A National Securities Arbitration & Investment Fraud Law Firm


Published on:

Churning and the Elderly: How Excessive Trading Impacts Senior Investors

Churning: How it Affects Elderly Investors and What to Do About It on elderfinancialfraudattorneys.com

Unnecessary trading leads to losses for many investors, and the elderly are especially vulnerable to churning

Churning is the process of a broker or investment adviser making unnecessary trades for a client with the sole or primary purpose of generating commissions. While there is no specific test to determine if an account has been churned, it’s usually straightforward; brokers who churn client accounts are responsible for demonstrating that the buying and selling of investments align with their customer’s specific investment objectives.

Why the elderly are especially vulnerable to churning and other forms of financial fraud

While churning and other forms of investment fraud affect people of all ages, elderly investors may be especially susceptible. Limited memories and the onset of conditions that affect mental capacity, such as Alzheimer’s, and other physical limitations often mean older individuals are more trusting of a professional financial adviser, and they are much more likely to give into psychological pressure –especially when it’s coming from an educated, well-dressed individual with an air of prestige. (i.e., many brokers and investment advisors.)

In many cases, a broker can convince an older person to give the broker control over the account or the authorization to make specific trades, even if trusted family members advise them not to. This can easily lead to serious financial fraud, especially if the elderly customer has memory problems, is not especially financially literate, or doesn’t practice good financial and investing habits, such as asking brokers and others regular questions about their investments, and checking their brokerage accounts on a daily, weekly, or monthly basis.

Former Wells-Fargo rep barred by FINRA for churning an elderly client’s brokerage account

Churning and other forms of elder financial abuse are more common than you might think – and it even occurs at many major financial institutions. In one recent case involving Wells-Fargo, a former representative made nearly 3,000 trades for an elderly client over a seven-year period from 2009 to 2016. Former broker Matthew Maczko, who was permanently banned from the securities industry earlier this month, made almost $600,000 in commissions while managing approximately $3 million for a client who is now 92 years-old.

While Maczko took a heavy profit, his former client did not; she sustained nearly $400,000 of trading losses in that same 7-year period. The Financial Industry Regulatory Authority (FINRA) took this into account when deciding to ban the broker for sustaining a trading volume that was “unsuitable for the elderly client given her investment profile, including her age, risk tolerance and income needs.”

How to take measures to limit or prevent churning (especially in the elderly)

It’s important to understand that churning can’t happen unless an individual isn’t aware that it’s taking place. So, a first step is to be careful about letting a broker or advisor take discretionary authority over an account. If you are concerned that an elderly or incapacitated family member may become a victim of churning or other similar types of financial fraud, you may want to research ways to gain greater control over your family member’s finances.

In many cases, this might simply involve checking their accounts on a regular basis to look for signs of suspicious activity, as well as to warn and educate them about potential risks like churning and other forms of broker fraud. In extreme cases, this could involve putting your family member’s assets in a guardianship account, but to do so, you’ll need to be appointed by a court as the legal guardian of your family member, which could be complex process.

If you do see any suspicious activity, or a pattern of trading that you think may be unsuitable for you or an older loved one, you should contact an experienced financial fraud attorney immediately to understand your options.

If you or a close family member has lost money due to churning or other forms of elder fraud, you may be able to recover some or all of your losses. To see if a firm you’ve invested in has been charged by the SEC, visit the SEC Newsroom or use FINRA’s free BrokerCheck service today.

Scott Silver is the current chair of the American Trial Lawyers Association Securities and Financial Fraud Group and the attorneys at Silver Law Group are leaders in the field of securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor.

Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. Contact us at (800) 975-4345 or reach out through our online form for a complimentary consultation – in our office, over the phone, or in your home – about your situation.

Contact Information