Churning: Same Money Different Product

There are so many ways that investment professionals get paid.  They get commissions from many different products as well.  Most all of these practices are legal and ethical.  There are some that are not.  Sometimes you will get an advisor or insurance agent that will keep investing the same money over and over and over again.  This is called churning.  It is a way for advisers to continue to make a commission on the same money by taking the money that the client gives them and putting it in an insurance product or investment product.  Then after a period of time, the advisor takes that same money out of that product and puts it into another product.  The advisor just made two commissions on the same money.  sometimes taking clients out of products is the right thing to do.  In today's times there has been a large amount of panic selling because of the economy.  There has been a big push for customer service.  There has been interest rate reductions on certain products.  So it is just a feeding ground for investment and insurance people to have the opportunity to churn products that they have already sold within the last 6 to 12 months.  I am not saying you should buy and hold no matter what.  I do not agree with that strategy.  It does not work for everybody.  I am saying that you must look at the incentive behind why an advisor all of the sudden wants to get you out of a product that they just sold you 6 months ago.  

You can avoid this by asking your advisor or insurance person a few questions:  1.  What is your commission on this transaction?  2.  What was it the last time we moved this money?  3.  What are my costs associated with moving the investment?  4.  What are my benefits?  The advisor will have answers  and you can believe or not believe his or her responses.  One way to know if an adivsor is NOT trying to churn, is if you have already had this conversation the first time you invested the money in the first product.  Honest advisors usually tell you upfront that if it dose not work out we will move it to something else down the road.  They will also volunteer the information about how much they will make on each transaction.  I am not recommending any investment of any kind, I am just saying ask questions before you make fast knee jerk reactions in an economy and market place like the one we are all living in today.