Diversification is a fundamental tenet of investing for long-term growth. Diversifying helps investors protect against facing substantial losses due to isolated events; or, in the words of the U.S. Securities and Exchange Commission (SEC), “[d]iversification is about managing risk while preserving the potential for return.”

Because diversification is so important, investment advisors have a duty to diversify their clients’ portfolios. Investment advisors must make diversified investments that align with each client’s unique risk profile. If an investment advisor fails to adequately diversify a client’s portfolio, this can provide grounds for legal action if the client suffers losses that could (and should) have been avoided.

When Do Investment Advisors Have an Obligation to Diversify?

Investment advisors are required to adequately diversify their clients’ portfolios as part of their duty of care. This is a fiduciary duty that all investment advisors owe to their clients under federal law. Under the duty of care, investment advisors have a legal obligation to manage their clients’ portfolios in their clients’ best interests—including diversifying to the extent necessary to achieve their clients’ investment objectives.

The obligation to diversify exists regardless of the size of a client’s portfolio. As a client’s portfolio grows, the client’s risk grows as well. This makes it essential for investment advisors to proactively manage the diversification of their clients’ portfolios on an ongoing basis.

What Are the Risks of Inadequate Diversification?

The risks of inadequate diversification can be substantial. If an investor’s portfolio is not adequately diversified, the investor can suffer substantial losses due to isolated events that do not affect the market as a whole.

The opposite of diversification is overconcentration. Broadly, overconcentration can take two main forms:

• Overconcentration in Individual Investments – The most straightforward form of overconcentration involves investing too much of a client’s portfolio in one or more individual securities or investment products.
• Overconcentration in a Specific Industry (or Industries) – Overconcentration can also involve failing to invest outside of a particular industry (or industries). Even if an investor owns multiple companies’ stock, if all of these companies are in the same industry, this could still constitute a lack of diversification.

When Can (and Should) Investors Take Legal Action Against Their Investment Advisors?

Investors can take legal action against their investment advisors when they suffer losses due to lack of diversification. In this scenario, investors can seek to recover their investment losses through the FINRA arbitration process.

Even if it is theoretically possible for an investor’s portfolio to regain its value over time, FINRA arbitration may still be warranted. Investors who have questions about their legal rights should consult with an experienced investment loss attorney to ensure that they are making informed decisions.

FAQs: Dealing with Investment Losses Due to Lack of Diversification

How can I determine if my investment advisor has diversified my portfolio?

Determining whether your investment advisor has adequately diversified your portfolio requires knowledge of the market and the legal standards that apply. If you are facing investment losses that you suspect may be due to your investment advisor’s failure to adequately diversify your portfolio, it will be worth talking to an investment loss attorney about your legal rights.

How can I prove that my investment losses are due to lack of diversification?

Proving that your investment losses are due to lack of diversification is a multi-step process that requires several forms of documentation. To start the process, you should save copies of your recent account statements and your current risk profile (or your risk profile at the time the losses occurred). Once you have these available, you should schedule a free consultation with an attorney who has experience representing investors who have suffered losses due to overconcentration.

What is involved in filing for FINRA arbitration?

Filing for FINRA arbitration is also a multi-step process that requires several forms of documentation. Due to the complexity—and the importance—of the process, we strongly recommend working with an experienced attorney from the outset of your claim. This will help maximize your chances of success while also ensuring that the process is as smooth and efficient as possible.

How Zamansky LLC Can Help

Our attorneys have decades of experience representing investors in overconcentration claims against their investment advisors. We have a long track record of success in FINRA arbitration, and we have secured numerous settlements and arbitration awards for our clients. If you have questions about filing a claim against your investment advisor for inadequate diversification, our attorneys can:

• Determine if your investment advisor overconcentrated your portfolio;
• Calculate your investment losses resulting from your investment advisor’s failure to diversify;
• Gather all of the documentation needed to establish your claim for liability;  
• Prepare and file a FINRA arbitration complaint on your behalf;
• Target a favorable settlement on your behalf and pursue an arbitration award if necessary.

