Advocating for Investors for over 35 years

Learn more

Helpful Resources



Maintaining a diverse portfolio is one of the most basic principles of prudent investing. Unfortunately, when the oil and gas sectors were booming in recent years, many unscrupulous advisers encouraged an over-concentration of investments in this one area. Eventually, those sectors went into decline, and investors experienced out-sized losses exactly because of this. This was not only frustrating and embarrassing for the out-of-luck investors. It was an example of improper sales practices on the part of the advisers. Here’s why:

Over-concentration is Contrary to Prudent Investing - As fiduciaries, investment advisers are required to puts their client’s financial best interests first and foremost. That means avoiding unnecessary risks and advocating for a diversified portfolio. Over-concentration, whether in energy and gas or any other sector, is a fundamentally risky investment strategy. It is also a breach of the responsibilities required of a fiduciary.

Rules Explicitly Prohibit Over-concentration - Over-concentration is not a legal gray area. In fact, there are specific financial regulations prohibiting this kind of high-risk investment strategy. For example, FINRA Rule 2111 states that a registered adviser must recommend investments that are suitable to an investor’s investment objectives and risk tolerance. Over-concentration is a direct violation of that mandate. Similarly, FINRA Rule 2090 prevents advisers from trying to justify risky investments by claiming not to know their client’s priorities. In almost every case, an investment strategy based around overconcentration is a violation of industry rules.

High-Risk Investments are Always Irresponsible - Some advisers will try to justify their reliance on over-concentration by pointing to the stratospheric gains in the oil and gas sectors. But even if there was money to be made, a strategy based around over-concentration is inherently unbalanced. No investor’s interests are served by putting all their eggs in one basket. That means not only investing in multiple companies, but also in multiple sectors.

If you have been a victim of overconcentration in the oil and gas sector, without your permission,  contact attorney Howard M. Rosenfield for a free claim evaluation by calling 860-677-4334 today.