3. To buy and sell (a client’s securities) frequently, especially in order to generate commissions.
Who wouldn’t enjoy tasting freshly churned butter? Slather it on a thick slice of warm, homemade bread for a taste of nostalgia so good you can almost smell it. Sad to think that such a warm, homey word has such an unpleasant meaning when used in the world of investments.
Stockbrokers generally earn a commission when they purchase an investment for you. They also earn a commission when they sell an investment for you. So when a broker buys, he makes money, when he sells, he makes money. The more transactions, the better for him, but not for you because you’re paying those commissions. The term for it is ‘churning’ and it’s against the law – though not necessarily easy to prove.
So what can you do? Avoid the churn. If you have someone managing your investments, make sure you pay attention to what is happening with your money. Make sure you know how your investment manager is compensated. Is there a fixed fee? Or is he/she paid commissions? These are often called ‘loads’ or ‘sales charges’. Don’t be intimidated if you get an answer that doesn’t make sense; ask again until you’re satisfied. And if you get an answer you don’t like, don’t get agitated (see definition #1 above).Take charge and find someone to work with who will put your interests ahead of theirs. After all, it’s your money.
The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.