Churning is an illegal sales practice in the insurance industry in which an insurance agent convinces you to replace an existing policy with a new one for the primary purpose of earning a commission. The replacement rarely improves your coverage. Instead, it often leaves you with higher premiums, weaker benefits, and surrender charges that quietly drain the value you spent years building. The same misconduct also appears in investment accounts, where brokers make excessive trades to generate fees rather than returns.
Here at the Law Offices of Robert Wayne Pearce, P.A., we are an investment fraud law firm, and the churning cases we handle involve trading in brokerage accounts. Still, we want you to understand churning in all its forms, because recognizing the warning signs early can protect both your insurance coverage and your investments. If a broker churned your investment account, you may be entitled to recover your losses, and we invite you to contact us for a free consultation.
What Is Churning in Insurance?
Churning in insurance occurs when an agent persuades you to replace an existing life insurance policy or annuity with a new one from the same company, primarily to generate a fresh commission. Agents earn their largest payout in the first year of a policy, often 50 to 90 percent of first-year premiums, which creates a powerful incentive to recommend replacements you do not need.
Permanent life insurance policies (whole life, universal life, and variable universal life) pay the highest first-year commissions in the industry, which is exactly why they’re the products agents churn most.
The new policy frequently carries higher premiums, weaker benefits, new surrender periods, and unexpected tax consequences. Because your age and health have changed since the original purchase, replacement coverage almost always costs more while protecting you less. We understand how betrayed you may feel after learning an agent traded away your coverage for a commission. You may be entitled to recover those losses.
Note: We are a team of investment fraud lawyers, so we handle cases involving churning when it comes to investing, such as churning stocks. However, understanding what churning is in insurance is helpful to illustrate the illegality of this practice.
What Is Twisting in Insurance?
Life insurance twisting is the practice of convincing a policyholder to replace existing coverage with a policy from a different insurance company, usually through misrepresentation or incomplete comparisons.
An agent engaged in twisting might exaggerate the benefits of the new contract, conceal surrender charges, or downplay the value you have already built in your current policy. State insurance laws prohibit twisting because the switch rarely serves your interests.
When you surrender a life insurance policy or annuity early, you can lose accumulated cash value, trigger tax liabilities, and restart the contestability period, which is the window when an insurer can investigate and deny claims. If an advisor pressured you into swapping carriers and you suffered losses, our attorneys can review the transaction and explain your options for recovery.
Churning vs. Twisting: What’s the Difference?
The distinction between churning and twisting comes down to where the replacement policy originates. Both practices involve replacing coverage you already have, but they differ in one important way:
- Churning swaps your policy for a new one issued by the same insurance company.
- Twisting moves your coverage to a competing company through deceptive or misleading sales tactics.
Despite that distinction, the two practices share the same motive, which is the agent’s desire to collect another first-year commission at your expense. Both can leave you in a worse position:
- Higher premiums and new surrender periods
- Reduced or lost benefits
- Tax consequences you never anticipated
Regulators treat each one as a form of insurance fraud, and agents who engage in either practice face license revocation, fines, and civil liability. Here at the Law Offices of Robert Wayne Pearce, P.A., we handle churning and twisting cases and fight to recover everything our clients are owed.
Note: Again, we are an investment fraud law firm, but it helps to understand twisting in this regard as well. From here on, we will cover churning in regards to stock fraud.
Signs Your Advisor Is Churning in Your Investment Account
The most common signs of churning are investment losses, unauthorized trades, and unusually high trading volumes.
Let’s cover each in more detail.
Significant Losses
Churning stocks leads to substantial investor losses, especially in situations where it lasts for a long period of time. Many times, investors fail to recognize the indicators that their broker committed the crime of excessive trading until it is too late.
There are a number of cautionary signs to look out for when you fear your financial advisor is excessively trading in your account.
Unauthorized Trades
Unauthorized trading occurs when a broker trades securities in your investment account without receiving prior authorization.
If you have a discretionary investment account, your financial advisor has authorization to make trades in your account without seeking your approval for each transaction; however, your broker is still bound by the best interest standard. Excessive trading can be more difficult to detect with a discretionary account.
Numerous unauthorized trades appearing on your account statement is a cause for concern. To recognize these transactions, you should review your account statement on a monthly basis and verify the information provided. If you observe unauthorized trades on your account statement, notify your broker and broker-dealer immediately.
Unusually High Trade Volume
A high volume of trading activity in a short period of time can signify churning, especially for investors pursuing a conservative investment strategy. Pay special attention to transactions involving the purchase and sale of the same securities over and over.
Attorney Robert Pearce has over 45 years of experience representing clients whose brokers’ misconduct caused financial losses. Mr. Pearce’s extensive experience enables him to recognize indicators of churning immediately and prove the amount of damages you suffered as a result of your broker’s misconduct.
Excessive Commission Fees
Unusually high commission fees appearing on your account statement is another indication of excessive trading.
If the commission fees jump significantly from one month to the next, or if one segment of your investment portfolio consistently generates higher commissions than any other segment, there is a chance your broker is churning your account.
Account statements do not typically include fee amounts charged for each individual transaction. Thus, do not hesitate to contact your broker-dealer to request an explanation of the commissions charged to your account.
If you feel you are being charged excessive fees in your investment accounts, contact The Law Offices of Robert Wayne Pearce, P.A., to discuss your options.
How Do You Prove Churning in Your Brokerage Account?
Proving churning in your brokerage account means proving the trading was excessive for your objectives because it served commissions or other broker compensation rather than your returns. At the Law Offices of Robert Wayne Pearce, we quantify excess activity using account-wide measures: turnover ratio is a metric, and cost-to-equity ratio is an indicator that shows how much your account needed to earn just to break even after trading costs.
Control is a key element: a discretionary account is an account type that gives the broker authority, and a non-discretionary account can still show de facto control when the broker repeatedly recommends rapid in-and-out trades you feel pressured to approve. Your investment profile matters—risk tolerance is an attribute, time horizon is an attribute, and liquidity needs should align with the frequency and size of trades in stocks, ETFs, mutual funds, options, or variable annuities.
If you suspect life insurance churning or investment churning and have suffered financial harm, preserve evidence: account statements are records, trade confirmations are records, and emails, texts, and call notes are communications that show recommendations and intent. Send a written complaint to the firm’s compliance department to create a dated timeline, then talk with our team of FINRA arbitration lawyers to see if we fit your needs. Either way, when churning scams or twisting scams occur, you should take legal action.
Contact Our Office Today for a Free Consultation
Churning in the financial industry can result in monetary sanctions and even disqualification from the financial industry in extreme cases. The practice involves the manipulation and deception of investors that entrust their brokers to act in their best interest, warranting severe punishment.
Robert Wayne Pearce has handled dozens of churning cases with the Financial Industry Regulatory Authority (FINRA) and can provide a complete review of your account statements to determine whether excessive trading occurred.
Additionally, The Law Offices of Robert Wayne Pearce, P.A., employs expert investment fraud lawyers that can perform a churning analysis of the trading activity in your account to establish concrete evidence that the practice occurred. We have the experience, expertise, and commitment to obtain the damages you deserve.
You should not suffer from the unethical practices of an insurance producer. If you suspect twisting and churning in any form, contact us today.
