Of the broad categories of customer claims, concentration claims are among the most reliably winnable. The reasons are structural: concentration is quantitatively demonstrable, firms have written guidelines that condemn it, and the harm is usually visible without expert testimony. The hard part is not proving concentration. The hard part is establishing who put the customer there.
A "concentrated position" is, at its simplest, an outsized exposure to a single security, issuer, sector, or asset class. There is no single bright-line definition, but the conventions are reasonably well-settled in the industry and well-understood by arbitrators.
Thresholds That Arbitrators Tend to Credit
The 10% threshold is the most widely cited. Many broker-dealers have internal concentration guidelines that flag any single position exceeding 10% of liquid net worth or 10% of household assets for supervisory review. Some firms set the threshold at 15%; others use a sliding scale that depends on whether the position is held in a retirement account, whether the customer is in or near retirement, and whether the position is in a publicly traded security or a private placement.
In our experience, concentration claims become substantially stronger above 20% and become very strong above 30%. Once a single position exceeds 25% of the customer's liquid net worth, arbitrators generally do not need to be persuaded that the position was concentrated — they need to be persuaded only about who is responsible for the concentration.
The sector-level analysis matters as much as the single-name analysis. A portfolio with no single name above 10% can still be 70% concentrated in one sector. We have seen cases where every individual holding was at or below the firm's published concentration guidelines, and yet the overall portfolio was almost entirely concentrated in a single sector — commercial real estate, energy MLPs, regional banks, biotechnology — that proceeded to suffer a sector-specific drawdown. Sector concentration claims are harder to plead but, when established, often produce the largest damages.
The Firm's Own Guidelines
One of the most useful pieces of discovery in a concentration case is the broker-dealer's own written supervisory procedures (WSPs) and the analogous policies-and-procedures manual for an RIA. Almost every firm has internal concentration guidelines. Almost every firm has them precisely because failure to control concentration creates exposure under the suitability rule, Reg BI's care obligation, and the IA Act fiduciary duty.
When a customer's account exceeded the firm's own internal concentration thresholds and there is no record of supervisory escalation, the firm has effectively documented its own failure-to-supervise claim. We routinely see WSPs that require supervisory review when a position exceeds 10% of household assets, paired with account records showing positions at 30%, 40%, or 60% of household assets with no corresponding supervisory file. That gap is the case.
Investor-Initiated vs. Adviser-Initiated Concentration
The defense in virtually every concentration case will be that the customer wanted the concentration. Sometimes this defense is right. Customers do hold concentrated positions for reasons that have nothing to do with adviser conduct — legacy stock from a former employer, an inherited position, a position in a family business, a long-held conviction. The relevant distinction in claim analysis is whether the concentration was investor-initiated and merely unreduced, or whether it was adviser-initiated.
Investor-initiated concentration is when the customer brings the position to the firm and instructs the firm to hold it. Adviser-initiated concentration is when the firm recommends or implements the concentration. The two cases look very different on the documentary record.
Investor-initiated concentration is usually evidenced by emails or notes documenting that the customer instructed the firm to hold the position, often despite advice to diversify. The firm's file in those cases typically includes contemporaneous correspondence reflecting the firm's recommendation to reduce exposure and the customer's rejection of that recommendation. When that record exists, the firm has a meaningful defense — though even then, the firm may have an obligation to take additional steps, including reaffirming the recommendation in writing or, in extreme cases, declining to continue the relationship.
Adviser-initiated concentration is usually evidenced by trade tickets showing that the concentration was built through the firm's recommendations, frequently as part of a product-specific campaign or theme. Adviser-initiated concentration is also frequently associated with selling-away conduct, private placement campaigns, or product-of-the-month type sales practices. When the file shows that the firm built the concentration and did not document any customer instruction to do so, the case becomes substantially harder to defend.
The Quiet Concentration Case
The most overlooked category of concentration case is the customer who appears to be diversified but is not. This typically arises when a customer holds multiple positions that all derive their performance from a single underlying risk factor — multiple non-traded REITs sponsored by related parties, multiple structured notes referenced to the same underlying index, multiple private placements in the same operating partnership, or multiple funds with overlapping holdings.
From the customer's perspective, the account looks diversified — many line items, many names, many ticker symbols. From a risk-factor perspective, the account is concentrated. The cleanest way to expose this kind of concentration is through a risk-factor decomposition of the portfolio, which a damages expert can produce using publicly available correlation data and the holdings of any underlying funds.
Quiet concentration claims are particularly common in private bank relationships, where the bank has placed the customer into multiple proprietary funds and feeders that all roll up to similar underlying exposures. The combination of opacity in private fund holdings and the customer's reasonable assumption that "many funds" equals "diversified" creates fact patterns that produce very strong claims when fully developed.
What This Looks Like in Practice
In a typical concentration matter, the case file we build includes: a position-by-position table of the account during the relevant period, the firm's published concentration guidelines from the WSPs, the customer's new-account form and IPS, supervisory correspondence (or the absence thereof), the firm's marketing or training materials for any concentrated product, and an expert report quantifying the concentration in single-name, sector, and risk-factor terms.
The customer's own narrative — what was said, what was recommended, what was understood — matters as well. But the strongest concentration cases are ones where the documentary record alone is enough to establish that the firm failed to manage concentration consistent with its own published standards. When that is true, the customer's narrative is corroborating evidence rather than the primary case.