Final answer:
Each discretionary account must be reviewed for churning to prevent unnecessary expenses and ensure trades are in the client's best interest.
Step-by-step explanation:
Churning refers to excessive trading in a discretionary account, which can result in unnecessary expenses and fees for the account holder. Therefore, it is important to review each discretionary account for churning to ensure that the trades being made are in the best interest of the account holder.
For example, if a financial advisor is excessively buying and selling stocks in a discretionary account solely to generate commissions, it could be considered churning. By reviewing the account, the advisor can determine whether the trading activity is necessary and aligned with the client's investment goals.
Reviewing for churning involves analyzing the trading activity, considering the client's investment objectives, and assessing whether the trades made were suitable.