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  • Colleen MacFarlane

Reverse Churning

Reverse churning occurs when a broker who is paid a flat fee does little or no trading to earn that fee, which is a percentage of the assets under management. Reverse churning is the fraudulent practice of charging a flat fee for idle accounts. It represents a breach in fiduciary duty to the client, who would be better served with a per-transaction fee structure. It can cost your firm its money, its clients and potentially even its ability to conduct business. It’s not enough to say you must avoid reverse churning. To prevent enforcement actions, you must also monitor your firm, its principals and associates to ensure that all files are compliant with churning rules.

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