Failure to Diversify / Overconcentration

Failure to Diversify & Overconcentration Attorneys

Holding Financial Advisors Accountable for Risky Portfolio Concentration

At Iorio Law PLLC, we represent investors nationwide who have suffered financial losses due to broker or financial advisor misconduct, including failure to diversify and account overconcentration. Founded by August M. Iorio, a top New York securities arbitration attorney with nearly 15 years of experience and a track record of recovering nearly $100 million for clients, our firm is committed to holding negligent financial professionals accountable. If your advisor’s failure to diversify led to devastating losses, we can help you pursue recovery through FINRA arbitration or other forums on a contingency fee basis—no upfront legal fees, and we only get paid if you win.

What Is Failure to Diversify & Overconcentration?

Diversification is a fundamental principle of prudent investing. It involves spreading investments across various asset classes, sectors, or geographic regions to minimize risk. A well-diversified portfolio helps investors manage volatility and avoid significant losses if one investment or market sector declines.

Overconcentration occurs when a financial advisor or broker places an excessively large portion of your investment portfolio into a single security, asset type, or sector. This undue concentration significantly increases your portfolio’s risk and can lead to catastrophic losses if that particular investment performs poorly.

How Overconcentration Violates Investment Standards

Financial advisors, brokerage firms, and investment advisory firms owe certain legal duties to their customers.  Failure to diversify or overconcentration can breach multiple obligations, providing grounds for securities arbitration claims:

Violation of Suitability Standards: Under FINRA rules, brokers must ensure that investment recommendations align with the client’s financial objectives, risk tolerance, and overall financial situation. Recommending or allowing overconcentration in an investor’s account can violate this standard if it does not align with the investor’s stated investment goals or risk profile.

Breach of Regulation Best Interest (Reg BI): Since June 2020, the SEC’s Reg BI requires brokers to act in your best interest when recommending securities. This includes evaluating alternatives, disclosing conflicts (e.g., high commissions from concentrated products), and ensuring the strategy aligns with your goals. Overconcentration frequently violates Reg BI’s “care obligation” by prioritizing broker incentives over your financial well-being, such as pushing commission-heavy investments without considering diversified, lower-cost options.

Breach of Fiduciary Duty: Registered Investment Advisers (RIAs) owe a fiduciary duty under the Investment Advisers Act of 1940, requiring them to act with utmost good faith and in your best interest. Even some brokers may owe fiduciary-like duties in certain contexts, including when they have discretionary authority. Failing to diversify can breach this duty if it stems from self-interest, like earning higher fees from concentrated products, or simple negligence in portfolio management.

Failure to Disclose Risks Associated with Overconcentration

Additionally, failure to disclose risks associated with a concentrated investment strategy can also give rise to liability independently. Brokers and financial advisors must clearly disclose all material risks related to recommended investment strategies, including the risks associated with concentrated investment positions. Failure to adequately communicate these risks can lead to significant investor losses and potential liability for financial professionals.

Common examples of undisclosed risks include:

• Dependence on the performance of a single security or industry sector
• Lack of liquidity in concentrated holdings, making it difficult to sell positions without significant losses
• Increased susceptibility to market volatility and economic downturns

Omitting these disclosures—whether through misrepresentation or omission—violates FINRA rules on fair dealing and SEC antifraud provisions. For instance, if your broker downplayed the dangers of overconcentrating in illiquid bonds or a volatile sector without warning of downturn risks, you may have a strong claim for misrepresentation or fraud.

These violations aren’t just technical—they cause real harm. At Iorio Law PLLC, we build cases by analyzing account statements, advisor communications, and expert testimony to prove how overconcentration led to your losses.

If your broker or advisor failed to fully inform you of the risks inherent in an overly concentrated portfolio, you may have grounds for a securities arbitration claim.

