Your broker has the duty to recommend that your account be diversified among different investment classes such as cash, stocks and bonds, and across wide industry sectors (e.g., technology, energy, industrials, consumer staples, healthcare, banking/financial) within classes. 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.

Over-concentration 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, for example, most of your assets consist of stock holdings in an automotive company or a worldwide beverage producer, or the stocks of only a few companies, or even your own long-time employer, your account is not diversified. Similarly, if your account includes stocks, bonds, and equity mutual funds that are primarily in the technology or energy industries, for example, your account is not diversified. In the event your investments decline in value, your broker may be held liable for failure to diversify your account.

If your broker tells you, for example, that companies in the oil and gas industry are poised to achieve record earnings and that you can realize a greater rate of return by focusing your investments in this sector or by investing in one or two particular stocks or equity mutual funds, he is breaking the cardinal rule of investing. Your risk of losses -- which can occur rapidly -- increases dramatically in an over-concentrated account. Diversification is an essential element of any successful investment strategy and your broker has the duty to help you achieve this goal.