Investment Concentration and Investment Loss Claims

Concentration should be assessed against your total financial position, your needs and the risks you could bear.

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“My advisor put almost everything I had into it.” That is a sentence investment-loss lawyers hear. Concentration can produce spectacular gains when an investment succeeds. It can also produce devastating losses when it doesn’t.

The legal question isn’t whether every concentrated portfolio is improper. It is whether this concentration was appropriate for this investor.

Led by Harold Geller and Matthew W. Taylor, the Sotos Investor Protection Group assists investors in investigating losses involving financial advice, investment products and financial institutions.

Why Should Diversification Be Assessed Against Your Circumstances?

Consider two people holding an identical investment. One has substantial wealth elsewhere. The other has most of their retirement savings in that single position. The percentage shown on one investment account may therefore tell only part of the story.

Relevant questions can include:

What percentage of the investor’s total assets was exposed?
How correlated were the supposedly different investments?
Was leverage involved?
How liquid was the investment?
When would the investor need the money?
What would happen financially if the investment failed?

What Concentration Warning Signs Deserve Review?

A concentration deserves closer examination where an investor did not understand how much depended upon one:

company;
industry;
investment strategy;
fund manager;
private investment;
geographic market; or
source of income.

A further risk may arise if the advisor’s or dealer’s book of business is concentrated in a smaller company, including private equity, private credit bonds or other securities.

Concentrated positions can be one type of evidence that raises concerns in an advisor-negligence analysis.

Read more about Gated investment funds: what to do.

Do Earlier Gains Answer Whether the Concentration Was Suitable?

Past gains do not answer whether the risk ultimately taken was suitable. A concentrated position can rise for years before falling. The appropriate question remains what information and analysis supported exposing this investor to that degree of risk.

How Did the Concentrated Position Develop?

If there has been a significant concentration loss, one of the most useful things an investor can do is reconstruct how the position developed.

Look for:

the original recommendation;
subsequent purchases;
KYC documents at each relevant stage;
discussions about diversification;
warnings or risk disclosures;
recommendations to hold or sell;
what happened when the position increased substantially in value; and
evidence explaining why the concentration remained suitable.

The portfolio statement tells you what happened. The surrounding records may help explain why it happened.

For information about our services, see unsuitable investment advice.

You can also read about investment-loss recovery options.

Investor Protection Experience, Backed by Litigation Strength

Harold Geller brings more than 30 years of investor-protection, financial-services and complex-product experience.

Matthew W. Taylor brings complex investment, securities and class action litigation experience, particularly where losses affect many investors or involve several potential defendants.