"Churning" is a form of securities fraud that involves excessive trading by a stockbroker in order to maximize commissions. Churning is established by analyzing the trading patterns and activity in the customer's accounts. A typical churning analysis usually involves calculating the annualized turnover ratio and the cost equity maintenance ratio (CEMR).
In addition to churning, a financial professional is also liable if they recommend a more expensive product or service than is necessary for the client when a less costly alternative is available. Many customers are understandably confused about the commissions, fees and costs charged by financial professionals. Financial professionals must adequately disclose the fees and costs associated with any products or services offered so that an investor can make an informed decision.
Examples of situations where firms have been found liable for excessive and unnecessary fees include: