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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Your investment broker could leave your stomach churning

Like most people, you may think of churning butter, an upset stomach or just about anything other than your investment broker. Oddly enough, your broker could be doing some "churning" when it comes to your investment portfolio.

You put your trust in your broker because your knowledge of buying and selling securities isn't extensive. You expect that any transactions are made with your best interests in mind, but that may not be what's happening. Instead, your broker may make trades that benefit him or her.

What does this have to do with churning?

If you are like many California investors, you leave your portfolio in the hands of your broker who works on commission. This is an important element to remember when it comes to the concept of churning. You give your broker a generous measure of autonomy when it comes to making trades on your behalf.

Some brokers will take this opportunity to make frequent or excessive trades, which constitute churning, in order to increase their commissions. Your broker makes these excessive trades without considering your best interests. You could end up losing large sums of money on bad trades -- and on the commissions you pay for them.

As you may imagine, securities law prohibits this practice. The Securities and Exchange Commission, the New York Stock Exchange and the Financial Industry Regulatory Authority require brokers and agents to use reasonableness when making investment decisions on their client's behalves. They may not earn commissions based on fraudulent, deceptive or manipulative practices.

How do you know if your broker is churning?

When you signed on with your broker, you more than likely gave him or her certain criteria, goals and parameters regarding your investments. These factors could include your age, your financial needs and your risk tolerance, among other things. If you see a large number of trades that don't appear to be meeting your objectives, it's possible your broker is churning.

The amount of your losses could be significant. Even if your broker got lucky with the trades, you could then face certain tax liabilities that cause you to suffer losses as well. Now, you need to know your rights and understand your legal options. Your suspicions may not be enough for you to move forward with a complaint, however. It may be worth sitting down with an attorney experienced in detecting and defending people who becomes victims of churning.

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