Excessive trading occurs when a broker buys and sells stocks on a customer’s account solely for the purpose of generating commissions. It is prohibited under federal law and FINRA regulations; and, when brokers engage in excessive trading, investors can – and should – seek help from a stockbroker fraud lawyer to recover their investment losses.
5 Red Flags for Excessive Trading
While excessive trading can be difficult to identify, especially for novice investors, there are several red flags that can suggest inappropriate activity. Investors should familiarize themselves with these red flags, and they should seek help at the first sign of fraudulent broker misconduct. Here are five common signs of excessive trading (also known as account churning) which may require investors to take legal action to protect themselves:
1. Unauthorized Trades
Depending on the nature of your broker relationship, your broker could have varying levels of discretion with regard to making trades on your behalf. However, your broker must still make all trades with your best interests in mind; and, if you notice what you believe to be unauthorized trades, you should seek to determine whether your broker is making these trades for his or her own financial gain.
2. High Volume of Trades
As a general rule, brokers should not make a high volume of trades on individual investors’ accounts. If your broker is regularly buying and selling shares on your behalf, this may be indicative of excessive trading for the purpose of generating commissions.
3. Excessive Commissions
Do your broker’s commissions seem excessive? While investors can expect to pay reasonable fees for their brokers’ services, commissions that far exceed what you were expecting to pay could be a sign of unauthorized trading as well. This is especially true if your broker’s fees outpace your gains, or if your broker is generating fees despite losses in your portfolio.
4. Questionable Account Statements
One of the best ways to protect against excessive trading is to review your account statements regularly. If your account statements reflect a high volume of trades or excessive commissions—or if your account statements omit information about your broker’s trading activity or commissions—you should have a lawyer review your statements to determine if you may be a victim of stockbroker fraud.
5. Limited (or No) Transparency
In this same vein, if your broker is evasive when asked about his or her trading activity or commissions, this is probably also a bad sign. Well-intentioned brokers who act in their customers’ best interests should not have any concerns about discussing their practices or fees.
Discuss Your Situation with a Stockbroker Fraud Lawyer for Free
Are you concerned that your broker may be making excessive trades in order to generate commissions? If so, you should speak with a lawyer promptly. To schedule a free, no-obligation consultation with a stockbroker fraud lawyer at Zamansky LLC, call 212-742-1414 or request an appointment online now.