California Failure to Diversify Attorneys
Broker-dealers and investment advisers are required to make suitable investment recommendations based on an investor’s age, financial condition, risk tolerance, investment objectives, and sophistication. One of the most basic obligations this imposes is diversification: spreading risk across asset classes, sectors, and securities so that a downturn in any single position does not devastate the portfolio.
When a broker concentrates a client’s portfolio in a single stock, sector, or product type, the investor bears far more risk than they agreed to. In many cases, the concentration is driven by the broker’s compensation: certain products (non-traded REITs, private placements, variable annuities) pay significantly higher commissions, creating an incentive to overweight them regardless of suitability.
We analyze portfolio holdings, asset allocation over time, and the broker’s compensation to determine whether the concentration was driven by the client’s objectives or the broker’s financial interest. Where the evidence shows overconcentration, we pursue claims in FINRA arbitration for breach of the duty to diversify, unsuitability, and related violations.
FAQs
How concentrated does a portfolio have to be for a failure-to-diversify claim?
There is no bright-line rule, but FINRA and courts have found concentration problematic when a single security or sector represents a disproportionate share of a portfolio relative to the investor’s risk tolerance and objectives. A retiree with 60% of their portfolio in a single speculative stock has a very different claim than a sophisticated investor who specifically directed the concentration.
What damages can I recover for failure to diversify?
The standard measure is “well-managed account” damages: the difference between your actual portfolio performance and the performance of a suitably diversified portfolio matched to your risk profile. We work with damages experts to model what the portfolio should have looked like and calculate the shortfall.
Talk to a California Failure to Diversify Lawyer
If your broker concentrated your portfolio in ways that did not match your risk tolerance or investment goals, contact Rosenberger + Kawabata. Call (310) 894-6921 or submit an inquiry through our contact form.