A broker is someone that invests your money until it is all gone. - Woody Allen

Churning, also known as "twisting" is the practice of recommending that clients buy and sell so much stock each year that there is a very high turnover of their portfolio. A broker or adviser who gets clients to churn their portfolios does so because each and every time a buy or sell transaction is made, the broker gets brokerage.

There are a couple of reasons why churning is not in the best interests of a client. First of all, clients as a whole can only make the kind of profits returned by the market itself. Holding a diversified portfolio of stocks will give you returns approximately equal to the market indexes returns. Any time you start to introduce transaction fees into the process, clients' returns will automatically be reduced accordingly, by a percentage equal to the number of trades multiplied by the percentage brokerage.

For many clients with large sums to invest, a regular campaign of switching investments around will result in tens of thousands of dollars in commissions to the broker, and most likely that same amount in losses to the client. That is, unless the broker is able to justify this by actually trading client's finds successfully, beating the market with successful timing.

How likely is that? Not very, by the looks of it, since even professional traders trading with their own money have a rather hard time, having a client in tow and needing to run things by them is only going to be a hindrance to the broker's trading success. Brokers are often notoriously bad at forecasting, their record on that is just as appalling as the forecasting record of other investment professionals (yes, that bad!). If you want to trade, go learn how to do it by reading up on it, then go for it with a really cheap discount broker. If you don't want to do anything yourself then invest in managed funds, if you want something really racy there are a variety of emerging companies funds or you could just negatively gear into something a little more stable. Do not go to a full service broker and rely on his advice if you want to be a trader, it doesn't work like that.

Other reasons why you don't want to churn your account is that you incur substantial risks from trading. In the long term there is an excellent growth bias in the markets meaning you can buy a portfolio of stock and hold on so you can enjoy good long term returns. In the short term the market is a bedlam, moving up and down with tremendous volatility from week to week, day to day, hour to hour and minute to minute. Short term trading is a highly risky occupation that should only be embarked upon by suitably skilled individuals. If you are hanging off the words of a stock broker then you are definitely underqualified for this. Any stock broker that does recommend churning their client's portfolio is presumably something of a shady character anyway, and not someone you would want as an adviser.

The other thing to consider is capital gains tax. For short term trading you incur substantial penalties, losing a portion of your profits every time you make a sale, taking further away from your returns.