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How to Keep the Wall Street Wolf at the Door: Protecting Yourself Against Stockbroker Churning

by yak max

Churning is the term given to the process executed by stockbrokers to compile a tidy little nest egg for themselves by making excessive and unnecessary trades with the stock you own as a way to build up commissions. Of the extraordinarily enormous ways that exist for those on Wall Street to grow ever richer while making you ever poorer by convincing you that the only path to wealth is through them, churning is one of the few that the SEC seems willing to not overlook. But since Wall Street crooks rarely if ever actually go to jail, you are much better off taking the time to learn preventive security against becoming a victim of churning rather than relying on the SEC or the Dept. of Justice to protect you after the fact.

Become a Private Investigator

You want to protect yourself against some small time wolf of Wall Street who has learned that the real path to riches lies in big commission fees from you rather than any intelligent investing himself? Start by making sure your stockbroker is reputable to begin with. That means hitting the computer and surfing the internet for every last available drop of information. A good tool for this is FINRA BrokerCheck which assists in researching the broker’s background to make sure you are dealing with as reputable an individual as is possible when you are forced into step into the brackish swamp of Wall Street. But don’t stop with a service like BrokerCheck . Hit up Facebook, Twitter and other social media sites in your effort to discover what type of human being this person who will be dealing with your assets is.

Making the Wolf Cry

Churning as a way to assist your stockbroker in buying that Porsche or that huge house is best accomplished by those investors who don’t have a sharply detailed portrait of their investment goals. Meet with your stockbroker before money starts getting into the mix to draw up in writing as clear and concise a strategy of investment to meet your goals as possible. Do not give the stockbroker any room at all for doubt about your tolerance for risky investments nor your definition of a risky investment. Only when you have succeeded in scaring a wannabe wolf of Wall Street into believing that you are willing to take legal action if he clearly and knowingly oversteps the boundaries of investment risk you have delineated in no uncertain terms will you be able to relax just slightly when it comes to protecting yourself against churning.

Brokers Want to Play the Wolf…You Play the Pit Bull

If you wanted to make an investment decision based on a hunch, you wouldn’t be using a stockbroker. These guys are supposed to be professionals, so make them act like it. Stockbrokers who make a pile of money through churning count on your willingness to not be a pit bull facing down their wolfish hunger. Be a pit bull when you see that hunger in their eyes. When a stockbroker recommends buying or selling or engaging in any act that creates a commission that takes money out of your account and puts it into his, you demand charts. And figures. And statistical analysis. And a comprehensive account of the risks involved. And, most of all, a logical outline of the justifications he has for making this recommendation.

Ultimately, the only real way to protect yourself from becoming a victim of stockbroker churning is to take an active approach. That means never being afraid to ask any question. That means never being intimidated. That means actually paying attention to the reports you receive and keeping track of just how much money you are losing as a result of paying commission.

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