Your Money Question: Is your broker churning your account?

March 5, 2008

Lately my broker has been recommending a lot of trading in my stock account, and I'm starting to wonder whether he's doing that to boost his commissions. How can I tell?

Q. Lately my broker has been recommending a lot of trading in my stock account, and I’m starting to wonder whether he’s doing that to boost his commissions. How can I tell?

A. It’s not easy, but be suspicious if the broker often encourages you to sell to take quick profits or if his recommendations go against your investment objectives. Check your brokerage statement to see if it lists a lot of trades that show only small profits or none at all. Also note whether the commission for each trade seems large relative to the dollar value of the transaction. Other ways to tell include calculating how often the securities in the account have been turned over and how high the total expenses are relative to the account’s average monthly equity. If you’re having trouble deciding what level of activity is “normal,” seek help from your state securities regulator (see the Contact Your Regulator page at the North American Securities Administrators Association's website) or an attorney who specializes in securities fraud.