The failure to adequately diversify an investment portfolio can create an excessive risk of loss. Over-concentration can exist by investing a large portion of a client's asset in one security, one sector or one industry.
Over-concentration of an account is not suitable for most investment portfolios and undermines the principles of prudent asset management.
Some investors who own large portions of company stock and grants of employer stock options may require different strategies for diversifying their portfolio. Over concentrating a client portfolio can lead to liability on the part of the brokerage firm.