Churn

churn (chûrn) n. A vessel or device in which cream or milk is agitated to separate the oily globules from the caseous and serous parts, used to make butter.v. churned, churn·ing, churns  v.tr.1. a. To agitate or stir (milk or cream) in order to make butter.b. To make by the agitation of milk or cream: churn butter.2. To shake or agitate vigorously: wind churning up the piles of leaves. See Synonyms at agitate.
3. To buy and sell (a client’s securities) frequently, especially in order to generate commissions.

Who wouldn’t enjoy tasting freshly churned butter?  Slather it on a thick slice of warm, homemade bread for a taste of nostalgia so good you can almost smell it.  Sad to think that such a warm, homey word has such an unpleasant meaning when used in the world of investments.

Stockbrokers generally earn a commission when they purchase an investment for you.  They also earn a commission when they sell an investment for you.  So when a broker buys, he makes money, when he sells, he makes money.  The more transactions, the better for him, but not for you because you’re paying those commissions.  The term for it is ‘churning’ and it’s against the law – though not necessarily easy to prove.

So what can you do?  Avoid the churn.  If you have someone managing your investments, make sure you pay attention to what is happening with your money.  Make sure you know how your investment manager is compensated.  Is there a fixed fee?  Or is he/she paid commissions?  These are often called ‘loads’ or ‘sales charges’. Don’t be intimidated if you get an answer that doesn’t make sense; ask again until you’re satisfied.  And if you get an answer you don’t like, don’t get agitated (see definition #1 above).Take charge and find someone to work with who will put your interests ahead of theirs.   After all, it’s your money.

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

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Obfuscate

ob·fus·cate ( b f -sk t , b-f s k t )tr.v. ob·fus·cat·ed, ob·fus·cat·ing, ob·fus·cates

1. To make so confused or opaque as to be difficult to perceive or understand: “A great effort was made . . . to obscure or obfuscate the truth” (Robert Conquest).

2. To render indistinct or dim; darken: The fog obfuscated the shore.


[Latin obfusc re, obfusc t-, to darken : ob-, over; see ob- + fusc re, to darken (from fuscus, dark).]


ob fus·ca tion n.

ob·fus ca·to ry ( b-f s k -tôr , -t r , b-) adj.1

Obfuscate is a wonderful word.  I just wish it didn’t apply so often to issues in personal finance.  Annuity contracts are one example.  Recently I met with a client who owned several annuity contracts and she wanted help translating them – from obfuscatory English to plain English. The contracts were thick documents that I’m convinced were carefully designed to keep anyone from actually wanting to read them.   Buried within were onerous sounding surrender charges, various subaccount fees and expenses, commissions, penalties, insurance fees, redemption fees, and enough other terms to make you nervous.  Wouldn’t it be nice if one of the insurance companies selling annuities would lay out the information in a simple diagram or a flow chart? It would make a lot more sense and it would help consumers evaluate and understand, for example, what the real cost of that death benefit is.

If you find yourself struggling to understand the costs, benefits, and tradeoffs of an investment, perhaps it’s due to a deliberate obfuscation of the information.  So what should you do?  If you don’t understand it, don’t buy it.  It’s that simple.

1. The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.