You can get started with a free and confidential consultation, and we handle most investment loss cases on a contingency-fee basis. If your case is eligible for contingency-fee representation, you will not have to pay anything out of pocket for our legal representation.

Speak with an Investment Loss Attorney at Zamansky LLC for Free

Do you need to know more about pursuing an overconcentration claim against your investment advisor? If you have questions about seeking to recover your investment losses, we invite you to get in touch. To speak with an experienced investment loss attorney at Zamansky LLC in confidence, call us at 212-742-1414 or request a free initial consultation online today.

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ALTS lack “liquidity ” as there is no direct market if an investor wants to sell out. In fact, some ALTs require an investor to hold on for five or ten years before selling out. Many private equity funds such as Blue Owl have experienced substantial losses; investors seeking to cut their losses are stopped from exiting due to a “gate,” which limits redemptions. The “net asset value” (NAV) of ALTs is determined by the issuer and often does not reflect the true value of the investment.

Recent reports of Funds holding Pre-IPO share, such as SpaceX, detail investors being abused as well as charges of outright fraud by “boiler rooms” selling Pre-IPO private companies. The Financial Advisor pushing the ALT usually derives a high commission (as high as 5 to 10%) often embedded into the price making it difficult for an investor to see. The high fee undoubtedly serves as the incentive to push these products.

Given all the risks of ALTs, should investors just say “no” to such investments? Its best to consult an investment fraud lawyer to evaluate whether the ALT you are investing in is worth it.

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SpaceX’s highly anticipated IPO has exposed a troubling side of the booming pre-IPO investment market. Some investors who believed they owned valuable SpaceX shares through Special Purpose Vehicles (SPVs) reportedly discovered that the shares they expected to cash in on had been sold years earlier. As Wall Street increasingly markets access to private companies through complex, layered investment structures, investors should understand whether they actually own the shares they were promised—or merely have “exposure” through a Russian-doll-like chain of funds. Those who believe they were misled about a pre-IPO investment may want to have an investment fraud attorney review what they were actually sold.

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Because of his high leverage and concentration in illiquid private AI firms, a normal market correction turned into a staggering defeat for Aschenbrenner. Jake warns retail investors to diversify and avoid becoming too exposed to AI stocks. If your financial advisor was aggressively pushing AI stocks, consider having your portfolio audited to see if your investments were suitable. Contact our office today to discuss.

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Wall Street is at it again. They are dumping their private credit funds ( that are experiencing huge losses and investor redemptions) by packaging them into a “bond” seeking a Moody’s rating of “A”. These new “bonds” are referred to as “collateralized fund obligations” or CFOs. These CFOs are now being offered by Financial Advisors as “safe and secure” fixed income investments to retail investors.

Estimates are that between $1 trillion and $1.75 trillion of CFOs and similar products are being marketed to institutional and retail investors.

If the economy turns, private credit funds will implode as did the subprime mortgages in 2008. It won’t be long before these CFOs follow the same path as the CDOs did in 2008.

Contact investment fraud attorney Jake Zamansky to see if your “bonds” are fraudulent private credit investments being dumped by your brokerage.

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Investors may recall the turn-of-the-century fears associated with Y2K, but the looming dangers of quantum computing could have far greater consequences. Given enough time and advances in quantum computing, they will be able to decrypt the security measures protecting brokerage accounts, bank accounts, cryptocurrency wallets, medical records, and more. Quantum computing experts have nicknamed the day quantum computers can decrypt these security measures “Q-Day”.

Financial institutions should be preparing now with post-quantum security solutions to prevent the compromise of customer assets and information. If your brokerage doesn’t take action and you lose money as a result, contact our office to discuss your legal rights and options.

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 So, when can (and should) defrauded investors file for FINRA arbitration?

7 Common Reasons Why Investors File for FINRA Arbitration

Investor fraud can take many different forms—and investors can (and should) seek appropriate remedies for all forms of fraud. However, some forms of investor fraud are particularly common, as shown in FINRA’s Dispute Resolution Services Statistics. Here is a look at some of the most common reasons why investors file for arbitration with FINRA:

1. Breach of Fiduciary Duty

According to FINRA, breach of fiduciary duty has been the single most common issue raised in customer arbitration proceedings over the past several years. As a general rule, brokers and investment advisors owe various fiduciary duties to their clients. When brokers and investment advisors breach these duties—for example, by engaging in conflicts of interest—investors can seek accountability for any losses they suffer.

2. Negligence

Negligence is the second most common issue raised in customer arbitration proceedings, according to FINRA. Like all professionals, brokers and investment advisors can be held liable for their negligence on the job. This includes (but is by no means limited to) common forms of negligence such as:

• Failing to understand the investments they are recommending
• Overlooking or misunderstanding investment risks
• Failing to timely execute trades
• Failing to provide all material information to investors
• Failing to give due consideration to investors’ individual risk profiles

These issues, among others, can leave investors facing substantial losses that could—and should—have been avoided. When brokers and investment advisors make mistakes that lead to investors’ losses, they deserve to be held fully accountable.

3. Failure to Supervise

Under FINRA’s Rules, brokerage and advisory firms have a duty to supervise their employees. This duty is intended to help prevent investor losses resulting from negligence and to ensure that individual brokers and investment advisors do not engage in conflicts of interest or other fraudulent practices. When firms fail to meet this duty, they can be held directly accountable, in addition to facing vicarious liability for their employees’ negligence or misconduct.

4. Misrepresentations

Brokers and investment advisors have a duty to provide accurate information to their clients. When brokers and investment advisors make misrepresentations—whether intentionally or inadvertently—this can also provide grounds for defrauded investors to seek appropriate remedies through FINRA arbitration. This applies to all types of investment-related information, from the risks involved with particular investments to the fees and commissions that investors will be required to pay.

5. Breach of Contract

If your broker or investment advisor (or brokerage or advisory firm) has breached the terms of your customer contract, you may be able to seek appropriate remedies through FINRA arbitration in this scenario as well. Breach of contract is the fifth most common claim in customer arbitration proceedings, according to FINRA. Examples of specific claims include those related to fees, withdrawals, and investment discretion—among many others.

6. Omission of Facts

Along with misrepresentations, omissions can also leave investors ill-equipped to make sound investment decisions. Omissions of fact are the sixth most common claim in customer arbitration proceedings, according to FINRA. Here too, whether a broker’s or investment advisor’s error is intentional or inadvertent, it can provide clear grounds for an investment fraud claim under FINRA’s rules and federal law. If you believe that you made an uninformed investment decision because your broker or investment advisor failed to provide you with material information, you should consult with a FINRA lawyer promptly.

7. Unsuitable Investment Recommendations

When making investment recommendations, brokers and investment advisors must focus on each individual customer’s portfolio and risk profile. This is known as the “suitability” requirement. If a broker or investment advisor makes unsuitable investment recommendations, this can also lead to untenable investment losses that could—and should—have been avoided. FINRA’s data indicate that unsuitability is the seventh most common claim in FINRA arbitration.

Most Common Investments Involved in FINRA Arbitration Proceedings

Just as some forms of investment fraud are more common than others, fraud involving certain types of investments is more common than fraud involving other types of investments as well. According to FINRA, the most common investments involved in FINRA arbitration proceedings are as follows (from most common to least):

• Real estate investment trusts (REITs)
• Mutual funds
• Private equities
• Options
• Exchange-traded funds
• Annuities
• Structured products
• 401(k)s
• Variable annuities
• Municipal bond funds

Notably, FINRA only recently started tracking customer arbitration proceedings involving cryptocurrency. As a result, while cryptocurrency-related investments (including ICOs) do not currently appear on this list, they will likely appear in the future.

If you think that you may need to file for FINRA arbitration, what is your first step? In this scenario, it is important to act promptly—and, to protect yourself, you will want to ensure that you are relying on sound legal advice from an experienced FINRA lawyer who has your best interests in mind. To find out if filing for FINRA arbitration makes sense, you should consult with an experienced FINRA lawyer as soon as possible.

Schedule a Call with an Experienced FINRA Lawyer at Zamansky LLC

If you have questions about filing for FINRA arbitration, we encourage you to contact us promptly. We provide free initial consultations, and we represent defrauded investors across the United States. To schedule a call with an experienced FINRA lawyer at Zamansky LLC as soon as possible, call 212-742-1414 or inquire online today.

