Churning

Churning is excessive trading in a client's account by a broker, who has control over the account, with the intent to generate fees or commissions rather than benefit the client. Brokers—who are typically employees of a brokerage or investment banking firm with responsibility for handling the investment portfolios of clients—often occupy a dual role as sellers of securities and trusted advisers. In the former role, brokers have [Page 314]only the obligations of sellers in a market, but in the latter capacity, they have both moral and legal obligations, a fiduciary duty, to act in the interests of a client. Because brokers are compensated by fees and commissions from the sale of securities, they have a conflict of interest when they also serve as an adviser ...