Churning and Investment Turnover

Oct 8, 2020 2:52:28 PM / by InvestorKeep



Churning milk or cream in a machine can produce butter. Churning financial accounts produces increased commissions for financial professionals who do not have their customer’s best interests in mind. Excessive trading in accounts can increase trading commissions. This unethical behavior can cost significant money (and returns) in fees, taxes, and performance losses. Financial professionals should be trading with their customers’ goals in mind, not their own commissions.  

Churning can also happen with mutual funds. Many mutual funds charge an upfront fee. These fees are designed to “keep” you in the fund. An A class mutual fund for example charges a 5% upfront fee with the expectation you will stay in the fund for five years. If you were to sell early, you forfeit the entire fee. These upfront fees can be very costly and limiting.

Like mutual fund upfront fees, annuity surrender charges can also cost you money.  If you purchase an annuity you may be “locked in”  for a period of time where you will be required to “pay” to get out of the investment.  

Investment churning, upfront fees, and surrender charges can take a heavy toll on your nest egg. Your financial professional should ensure your accounts are managed with efficiency in fees and taxes. InvestorKeep can help.



Written by InvestorKeep

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