{"id":352711,"date":"2017-05-16T16:56:54","date_gmt":"2017-05-16T21:56:54","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/consumer\/securities-law\/when-is-over-concentration-considered-fraud.html"},"modified":"2024-05-20T12:40:24","modified_gmt":"2024-05-20T17:40:24","slug":"when-is-over-concentration-considered-fraud","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/consumer\/securities-law\/when-is-over-concentration-considered-fraud.html","title":{"rendered":"When Is Over-Concentration Considered Fraud?"},"content":{"rendered":"\n
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When Is Over-Concentration Considered Fraud?<\/h1>\n
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\n By Oni Harton, J.D.<\/a> | Legally reviewed by Melissa Bender, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

The market is in a constant state of flux, and it’s difficult to determine which holdings in your investment portfolio will do well. Market experts advise that diversification is a sound investment strategy to minimize financial losses. Investment advice typically warns against concentration risks. A diversified portfolio<\/a> seeks to hedge against investment losses in particular securities.<\/p>\r\n

Investment professionals must avoid recommending unsuitable investments for clients. They must recommend investments that align with the client’s risk tolerance profile. If your broker or advisor fails to diversify your investments, you may be a victim of over-concentration<\/a>. Read on to learn about over-concentration and when it might be considered investment fraud.<\/p>\r\n

What Is Over-Concentration?<\/h2>\r\n

In securities law, over-concentration refers to having too many holdings in one particular investment, asset class, or market segment relative to your whole portfolio.<\/p>\r\n

For example, you might invest too much in one company or industry, such as technology. An entire portfolio may consist of a single company stock. You could be invested in only one type of security, such as common stocks. Investment recommendations for most investment profiles usually include a mix of stocks and bonds.<\/p>\r\n

Over-concentration is a high-risk investment strategy. If something happens to that one investment or class of assets, you risk losing a large portion of your portfolio. Experts recommend having a diversified portfolio of investments. This spreads your risks more<\/a> across the market. While some investments might lose value, others could increase, leaving your overall portfolio fairly balanced.<\/p>\r\n

FINRA Defines Over-Concentration<\/h2>\r\n

FINRA, the Financial Industry Regulatory Authority<\/a>, is a non-governmental organization governing individual brokers and brokerage firms. It describes the factors that can lead to a concentration risk<\/a>. They include the following:<\/p>\r\n