hen you add in the five to four and a half percent the client had to pay just to purchase the mutual fund. Not to mention, if you add inflation, which averages three percent a year. The investor now must average five percent a year to just break even. Now multiply this number for an advisor who is managing a book of business that is more than 100 million. The money starts adding up, and no one is the wiser. This leads to other unethical behavior. Maybe signing the client's name on the paperwork, lying about performance to sell a product, or promising a certain return on a client’s money. All this coupled with the industries’ demand for advisors to perform and bring in revenue, can easily turn an ethical advisor in an unethical one.
Another way advisors get into trouble, especially in retirement accounts (IRA, 401K, 403b, etc.), is by churning. Churning is where an advisor us unnecessarily buying and selling investments in a client’s account to make a profit. In this example, instead of having a steady fee associated with the account we have a transactionally based acc...