Churning in a client's account primarily aims to achieve what?

Churning in a client's account primarily aims to achieve what?

• A. Increasing the client's overall investment knowledge
• B. Generating excessive commissions for the dealer
• C. Enhancing the client's investment returns
• D. Reducing the risk exposure for the client

Answer: (B)

The purpose of churning in a client's account primarily centers around generating excessive commissions for the dealer. Churning involves making frequent trades in a client’s account, with little regard for the client's investment objectives, risks, or the overall suitability of the transactions. The main motivation behind such activity is to earn commissions from each trade executed, which can lead to significant profits for the dealer or the representative at the expense of the client.

While churning may lead to a flurry of trading activity, it does not contribute positively to the client's investment knowledge, returns, or risk management. In fact, it often detracts from these outcomes because it can result in unnecessary fees and a portfolio that is not aligned with the client’s financial goals. Therefore, generating excessive commissions distinguishes churning as an unethical practice in the financial industry, aimed at benefiting the dealer rather than the client.