Friday, August 28, 2015

Suitability Question - DPPs

Let's look at a practice question concerning suitability and direct participation programs:

If a customer on your book of business is expressing interest in a direct participation program, which of the following would you discuss with him first?
A. his appetite for risk
B. his need for liquidity
C. his experience with lower-quality bond investments  
D. his need for tax shelter

EXPLANATION: this is how the Series 7 maintains its tough reputation--all four answer choices look pretty good at first. Your job is to find fault with three of them. Are all DPP investments risky? Well--they all lack liquidity, which is a type of risk. But, existing properties is not as risky as raw land once you get past the liquidity problem. I'm not sure why this investor needs experience in junk bonds, which would not be illiquid or nearly as high-risk as most DPPs. Tax shelter is important . . . for most DPPs. But raw land programs provide no tax shelter.
Okay, so what would apply to all DPP investments?
A lack of liquidity. So, what should you discuss first with this investor? His need for liquidity.
The answer is . . .



  1. Do you now how long will my Series 7 exam license last after my employment ?


  2. If you leave a member or stop working as a registered rep, you need to get rehired within two years. Similarly, your exam results are good for 2 years.