Churn, Twist and Flip of Retail Client Accounts
Churning refers to excessive trading to get more commission in the clients’ investment account (Shaxson, 2018). A traded mutual fund, for example, may have all of its assets bought and purchased one in every year. However, the broker may decide to breach the agreement and increase the number of transactions done for the sake of increasing the amount of commission gotten. More transactions can put the investment account in jeopardy, In this case, the client is at will to fine the brokers.
Twisting on the other hand occurs when an agent misleadingly replaces old life insurance with a new one, also to generate commissions. The replacement usually has no customer benefit. Lifelong insurances provide coverage for the longest period, and also death benefits (Shaxson, 2018). These policies however differ from place to place. Replacement of the insurance often requires more investments. An example of twisting is therefore when an agent wittily convinces a client to purchase new life insurance for the sake of getting more commissions. This usually occurs for younger clients whose life insurances develop at a faster rate. Getting new insurance may, therefore, mean that they do not get to enjoy the benefits of the faster growth of their investments. Twisting also occurs when an agent convinces a client to get policies from another company, with the false claim that the other company has better policies. When twisting is done within the same company it is referred to as churning.
Finally, flipping refers to the sale of assets immediately after they are bought for the sake of making quick money. The most common example is when people buy and sell land almost immediately to make more profit (Leung & Tse, 2018). Today the most commonly used method is the use of cryptocurrencies where commodities are sold within a short period when the asset has the highest value in the market.