Final answer:
Churning is when an agent recommends moving assets from one fund family to another in order to generate commissions. This practice is unethical and can have negative consequences for the client.
Step-by-step explanation:
When an agent recommends moving assets from one fund family to another in order to generate commissions, this practice is commonly referred to as churning. Churning occurs when a financial advisor or broker excessively trades securities in a client's account for the primary purpose of earning more commissions or fees. The agent would encourage the client to switch funds, not because it is in the client's best interest, but rather to generate more commissions for themselves.
This unethical practice can have negative consequences for the client, such as increased fees and taxes, as well as potentially diminishing the value of their investments. It is important for investors to be aware of the potential risks and to carefully evaluate any recommendations made by their financial advisor or broker.
For example, a financial advisor might advise a client to move their assets from one mutual fund to another within different fund families, claiming that the new fund has better performance prospects. However, the real motivation behind this recommendation could be the higher commission that the advisor would earn from the new fund family.