What is the wrongful act of churning in a financial context?

Churning refers to the practice of excessively trading a client's account primarily to generate commissions for the broker, rather than to benefit the client’s investment strategy or financial goals. This wrongful act can significantly harm investors because it leads to increased transaction costs, which can erode the value of their investment portfolio. Churning undermines the trust and fiduciary duty that financial advisors have toward their clients, as it prioritizes the advisor's financial gain over the best interests of the client.

Choosing investments based on client preference, holding investments for a long period, or providing unsolicited advice may not necessarily constitute unethical behavior or manipulation of client accounts in the way that churning does. While those actions can involve risks of their own, they don't embody the abusive nature of churning, which is characterized by trading frequency without a sound investment strategy in place, focused on earning commissions instead of serving the client's financial needs.