Final answer:
Churning is the opening and closing of accounts without a legitimate reason, often for financial gain or target fulfillment by advisors, and is considered unethical or illegal.
Step-by-step explanation:
The activity of routinely closing and opening accounts without a valid business reason or customer instruction is typically referred to as churning. In the banking industry, this practice can sometimes be seen when advisors or bankers are attempting to generate additional commissions or to meet certain benchmarks. Churning is not limited to just banking, though; it can take place in various financial services like brokerage, where excessive trading happens in a customer's account primarily to generate commissions without considering the client's investment objectives.
Such activities are considered unethical and in most cases, illegal. They are scrutinized by financial regulatory bodies because they can lead to significant unnecessary costs for customers and may involve manipulation or deception. It's important to note that legitimate reasons for closing and reopening accounts do exist; however, if the practice is systematic and without reasonable justification, it typically falls under the category of churning.
Churning refers to the unethical practice of frequently closing and opening accounts to generate commissions or meet targets without legitimate business needs or customer consent.