Reverse Churning Policy Guidance

Reverse Churning Policy Guidance

Reverse Churning Policy Guidance

What is the Reverse Churning Policy?

Mutual Advisors, LLC (“Mutual”) requires that every client be assessed to determine if there is any trading in a client portfolio within a 12 month period. This assessment is designed to identify clients that may be paying an annual advisory fee that is higher than what the client would pay if they were paying for the same services hourly.  

 

How does Mutual monitor for reverse churning? 

Mutual reviews any advisory accounts that have not had any trading over the last 12 months. Those accounts are assessed as part of the client’s overall portfolio in Orion, which is defined as all accounts within a household in Orion. If the client has not had any trading in any advisory accounts within the portfolio, then the client will be flagged for further review.

 

What happens if a client is flagged for review?

Each advisor that has clients flagged for review will receive a spreadsheet report which lists the clients that were flagged, their Orion household ID, their name, their current value and their average annual advisory fee rate. The advisor will then have two questions to answer that are designed to help assess what a potential consulting fee would be if the client was charged hourly for the same amount of service hours. This assessment will be compared to the estimated annual advisory fee. The two questions are listed below.   

 

Questions for flagged client portfolios:

1.       How many hours were spent in overall servicing of the client in the last 12 months (including time reviewing portfolios, meeting with the client or other general services; enter as a number only)? [Text Field]

2.      What is your standard hourly charge for Financial Planning & Consulting services? (Example: $150; enter as a number only) [Text Field]

 

NOTE: Once a client is flagged for review, trading in the client account will not prevent an advisor from having to respond to the questionnaire. The questionnaire will identify any clients that have a higher annual advisory fee than a hourly financial planning fee. In the event that the client has a higher annual advisory fee (or “AUM Fee”), then Compliance will work with the advisor to determine if a Financial Planning & Consulting Fee would be more appropriate for the client’s portfolio.



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