much trading.

3. Quick Flips: Watch out if your investments are being sold days or weeks after buying, instead of growing long-term.

4.Unusual Trading Patterns: If the trades don’t match what’s happening in the market or what you want, that’s fishy.

5. Sky-High Turnover: If your whole account is traded more than 6 times a year, that’s usually too much for most investors.

6. Mystery Losses: If your account is shrinking and it’s not just the market being wonky, dig deeper.

Some active trading is fine, but it should match your goals and how much risk you’re okay with. Not sure what’s going on? Give us a call, and we’ll help you figure it out.

How Shady Trading Can Hurt Your Wallet

When churning hits your account, it’s not just a quick pain – it can mess up your money for a long time. Here’s how:

1. Eating Away Your Money: Every trade costs something, and too many trades can nibble away your cash fast.

2. Piling on Costs: Fees and commissions stack up quick in a churned account. In the worst cases, it can seriously shrink your savings over time.

3. Tax Headaches: Lots of trading can lead to more taxes on short-term gains. That means a bigger tax bill, cutting into what you actually make.

Keeping Your Investments Safe from Poor Practices

Here are some easy ways on how to stop churning:

1. Keep an Eye on Things: Check your account statements and trade notices. See how often trades happen and do some quick math to spot problems.

2. Ask About Weird Stuff: If you see trades that don’t make sense, ask your broker what seems to be the problem.

3. Know Who’s in Control: If your broker can make trades without asking you first, know the risks. Maybe set some limits or check in often.

4. Write Down Your Plan: Jot down what you want from your investments and how much risk you’re okay with. It’ll help you see if your broker’s doing what’s best for you.

5. Think About Fee-Based Accounts: These might cut down on unnecessary trading compared to accounts where brokers make money on each trade.

If you think you’ve been a victim of churning, remember you can get help. At Meyer Wilson, we’ve got your back if you’ve been hit by churning or other investment scams. We can help you get your money back through FINRA or other legal ways and help you learn how to stop churning from happening to your investments.