Overconcentration

Securities Law Attorney Serving Residents of Los Angeles County

One of the most important things a broker can do for an investor is to ensure that his or her portfolio is diversified. In fact, studies have shown that the majority of a portfolios return is not based on the securities in the portfolio, but by how the portfolio is diversified. Diversification is designed to protect your financial well-being by spreading your investments across multiple sectors or products. Investing too much in one asset can subject you to substantial losses should that investment lose its value. Securities law lawyer Steve A. Buchwalter has over 20 years of experience helping investors in Los Angeles County and beyond try to hold brokers accountable for engaging in overconcentration of assets. If you think you have been burned by your broker, we may be able to help.

Overconcentration of an Investment Portfolio

Overconcentration may occur when a broker invests too much of a client’s assets in a single security or type of investment. Brokers must consider their clients’ goals and financial status, and they must make investments across different securities and industry sectors that will protect the client’s assets while achieving these goals. Examples of asset allocation include stocks, real estate, foreign currency, cash, bonds, and natural resources. Spreading an investor’s funds among these types of investments can ensure that a crash in one area of the market will not result in a devastating loss for the investor.

Financial advisors and brokers owe their clients a duty to ensure that investments are distributed across many different classes of assets. To establish that a broker acted negligently, the investor must prove that the broker owed a duty to the client and that the broker failed to act according to that duty. As a result of the high level of trust that investors place in their asset managers, brokers owe their clients a heightened standard of care. A broker who fails to diversify a client’s portfolio likely has breached his or her duty to the client.

The next steps of a negligence claim require the investor to prove that the broker’s failure to diversify the client’s portfolio caused the investor’s losses. This requires a showing that the investor would not have incurred the losses if the broker had met the appropriate standard of care imposed by his or her duty to the client. The investor must then provide evidence of the damages that he or she incurred as a result of the broker’s breach of his or her duties.

To determine the amount of compensation an investor may be owed, California courts use the “well managed account” standard. This analysis measures the difference between the actual value of the mismanaged account and the actual value of the account had the broker invested the plaintiff’s assets properly. The standard is also used in cases when the broker commits a number of negligent acts over a period of time. Additionally, an investor may be able to recover any excessive commissions that the broker charged.

Enlist a Ventura County Lawyer to Bring a Claim of Broker Fraud

Our team of skilled professionals have helped many investors assert their rights against financial advisors who failed to appropriately diversify their portfolios. Broker fraud attorney Steve A. Buchwalter has helped victims of unsuitable investments throughout Ventura County and elsewhere in Southern California, such as in Beverly Hills, Pasadena, Newport Beach, Irvine, and Santa Barbara. We offer a free consultation to help you explore your options and learn about how our firm can help you pursue the funds you deserve from a negligent broker. Call us now at 818-501-8987 or contact us online to set up an appointment.