Churning – it’s a word that turns the stomach of most upstanding financial advisers, because sadly it’s the practice of many unscrupulous brokers.
Put simply: churning is excessive trading, whereby a financial adviser is deliberately generating themselves more commissions at the expense of the client’s investment, by cancelling and replacing products/funds at little or no value to the consumer.
How do you know if your broker is indulging in such a practice?
The warning signs that your broker may be churning your account lies in your confirmations. For most investors, there shouldn’t be much activity in your account – the reason being ‘buy and hold’ strategies generally work best. If you are then asked to change product or move to a completely new fund strategy, this could be a sign that your broker is churning your account for their own gain.
Other tell-tale signs may show up in your account value. If you notice your value is declining despite an upwards moving market, your account may be suffering erosion due to churning. There could also be what is termed ‘back-loading’ – these are the latent charges that are paid when looking to exit a fund.
It’s also worth pointing out that there can be a number of legitimate and purposeful reasons why your financial adviser might suggest you cancel one product in favour of another. One such example would be consolidating multiple pension plans. However, these arrangements must be discussed and researched explicitly with your financial adviser, to ensure penalties aren’t incurred and returns are not lost. It’s a good idea to get it in writing, so that you fully understand the benefits.
How do I pick a good financial adviser?
Make sure you go through a licensed financial advisory. Your local financial authority will be able to tell you if your provider is regulated.
It’s also a good idea to invest with an advisory firm that offers transparency upfront. For example, the Globaleye Valuation Service (GVS) is an innovative online tool which brings together all your finances and policies in one user-friendly dashboard, which you can access whenever you like, and wherever you are. It gives you up-to-the-minute information about how your investments are performing including all your other assets like property, cash, pension and insurances. This level of transparency puts you in control, allowing you to make intelligent decisions about your financial plans and ultimately avoiding the churn from a bent broker.
If you’re worried about churning or you’d like some free and confidential advice, get in touch!