Signs Your Portfolio May Be Overconcentrated

Identifying an overconcentrated portfolio early can protect your financial well-being. Common warning signs include:

• A large portion of your portfolio is invested in one stock, sector, or asset type, leading to outsized losses during market events.
• Your advisor ignored your stated risk tolerance, such as recommending aggressive concentrations for a conservative investor.
• Investment losses that exceed expected market fluctuations due to concentrated positions.
• Lack of disclosure about risks, costs, or conflicts tied to concentrated holdings.
• Significant volatility and rapid portfolio value swings.
• Portfolio reviews showing little to no rebalancing despite changing market conditions or your evolving needs.

If these sound familiar, time is critical—FINRA claims generally must be filed within six years. Contact our New York-based securities attorneys for a free evaluation.

Real-World Examples of Overconcentration Misconduct

We’ve seen overconcentration devastate investors in high-profile cases, and Iorio Law PLLC has a proven history of success:

• Puerto Rico Bond Crisis: Attorney August M. Iorio helped recover over $80 million for investors overconcentrated in Puerto Rico bonds and closed-end funds. Brokers pushed these risky, illiquid securities without diversifying, violating suitability and best interest rules as values plummeted.
• GWG L Bonds: These speculative, high-commission bonds were often sold without proper diversification, leading to massive losses when GWG defaulted. Mr. Iorio has recovered over $3.5 million for affected investors, proving breaches of fiduciary duty and failure to disclose risks.
• Tech Sector Overconcentration: During market corrections, clients with portfolios heavily weighted in tech stocks (e.g., post-2022 downturns) suffered avoidable losses due to advisors’ failure to diversify into safer assets.

These cases highlight how overconcentration, combined with non-disclosure, amplifies harm, but also how skilled arbitration can secure justice.

Recovering Your Losses Through Securities Arbitration

Investors who have suffered financial losses due to failure to diversify and account overconcentration can pursue recovery through securities arbitration. At Iorio Law PLLC, we aggressively advocate for investors in arbitration forums, including FINRA, AAA, and JAMS.

Potential recoveries include:

• Compensation for investment losses resulting from overconcentration.
• Reimbursement of excessive fees or commissions.
• Recovery of attorneys’ fees and arbitration costs, where applicable.

Why Choose Iorio Law PLLC?

• Proven Track Record: Nearly $100 million recovered for investors nationwide.
• Experienced Representation: Attorney August M. Iorio has successfully handled over 700 securities arbitration cases.
• Client-Centered Advocacy: Personalized attention tailored to your unique circumstances.
• Contingency Fee Structure: No recovery, no fee—our interests align fully with yours.

Take Action Now to Recover Your Investment Losses

If you believe you have experienced losses due to your broker’s or advisor’s failure to diversify or account overconcentration, contact Iorio Law PLLC today for a free, confidential consultation. Time limits apply, so swift action is crucial.

☎ Call: (646) 330-4624 | ✉ Email: info@iorio.law | : Online Submission: Contact Form

📍Location: One World Trade Center, 85th Floor, New York, NY 10007 | Serving Investors Nationwide

Your financial security deserves diligent protection. Let Iorio Law PLLC fight for your rights and help you reclaim your financial future.

Frequently Asked Questions (FAQs) About Overconcentration Claims

Q: What is considered overconcentration in a portfolio?
A: Generally, allocating more than 20-30% of assets to a single investment, sector, or asset class, depending on your risk profile. Our attorneys can evaluate your specific situation.

Q: Can I file a claim if my advisor didn’t disclose concentration risks?
A: Yes—failure to disclose material risks violates FINRA and SEC rules, often strengthening suitability or Reg BI claims.

Q: How long do overconcentration claims take to resolve?
A: Most FINRA arbitrations settle in 12-18 months, but timelines vary by complexity.

Q: Does Reg BI apply to all advisors?
A: Reg BI applies to brokers recommending securities to retail investors. RIAs have separate fiduciary duties, but overconcentration can breach both.

Let Iorio Law PLLC turn your overconcentration losses into recovery. Your trusted New York securities arbitration firm is here to help—reach out today.