Securities and Investment Overconcentration Claims.
What is an overconcentration claim?
Financial advisors have a duty to their clients to recommend a diversified investment portfolio that is not saturated (also known as overconcentrated) with investments that are too closely correlated, either by asset class, type or sector. An account or investment portfolio that is not diversified, but rather, invested in only a few highly correlated investments is said to be overconcentrated − leading to increased risk and potentially catastrophic losses.
Overconcentration can lead to increased risk because the risk associated with investing is concentrated in fewer assets. For example, if a client's portfolio is comprised of 100 stocks in equal amounts and one of the companies goes bankrupt, then the client will only lose 1%. However, if a client's entire portfolio is comprised of one company and that company goes bankrupt, then the client will lose 100% of their account.
When recommending a particular investment or investment strategy, financial advisors are also required to take into account the client's overall financial condition and other investments. That means the financial advisor is required to inquire about and consider investments and property the client maintains outside of the account with the brokerage firm.
If your advisor or brokerage firm overconcentrated your portfolio or overall assets, you may have a claim for negligence or misconduct in the event you suffered losses. Please contact us today for a free, no-commitment consultation.
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