Are You a Victim of Excessive Trading?

The SEC’s Office of Investor Education and Advocacy (OIEA) and Broker-Dealer Task Force jointly issued this Investor Alert to help investors identify excessive trading in their brokerage accounts and to educate investors about steps they should take if their brokerage firm notifies them of a high volume of trade activity in their accounts.

When reviewing your account statements, trade confirmations, or online account, look out for these red flags that may indicate excessive trading:

• Unauthorized Trading– Be alarmed if you become aware of trades in your account that you did not authorize your broker to make.
• Frequent Trading– Be wary of frequent in-and-out purchases and sales of securities that don’t seem consistent with your investment goals and risk tolerance.
• Excessive Fees– Be suspicious if the total amount of fees seems high or if one segment of your portfolio consistently generates high fees.

What is churning?

If a broker engages in excessive buying and selling of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions, the broker may be engaged in an illegal practice called churning.

Communicating Your Investment Goals

When you first open a brokerage account you will be asked to specify your overall investment goals or objectives and your risk level. Make sure you are clear on the meaning of the different terms that describe investment objectives, such as “capital preservation”, “growth”, “income”, “moderately aggressive”, “speculation” and “aggressive growth”.

Be aware that excessive trading can occur even if the overall account value increases.  Also, remember that your account statements, trade confirmations, and online account do not disclose all fees – you can find more information by asking your broker.  If you do not understand the reason for a trade or the reason for a fee, contact your broker and ask about it.  For more information please visit the SEC website, www.sec.gov.

What should I do if I am informed of a high volume of trade activity in my account?

If your brokerage account has a high volume of trade activity, your brokerage firm may contact you and ask you to acknowledge the trading or to confirm that you are satisfied with how your broker is handling your account.  If you receive such notification, you should ask your broker to explain:

1. The rationale for the broker’s recommended trading activity and investment strategy given your investment objectives;
2. The total commissions or other transaction fees you have paid over the past month, quarter, or year; and
3. What percentage return on your investment you would need to break even on the fees you are paying.

Once you have this information, you may want to speak with the broker’s manager or the firm’s compliance department to understand and to question the nature of the trading in your account in light of your investment goals and risk tolerance.

Recovery Options

The foregoing information, which is all publicly available, is being provided by The White Law Group.  The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee. For information on the firm please visit www.whitesecuritieslaw.com.

For a free consultation with a securities attorney, please call The White Law Group at 1-888-637-5510.