A recent trend in the investment industry has seen financial advisors improperly shifting their commission-based clients’ funds into a fee-based account for no reason other than to collect the fees. These fee-based accounts require the client to pay a regular, fixed fee to the advisor, but the client often receives very little actual advice, trading, or account activity in exchange. This unlawful practice is known as Reverse Churning.
What is Reverse Churning?
Reverse churning is the practice of a financial advisor placing a client’s funds into a fee-based account for no reason other than to collect the fee. These fee-based accounts require the client to pay a regular, fixed fee to the advisor, but the client often receives very little actual advice, trading, or account activity in exchange. Therefore, the advisory firm generates more revenue at the expense of the client who does not receive any cognizable benefit. Financial advisors often compel clients who typically have little to no trades to move from their commission-based accounts to fee-based accounts in order to generate increased revenue from these clients.
The practice of reverse churning may violate federal securities laws and breach the fiduciary duty that these companies owe their clients.
What is the Harm of Reverse Churning?
The fee-based accounts that reverse churning victims are transferred into require the client to pay a regular, fixed fee to the advisor, but the client often receives very little actual advice, trading, or account activity in exchange. Additionally, the practice often targets clients who engage in infrequent trading, forcing these clients to pay a substantial, regular fee in the fee-based account, rather than the minimal commissions on the rare trades that the client used to pay in the commission-based account.
This fee is often at least 1% to 2% of the assets under management, which can add up to tens of thousands of dollars a year. This substantial fee can also negatively impact the performance of these accounts, often harming the client even more the longer the client stays in the fee-based account.
What Financial Advisors are Franklin D. Azar & Associates Investigating?
The employers that Franklin D. Azar & Associates is investigating are the following. If you have an investment account with one of these companies and you feel as though you’ve been improperly moved into a fee-based account, then contact us now.
- Raymond James
- Merrill Lynch
How Can I Fight Back?
Pursuing individual claims in response to reverse churning may cost more than most consumers could ever expect to recover. But many victims of reverse churning have chosen to band together in class action lawsuits, seeking recovery of the harm caused by reverse churning and attempting to get companies to change the way they invest clients’ assets. A class action lawsuit gives more people access to the judicial system for relief, saves on legal costs and court time, and allows individuals to combine their claims to make their case exponentially stronger.
Do I Have a Case?
The best way to determine if you have a potential case is to meet with a knowledgeable attorney. The attorney can review your account contracts and statements, and the applicable law, and advise you how to proceed.