A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning.

Red flags of excessive trading may include:

• Unauthorized Trading—Be alarmed if you become aware of trades in your account that you did not authorize your broker to make.

• Frequent Trading—Be wary of frequent in-and-out purchases and sales of securities that don’t seem consistent with your investment goals and risk tolerance.

• Excessive Fees—Be suspicious if the total amount of fees seems high or if one segment of your portfolio consistently generates high fees.

If you believe a broker has engaged in churning, submit a complaint in writing to the brokerage firm and to the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).

In Colorado, as in other states, the practice of churning by a broker is illegal under both state and federal securities laws. Churning occurs when a broker engages in excessive trading in a client's account mainly to generate commissions, without regard for the client's investment objectives. This practice violates the duty of the broker to act in the best interests of the client. If an investor in Colorado suspects churning, they should first file a written complaint with the brokerage firm. If the issue is not resolved, they can escalate the complaint to the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA), which are federal entities that regulate securities trading and enforce laws against fraudulent practices like churning. These organizations have the authority to investigate and impose sanctions on brokers and firms that violate securities regulations. It's important for investors to monitor their accounts for signs of unauthorized trading, frequent trading that doesn't align with their goals, or excessive fees, as these can be indicators of churning.