What is "churning" in financial advisory?

Churning refers to the practice of excessively buying and selling securities within a client's account primarily to generate commissions for the financial advisor, rather than to benefit the client’s investment goals. This activity can lead to higher transaction costs for the client and may not result in any meaningful long-term gain, as the focus shifts from the client's best interests to the advisor's potential earnings from commissions.

In a financial advisory context, this practice is considered unethical and can lead to regulatory consequences for the advisor. It raises concerns over the fiduciary duty that advisors have to act in the best interest of their clients. Understanding this definition is important for recognizing inappropriate behaviors in financial advising and ensuring compliance with industry regulations.