Investor complained advisor traded too frequently

The investor, a client of a full-service investment dealer, conducted more than 200 trades in an eight-month period. He then moved his account, claiming that he had suffered losses as a result of the advisor “churning" his account. (Churning is excessive trading by an advisor to maximize commissions.) The investor also said the stocks bought and sold were overly concentrated in the volatile high tech sector.

When we looked at the complaint, we agreed that the account was frequently traded and highly concentrated in the high tech and resource sectors. However, the file showed that at least one half of the trades were initiated by the client while the rest, made on the recommendation of the advisor, were agreed to by the client. There was no evidence of discretionary trading by the advisor. Further, there was no evidence of trading done solely to generate commissions.

While the portfolio was concentrated in high tech and similar stocks, the client had signed account-opening documents indicating a desire for 100% high-risk investments. Further, based on the nature of the stocks transferred into his account, this was a continuation of his previous trading pattern at another investment firm.

We concluded that this client received the service he wanted, and there was no basis on which to recommend the firm to compensate him.

(2003)