What can happen if churning is detected in a client’s account?

When churning is detected in a client's account, it can lead to regulatory action against the broker. Churning refers to the excessive buying and selling of securities in a client's account primarily to generate commissions for the broker, rather than to benefit the client’s investment strategy. This practice is considered unethical and is a violation of securities regulations set forth by regulatory bodies such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Regulatory authorities take churning seriously because it undermines the trust inherent in the client-broker relationship and can lead to significant financial harm for clients who are subjected to unnecessary trading fees and risks. If churning is proven, the broker may face penalties, which could include fines, suspension, or even revocation of their license to operate in the securities industry. This action helps to protect investors and maintain the integrity of the financial markets.