Securities Litigation Attorneys Representing Clients Nationwide
Today, the market is in flux, and it is challenging for investors to tell which investments will do well and which ones will perform poorly. This is why most investors entrust their portfolios with investment professionals to help them determine lucrative places to invest. On their part, investment professionals have a duty to ensure their clients don’t put all their eggs in one basket. In case your broker fails to diversify your investments, you might lose a large portion of your portfolio as a result of over concentration. If a brokerage firm lost some or all your money due to over concentration, the securities litigation attorneys at Weltz Law could help you recover the losses incurred. We will evaluate your case and develop a strong FINRA arbitration claim on your behalf.
Over concentration is the direct opposite of diversification. It is when you have a majority of your holdings in a particular market segment, class of investments, or one particular investment in relation to your entire portfolio. One of the biggest risks of over concentration is that if anything happens to the class of investments or the particular investment you have put all your holdings in, you might lose a significant amount of money. Experts recommend that investors embrace a diversified portfolio of their investments so that their risks are spread out across the market. With diversification, some investments increase in value while others lose, and this creates a balance in your portfolio.
Examples Of Over Concentration
- Owning lots of mutual funds in the same category
- Owning many mutual funds in the same class
- Owning too much of a single stock
- Owning many mutual funds with similar stocks holdings
- Owning many mutual funds with a particular objective
Even though over concentration is, in some cases, intentional and beneficial for investors, it can be a result of fraud. Stockbrokers and brokerage firms must ensure their clients’ investments are diversified on their investment profiles. Failure to do this could result in devastating financial losses.
Over Concentration is Against FINRA Sales Practices
A broker’s failure to recommend diversification of securities is considered negligent and unsuitable investment advice as well as a violation of FINRA sales practices. Stockbrokers and brokerage firms are required to abide by financial industry standards of care and best-practices when giving investment recommendations. They have a fundamental duty to act in the best interest of their clients when making these recommendations, and if they don’t, they can be sued for a breach of fiduciary duty.