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What Your Broker Should Be Doing to Prevent Overconcentration

Recovering Losses Related to a Failure to Diversify

Stockbrokers and other financial professionals have a duty to act in the best interests of their clients. Part of that obligation is to ensure that investors have a diversified portfolio and avoid overconcentration in a single sector or industry. An investment strategy too concentrated in a single asset class, market, or company can result in substantial losses.

At Meyer Wilson, we represent individuals who have sustained losses related to stockbroker fraud or misconduct. Brokers should be trained on how to prevent or avoid overconcentration. Investors who have suffered losses due to a broker’s failure to diversify may be entitled to recovery through arbitration or litigation.

If you believe that your investment losses were caused by a broker’s overconcentration in an asset class, sector, or investment, contact our office at (614) 532-4576 to schedule a free case evaluation. 

What Is Overconcentration?

You trust your stockbroker to manage your portfolio well and take your financial needs and goals into consideration.

Unfortunately, some unscrupulous brokers have been known to fail to diversify their clients’ portfolios, leaving them with an overconcentration of assets in investments that are too similar. Having too much invested in a particular security, financial sector, or industry puts you at a greater risk for losses, and this is generally considered poor portfolio management.

How Do Brokers Guard Against Overconcentration?

Your broker has a duty to avoid exposing you to the unnecessary risks inherent in overconcentration. Here are the two main tactics they generally use:

  • Diversification. Diversification is simply making sure that your investments are spread out so that they are not too dependent on the performance of a particular security or industry. In general, your broker should seek a variety of investment types to help protect your assets if something goes wrong within a certain sector.
  • Asset Allocation. Asset allocation is essentially balancing your financial needs and tolerance for risk with the risks or rewards of the investments chosen. For example, an investor with a higher risk tolerance may be fine with big investments in stocks or equities which would be inappropriate for an investor with a lower risk tolerance. Your broker should be sensitive to your needs and goals and allocate assets appropriately.

If you believe you have a claim against your broker or brokerage firm for overconcentration of your portfolio that led to losses, you may be able to resolve your dispute through arbitration or litigation. You should always speak with a  stockbroker fraud lawyer as early as possible to determine your rights.

Hiring an Investment Fraud Attorney

If you have sustained losses related to a failure to diversify your portfolio or overconcentration, contact our office to schedule a free consultation. Call (614) 532-4576 to speak directly with an attorney. We will discuss your situation and the steps you can take to recover your losses. 

At Meyer Wilson, we have recovered over $350 million on behalf of clients nationwide. Do not wait. Call our offices today to get the results you deserve. Cases are handled on a contingency fee basis, meaning you pay no fees unless we win.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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