At the Investment Loss Recovery Group, our attorneys are former licensed securities brokers. We know what goes into the responsible management of investments. Overconcentration and other misconduct can introduce unnecessary risk and uncertainty into investment portfolios.

We understand how brokers and firms should formulate their advice and how investment recommendations and strategies can go wrong. Our attorneys started their careers working in the securities industry and later as securities defense attorneys. That experience allows us to anticipate and counter defenses brokers routinely raise in a claim. Our efforts have resulted in the recovery of millions of dollars on behalf of our clients against some of the largest Wall Street firms.

If you’ve suffered losses due to overconcentration, mismanagement, negligence, or fraud, we can help you analyze your case and move forward with an effective strategy for recovery. We have the skills, knowledge, and experience to help investors recover their losses. Contact us today for a free consultation and advice about how to recover your unnecessary investment losses.

What Is Overconcentration?

Overconcentration is a term in the financial industry for situations where too much of an investor’s portfolio is invested in a single type of security, a single company, or a single sector of the market.

Overconcentration can be thought of as the opposite of investment diversification. A portfolio that is overconcentrated is susceptible to unnecessary volatility, while a diversified investment portfolio will tend to be more stable. As overconcentration can be based on a position, product, asset class, sector, geography, etc., it is important for us to thoroughly review and analyze your investments for unnecessary risks and losses that were the result of negligence or misconduct.

Why Is Overconcentration a Problem?

Overconcentration is a problem for investors because overconcentrated portfolios are more susceptible to risk and volatility. Overconcentration can lead to unnecessary fluctuations and losses in a portfolio’s value. If an overconcentrated position, asset class, sector, etc., declines in value, the entire portfolio can suffer unnecessary loss.

Investors should be aware that the more concentration there is in their portfolio, the more likely they are to experience substantial volatility. Some investors seek out this kind of risk, but many do not. Unfortunately, by mistake or misconduct, these are some of the problems that investors may not realize are responsible for unnecessary loss in their investment portfolios.

How Does Overconcentration Happen?

Overconcentration can happen a few different ways:

Broker mismanagement and negligence. Brokers should responsibly manage investments. If they are under pressure to maximize fees and commissions, these objectives collide. Sometimes brokers may find what they think is a good investment opportunity, but they recommend too much of an investor’s portfolio in a particular security, product, asset class, geography, etc.
Broker misconduct and breaches of duty. Brokers have a responsibility to serve the interests of their clients. Sometimes brokers or firms have incentives to invest in a particular product. In these situations, brokers may invest too large of a percentage of an investor’s portfolio in a particular product. This can leave investors open to unnecessary volatility and losses.
Overconcentration based on prior performance. Sometimes a particular investment or strategy can, over time, become too large of a part of the investment portfolio. This can lead to a portfolio that is overconcentrated in one area.
Correlated investments. A broker may like a particular product, asset class or sector of the economy, and they may recommend a number of similar investments. It may seem that the investor has a variety of investments. However, the securities may all be in a similar industry or may otherwise be highly correlated. This means that they rise and fall according to some similar market forces. What appeared to be a diversified portfolio is then subject to unnecessary volatility, risk, and loss.

There are many ways for an investor’s portfolio to become overconcentrated. Sometimes it is due to misconduct, and sometimes due to mistake or negligence. If you are noticing unnecessary volatility or losses in your portfolio, it is important for you to investigate further.

How Can You Avoid Overconcentration?

There are many ways that investors can avoid overconcentration:

Diversify your investments. By diversifying your investments, you can help ensure returns without the unnecessary risk involved in overconcentration.
Conduct frequent reviews of your investments. Mergers, market performance, technological changes, incentives, bankruptcies, or economic changes can change the face of an investment portfolio. Don’t be complacent and assume that your investments will remain the same over time. If they have become too concentrated in one product, security, asset class, geography or at any other correlated level, it may be time to shift strategies.
Ask questions. It’s always good to know more about how your assets are invested. Ask tough questions about the commissions, fees, and incentives relating to any recommendations.

Overconcentration Can Be Avoided

The Investment Loss Recovery Group has handled many cases involving correlated investments and overconcentration issues related to particular securities, products, asset classes, market sectors, etc. We have the experience and knowledge to help our clients recover investment losses due to overconcentration.

Our attorneys know the financial industry. With the knowledge and resources of a large law firm and the personal service and attention of a boutique law firm, we can help you maximize your recovery of any unnecessary losses due to overconcentration.