what is churning 
churning is the illegal and unethical practice by a broker of excessively trading assets in a client s account in order to generate commissions while there is no quantitative measure for churning frequent buying and selling of stocks or any assets that do little to meet the client s investment objectives may be evidence of churning understanding churningchurning may result in substantial losses in the client s account even if the trades are profitable they may generate a greater than necessary tax liability for the client a broker overtrades by excessively buying and selling stocks on the investor s behalf in order to increase the commissions earned on the transactions in some cases a broker for a financial firm may be incentivized to place newly issued securities that were underwritten by the firm s investment banking arm for example brokers may receive a 10 bonus if they buy a certain number of shares on behalf of their clients such incentives may not be offered with the investors best interests in mind churning is hard to spot an investor may conclude that a broker has been overtrading when the frequency of trades becomes counterproductive to the client s investment objectives driving commission costs higher without observable results over time types of churningat its most basic level churning is defined by excessive trading by a broker to generate commissions if a client is being charged frequent commissions with no noticeable portfolio gains churning might be the problem churning also applies to excessive or unnecessary trading of mutual funds and annuities mutual funds with an upfront load the so called a shares are intended to be long term investments selling an a share fund within five years and purchasing another a share fund needs to be justified as a prudent investment decision most mutual fund companies allow investors to switch into any fund within a fund family without incurring an upfront fee a broker recommending an investment change should first consider funds within the fund family deferred annuities are retirement savings accounts that usually do not have upfront fees like mutual funds instead annuities typically have surrender charges a type of penalty for early withdrawal of funds surrender charges vary from one to 10 years to prevent churning many states have implemented exchange and replacement rules these rules allow an investor to compare the new contract and highlight surrender penalties or fees to prevent churning keep an eye on your account read every transaction notice and review every monthly statement know how much commission you re paying 