Financial Advisor Misconduct And Excessive Trading in Investor Accounts

Thousands of people in the Kansas City area place their life savings and investments decisions in the hands of financial advisors.  In a complicated financial market, people look to financial advisors for help with general investing, college investing, and retirement planning.  Investment advisors can be a valuable resource for Kansans and Missourians who are looking to plan for their future. Unfortunately, in some cases, they can cause unnecessary losses for investors through conduct aimed at enriching the advisors.

In general, there are two ways an advisor gets paid: (1) they can earn a commission on each investment bought or sold for a client or (2) they can earn a set fee that exists regardless of the number of investment decisions made.  While most financial advisors act ethically, some place their own interests above those of their clients.  The recent volatility in financial markets could create incentives for these unscrupulous financial advisors to commit fraud and other misconduct, especially when the advisor is paid with commissions.

Unscrupulous Financial Advisors Charge Excessive Fees

One of the most common forms of misconduct by commission-based financial advisors is excessive trading, also known as “churning.”  Churning can occur when financial advisors charge clients for each investment transaction they make for a client.  By making repeated transactions, financial advisors artificially inflate their fees or commissions.  In some cases, brokers may buy and sell the same investment multiple times to simply add to the total number of transactions they can charge you for.

A classic example of excessive trading occurs when your advisor recommends selling one security (oftentimes a mutual fund) and purchasing another similar mutual fund offered by a different mutual fund issuer within a short period of time. When this happens, your investment is essentially the same after the sale and purchase except you had to pay a commission for the transactions. The result?  The only persons that made money in the transaction was the advisor; you actually lostmoney.

A Checklist for How to Identify Illegal and Excessive Fees

Excessive trading and churning claims can be complex and often difficult to prove, especially for inexperienced investors who place their trust in their advisors.  Some of the tell-tale signs of churning you should be on the lookout for include:

  • Is there a high number of trades (buying and selling of investments) that do not fit your investment needs?
  • Has your advisor replaced one mutual fund with another fund that contains nearly identical or similar types of assets?
  • Are there unexplained charges to or losses in your accounts?
  • Is your advisor recommending that you make investments that do not make sense to you?
  • Does you advisor make transactions on your behalf without giving you prior written notice?

Unethical Financial Advisors Need to be Held Accountable

Advisors that make useless transactions to line their own pockets at the expense of their clients need to be held accountable. Left alone, the needless transactions made by advisors can cost you thousandsof dollars.

Excessive trading and churning is against federal law and the laws of Missouri and Kansas.  If you believe that you or someone you know is the victim of churning by your financial advisor, Pospisil Swift LLC can help.  We have experience in identifying and recovering losses related to churning and excessive trading in courts and investigate such cases throughout Kansas and Missouri. If you have suffered losses becaues of such conduct, you may be entitled to recover your losses through a lawsuit or arbitration (see our post here for more information on the arbitration process: Arbitration). Fill out the form below or give us a call to discuss your potential case. An initial discussion is always free.

**The information contained on this website is informational only and not intended to be, and does not constitute, legal advice.  While we attempt to update our site regularly, the information does not necessarily reflect the most current legal developments.  You should not act or refrain from acting based upon information provided on this site without first consulting legal counsel.**


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