The term "churning" applies to the number of transactions your financial advisor makes on your behalf. Typically, the term is used as an accusation; an advisor is "churning" if they make excessive or unnecessary trades just to generate commissions for themselves.
Reverse churning, as you might guess, is the opposite practice. Doing nothing. Just letting your portfolio sit there. Think about your cousin, who's been playing video games in his parents' basement, ostensibly "working on his screenplay" for the past 15 years. Reverse churning.
So...is that bad? If too much churning is bad, than reverse churning must be good, right?
No, not really. While you don't want an advisor getting crazy with their activity, you aren't paying them to do nothing. They take a fee for their services. If you wanted someone to do nothing, you could have invested the money yourself and saved the fee. (Or just had your screenplay-writing cousin add "investment advising" to his daily to-do list.)
Reverse churning suggests that your advisor is taking all the fees they collect and heading to the golf course every day.
Related or Semi-related Video
Finance: What Does it Mean to Churn an A...12 Views
Finance allah shmoop What does it mean to churn an
account All right Well back in colonial times before america
was the good old u s a You know what
That i po and seventeen seventy six colonists would churn
cream into butter back then churning involved moving a plunger
in a wood bucket over and over and over again
Really good for the traps and lattes there Not exciting
but well that's What happens when there's No better technology
today churning is something illegal that stock brokers dio and
remember normally brokers pay their own rent by getting paid
a commission off of each trade they do for customers
So churning in the financial sense here means that stockbrokers
are making tons of trades they really don't need to
be making in a client's account in order to generate
mohr commission for themselves they're churning the account to generate
dough for themselves Illegal very bad And sometimes it can
be difficult to detect or stop You know think about
little old ladies not really paying attention to our account
or ah cardiologists who really has no idea how wall
street works They have no idea of the brokers churning
Or not Well if you fall prey to a broker
who's involved in churning you'll end up overpaying them in
commissions And you might even have to pay extra taxes
because they realized gains from all those trades they didn't
need to make But if that brokered does get caught 00:01:26.979 --> [endTime] yeah he's toast
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