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If you’re a retail investor with a private credit fund, and you have concerns about recouping your losses, contact our office today for immediate assistance.

The post When Private Equity Meets Retail Investors: The Coming Clash Over Liquidity and Investor Protection appeared first on Zamansky LLC.

Brokers face FINRA claims in Easterly high-yield sell off

Brokerage firms that recommended investors buy Easterly RocMuni High Income Municipal Bond Fund may face regulatory action as fallout continues over the fund’s sudden collapse last summer.

A handful of law firms have filed or are preparing to file Financial Industry Regulatory Authority arbitration claims on behalf of bond buyers they say were misled about the risks of buying the high-yield fund. Stifel, Janney Montgomery Scott and Osaic Wealth have been named as potential targets.

FINRA arbitration claims aim to resolve disputes between investors and brokers, typically within a year of the claims being filed. The regulatory claims come as Easterly and a host of related entities face a class-action lawsuit filed by investors in the Southern District of New York.

Last June, the Easterly fund startled the muni market when it saw a stunning sell off. At the time, just under 84% of the portfolio was made up of credits rated D to BB-plus. The fund, created in 2017, is now on track to be dissolved, according to securities filings.

Investment and securities fraud law firm Zamansky LLC has already filed FINRA claims against Stifel and Osaic and is considering similar claims against Janney Montgomery Scott, said Jake Zamansky. 

“It’s a fund that we believe never should have been sold to retail investors,” Zamansky said.

Zamansky said one of his clients is an 86-year-old widow “with a third-grade education” who Osaic “moved out of a safe bond fund and put her into this,” he said. “She lost half her retirement savings,” he said. “There have to be several hundred of these investors around the country and we expect to hear more people wanting to file claims after they prepare their tax returns for 2025 and realize how much they lost.”

Law firm KlaymanToskes is preparing to file FINRA claims within the next month or so, said Lawrence L. Klayman. He declined to name the broker dealers.

“I don’t think this should have been sold to conservative, income-oriented investors who are typically retired,” Klayman said. “You have unsuitability, and you may have concentrations where people have big positions in this and they didn’t think they needed to own other municipal bonds because they thought they were diversified,” he said. “This was diversified all right, but in extremely high risk and low quality [bonds].”

Klayman said FINRA claims often lead to higher recoveries than class action lawsuits, which can take years to resolve.

Shepherd Smith Edwards & Kantas said last August that it had filed a FINRA lawsuit against Stifel on behalf of its investor.

“At no point did this Paducah, Kentucky investor’s Stifel broker let him know there were concerns about the Easterly Fund,” SSEK said in a release. “Instead, this investor alleges he was always led to believe this was a safe investment, despite it always being a junk bond fund.”

Iorio Law PLLC and Altamirano PLLC have also put out press releases looking for investors for potential claims.  

As of Dec. 30, 2025, the fund had net assets of $8.8 million — down from $232 million as of March 31, 2025 — and its NAV was $2.18, down from $6.36 in June 2025 ahead of the sell off.

Easterly Trust filed a Dec. 29, 2025 securities notice stating the board has approved a Plan of Liquidation and Dissolution. The fund’s remaining assets will be converted into cash or cash equivalents and distributed to shareholders except for cash or assets necessary to cover unpaid liabilities or contingent liabilities, the filing said.

“The fund currently holds certain illiquid investments, which Easterly will seek to dispose of in an orderly manner,” the filing said. “Easterly cannot currently predict how long it will take to accomplish the disposition of these assets. In addition, the fund is a named defendant in a putative class action lawsuit, creating a contingent liability of the fund. It is not currently possible to predict when the fund will be able to resolve or provide for this contingent liability in order to begin liquidating distributions to shareholders.”

On the lawsuit front, Easterly and related defendants have until the end of March to file a motion to dismiss a second amended complaint that was filed Feb. 20 by investor Richard Fulford.

Osaic declined to comment. Stifel, Janney and Easterly did not respond to requests for comment.

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