STOCKBROKER PROBLEMS
Overconcentration
Modern Portfolio Theory requires diversification and that the advisor divide your assets between stocks, bonds and cash. If a broker recommends a concentrated position in a particular stock, bond, or mutual fund, he must obtain approval from both the customer and his supervisors.
A properly diversified account is the best way possible to minimize your risk and avoid excessive losses.Simply stated, diversification means following the old adage of not putting all your investment eggs in one basket.
Overconcentration occurs when the investments in your portfolio are disproportionately weighted in one asset class, such as stocks, or when holdings in an asset class are concentrated in a particular sector or even the stock of a single company.If your account includes stocks, bonds, or equity mutual funds that are concentrated in particular sectors, your account may not be properly diversified; therefore your risk of loss "“ which can occur rapidly "“ has increased dramatically. Diversification is an essential element of any successful investment strategy and your broker has the duty to help you achieve this goal.His job is to help you achieve your investment objectives within the parameters of your time horizon and risk tolerance.An overconcentrated position is generally contrary to prudent investing.