A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning.
Red flags of excessive trading may include:
- Unauthorized Trading – trades on an account that were not authorized .
- Frequent Trading – frequent in-and-out purchases and sales of securities that are inconsistent with investment goals.
- Excessive Fees – all the churning creating a large fees that are being charged to the account.
There are a number of agencies to report this activity to depending upon the country.