Arguably, the regulatory concern about reverse churning – where advisors charge an ongoing investment fee but fail to provide any substantive ongoing investment services – is appropriate. However, the scrutiny on reverse churning raises troubling concerns when paired with the growing popularity of using index funds, ETFs, and passive investment approaches. How is an advisor supposed to justify an ongoing advisory fee when the right thing for the client to do might really be to do nothing? And what if the bulk of the advisor’s AUM fee is actually for other non-investment (i.e., financial planning) services, paired together with an otherwise passive investment portfolio?
Great coverage of a topic that we will see more of in the future. Good comments by readers.