(Investment Brokers, Advisors and Others)
For over thirty (30) years we have worked with investors’ whose portfolios have been mismanaged. If you have not studied securities analysis or portfolio management, you may not understand why your portfolio has not performed properly given the market’s historic rise.
One of the oldest forms of portfolio mismanagement is to “churn” the portfolio. “Churning” is a technical term which means excessive trading to generate commission. It is an unethical and illegal practice that violates S.E.C. Rules and securities laws. It is less frequent today due to software that most broker-dealers have implemented and is designed to detect this activity.
Churning is typically accomplished by excessively trading the investments (measured by portfolio turnover), cost-equity calculation and holding periods for “position” (stocks, bonds, etc…) in the portfolio.
The firm is responsible for the supervision of the advisor. When churning occurs, it is likely due to a lack of proper supervision making the firm responsible for the mismanagement of the portfolio.
In a recent case involving the New York City firm “First Standard Financial” and an Iowa investor, we obtained an award through a FINRA arbitration[1] In that case the portfolio had a turnover rate of 32x; a cost-equity ratio of 103% and over 80% of the investments were traded in less than 30-days. While the investor was losing money with every trade, the broker was making money in commissions.
If an advisor does not charge a commission per trade, the portfolio management may be unsuitable or not in the investor’s “best interest” and be actionable by the investor.
- Mr. Gail E. Boliver has represented investors for 30 years and has approximately 70 arbitrations in addition to several court cases with many cases settling through mediation or otherwise.
[1] FINRA is the Financial Industry Regulatory Authority – a self-regulatory organization that regulates its members (brokers and broker-dealers). The Securities and Exchange Commission (S.E.C.) regulates FINRA.
