Over Concentration

Overconcentration occurs when a broker or brokerage firm fails to diversify an investor’s portfolio holdings, while placing too large of a percentage of assets into the same stock or industry.  This exposes investors to an exponentially larger amount of risk than a traditional, diversified portfolio, which unless specifically ordered by the investor, should never be done by an investment professional. 

Misconduct Through Over Concentration

Save for rare cases, investors should steer away from over concentrating their accounts, which risks too much for the corresponding potential gains in most cases.  Sometimes, an investor will allow overconcentration of their accounts on the recommendation of a broker, which may even full under claims of misrepresentation and unsuitability as well.  Some of the most common examples of overconcentration include ownership of a large percent of a single stock, owning a large percentage of mutual funds in the same industry, possessing a disproportionate number of mutual funds and assets of the same class, and over concentration of overall portfolio into a given industry sector or some market demographic.

Failing to diversify a client’s account or making negligent recommendations is an illegal action if taken by brokers or brokerage firms, and if losses were incurred, there is a potential for damage claims against the financial entity, which will typically have to be resolved via arbitration per your initial customer agreement with the firm.

Getting Legal Help

If you have lost money or been recommended unlawfully to concentrate your portfolio, a securities law attorney can help you take action for your claims.