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 Montana, as in other states, the practice of churning by a broker is illegal under both federal and state 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 Montana suspects churning, they should observe for unauthorized trading, frequent trading that does not align with their investment goals, and excessive fees. Investors who believe they are victims of churning should file a written complaint with the brokerage firm, the SEC, and FINRA. These regulatory bodies enforce rules against unethical practices like churning. The SEC oversees securities exchanges, brokers, and dealers, while FINRA is a non-governmental organization that regulates member brokerage firms and exchange markets. The Montana Securities Act also provides a legal framework for state-level regulation of securities, including the conduct of brokers, and offers recourse for investors through the Montana State Auditor's Office, which oversees securities within the state.