Question

A younger client with a moderate amount of funds is considering the purchase of a home in the near-term future. For this reason, the investor wishes to keep their assets as liquid as possible in the event that the right deal on a home comes along. As this client's registered representative, which of the following would carry the LEAST amount of liquidity and therefore be unsuitable for this client?
(A) Investment in bonds and bond funds focused on municipal securities
(B) Investment in equity securities such as preferred stock
(C) Investment in a DPP (Direct Participation Program)
(D) Investment in CDs (Certificates of Deposit) with varying short-term maturities

Answer 1

Answer:

c) Investment in a DPP (Direct Participation Program)

Explanation:

Direct Participation Programs are a form of limited partnership. DPP has the lack of liquidity, since ownership interests are not always freely transferrable and require the approval of a general partner of the DPP. Each of the other items listed are more liquid on a short-term basis. Bonds can be sold, bond fund shares can be redeemed, equities are easily sold in the secondary market, and though CDs are not transferrable, the maximum maturity is 1 year or less, so the client would have short-term access to the funds invested.

Answer 2

Answer:

C

Explanation:

Investment in a DPP (Direct Participation Program)

A direct participation program (DPP) is a direct participation plan, they are non-traded pooled investments in real estate or also in energy business over an extended time frame.

DPPs are not traded, that means that they lack the ability to be liquid and also not a reliable pricing mechanism. With DPPs there usally is a requirement for clients to meet up with asset and income thresholds to invest.