A National Securities Arbitration & Investment Fraud Law Firm
Switching sales practice violations in mutual fund investments is a common occurrence that goes undetected by most investors. Mutual funds are typically long-term investments. Switching among funds with similar investment objectives is usually a violation if it has no legitimate investment purpose and may needlessly impose another commission charge and increased tax liability for an investor. The continuous purchase and sale of mutual funds from different mutual fund families may result in the excessive trading or “churning” of an investment account because of the increased risks and commission costs associated with the investment strategy. The ongoing reallocation or “switching” between mutual fund shares across different mutual fund families in amounts can be an indication of a conflict of interest, unless the investments in a mutual fund portfolio is a part of a bona fide asset allocation program.
Mutual Funds are meant to be owned over a substantial period of time. They are not meant to be traded like individual stocks. This is because investors incur substantial charges when they buy and sell mutual funds that do not exist for common stocks. Mutual fund managers are delegated the responsibility of the selection of the securities held in the mutual fund. The use of mutual funds provides the benefit of diversification which normally does not require the sale of the mutual fund, unless there is a fundamental change in the allocation between asset classes. The sale of a mutual fund is in non-diversified sector or geographical region may not serve an economic purpose because of increased risks associated with a narrow market-focus of a particular mutual fund manager.
The Silver Law Group can help you determine whether an investment loss is the result of a brokerage firm and their financial advisor’s violation of mutual fund switching rules in an investment account. If an investor suffers losses as a result of mutual fund switching they may be able recover their losses in a FINRA arbitration claim.