how to prevent churning
churning can only occur if a broker has discretionary authority over the client s account a client can avoid this risk by maintaining full control requiring the client s permission to make changes in the account another way to eliminate churning is to use a fee based account rather than a commission based account known as a wrap account this type of account eliminates the incentive for churning the fee is charged quarterly or annually and is generally 1 to 3 of the assets under management the wrap account does not work for all investors the flat fee can turn out to be excessive if there is little or no trading of the assets in the account in fact that situation is indicative of another form of churning called reverse churning 