What Is Churning?
Excessive, unnecessary trading by a representative in a customer's account motivated primarily by the desire to earn commissions. It violates fiduciary duty and suitability requirements, and is a common Series 7 violation scenario.
Churning across 4 exams
Churning appears on the following exams. Each defines it in the context candidates are tested on:
- Series 7
- Excessive, unnecessary trading by a representative in a customer's account motivated primarily by the desire to earn commissions. It violates fiduciary duty and suitability requirements, and is a common Series 7 violation scenario.
- Series 63
- Excessive trading in a customer account to generate commissions for the broker-dealer, without regard to the customer's investment objectives. This violates the suitability rule and fiduciary duty, and is a common violation the Series 63 tests.
- Series 66
- Excessive trading in a client account for the primary purpose of generating commissions rather than serving the client's investment objectives; a violation of fiduciary duty. Series 66 exam-takers must recognize churning as prohibited conduct and understand how regulatory bodies detect and sanction this practice.
- Series 9/10
- The excessive buying and selling of securities in a customer's account primarily to generate commissions, without legitimate investment objectives. A sales supervisor must detect and prevent this prohibited practice by monitoring account trading frequency and patterns relative to the account's size and stated investment goals.