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Failure to Supervise

Failure to Supervise

One of the most common types of investment advisor misconduct is “overconcentration.” Overconcentration occurs when an investment advisor places too much of an investor’s portfolio into a single industry or single company. The old saying “don’t put all of your eggs in one basket” applies to investments just as it applies to other aspects of life. If an investment advisor places an investor’s portfolio into a narrow segment of the market, or worse yet, into a single company, and the sector or the company declines in value, an investor will lose a significant portion of his or her investment, even if the market as a whole increases in value. The safe and more professional approach to investing is to have a well-diversified portfolio. That way, if one sector or one company suffers a significant setback, the portfolio as a whole will not be harmed.

If an investment advisor overconcentrates an investor’s portfolio and the portfolio suffers a decline in value as a result, the investment advisor may, at the very least, be liable for negligence and overconcentration.

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