Role of Over Concentration

The client’s stock portfolios should be diversified by the brokers in order to protect the investors. Diversification spreads stocks over a variety of sectors. Therefore it limits the risk. In case there is a major downturn in a particular industry, it cushions the loss for the investors. The benefits of diversifying portfolios should be told to the clients by the brokers. If a large majority of a client’s portfolio in put into one sector by the broker and there is a significant decline in the sector, the broker may be responsible for it. It may cause the broker to face negligence and malpractice liability if he fails to diversify.