What Is Meant by the Term Cost Equity Ratio When Related to Churning?
Video Summary: When looking at churning, we are looking at how high the costs go relative to the size of the account, and when those costs will start making it mathematically improbable, if not impossible, for the account to be profitable.
Cost equity ratio is a percentage that's used in determining whether or not an account has been churned, effectively what it looks to determine is how much on a yearly basis of the return is needed just for the account to sustain itself. So it costs ratio of 10% would effectively mean that it takes 10% a year just for the account to breakeven because of what the costs are.
It's a very complicated formula and one that you need a professional to be able to determine. If you think that your account's been churned, you should contact our law firm and we can do that calculation for you to help you determine whether churning based on a cost equity ratios occurred in your account.