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Securities Fraud Help Center - Over-Concentration

Did You Know?

An average of 115 people die each day in motor vehicle accidents in the US - one every 13 minutes

Diversification is a strategy for managing a portfolio to limit risk. It is a broker's responsibility to advise clients to diversify their stock portfolio to reduce risk. A broker who does not diversify his client's portfolio is potentially liable if that investment declines in value. It's the old adage that it is unwise to place all of your "investment" eggs in one basket.

Proper diversification is one of the best ways to control risk and avoid excessive losses. If a broker concentrates too much of your portfolio in one type of investment, (such as stocks), or puts too much of your money in only one or two different stocks, or buys too many stocks in the same industry, you face a much greater risk of suffering a large loss.

The logic behind this being that it is less likely that all of the major sectors will be hit with a significant downturn rather than one sector or one stock. It is a broker's responsibility to advise clients to diversify their portfolio to reduce risk.

Example of Over-Concentration

Many investors lost a significant amount of money when the Internet crash hit in the late 90's because some stockbrokers irresponsibly advised them to concentrate the majority of their investment in this speculative business sector. . In some instances this concentration was part of an IPO scheme, whereby customers were lured to "hyped" stocks that insiders never believed valuable but nevertheless rated highly. When the Internet stock bubble collapsed many were financially devastated.

If a broker puts the vast majority of a client's total investment holdings into one sector and then the investments decline significantly, the broker may be liable if the investments decline in value. If an investor believes that he or she has been the victim of broker mismanagement or fraud, they should seek legal council as soon as possible.

CONTACT A SECURITIES FRAUD ATTORNEY IN YOUR AREA

A broker who fails to recommend a properly diversified account can be liable for some or all of your losses. If you believe you have been victimized by stockbroker fraud or mismanagement, you should inquire about your legal rights. If you are in need of legal advice or services, or simply wish to speak to an attorney who has successfully handled Securities Fraud litigation in your state, you may use this Free Online Consultation Form.

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Last updated: December 10, 2007