Diversification is a tactic used to limit risk. By placing stocks in multiple sectors rather than in a single sector the investor assumes less risk. The possibility that all the sectors of a diverse portfolio will sufferer losses is much less than the possibility that a single stock or sector will suffer losses. For this reason brokers are obligated to advise their clients to diversify in order to decrease risk.
If an investor has suffered significant financial damages because their broker placed a large share of his holdings in one sector, this may constitute grounds for legal action.
Lets say for example that a broker concentrated the majority of his clients holdings in biotech and subsequently the biotech sector suffered huge losses. His client may be able to receive compensation on the basis that his investment holdings were not adequately diversified.
Recently many people have suffered enormous losses because their brokers over concentrated their holdings on speculative internet tech stocks. In some instances this concentration was part of an IPO scheme, whereby customers were lured to "hyped" stocks that insiders never believed valuable but nevertheless rated highly. When the internet stock bubble collapsed many were financially devastated.
If an investor believes that he or she has been the victim of broker mismanagement or fraud, they should seek legal council as soon as possible.
Submit your case for confidential discussion with an attorney.
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