Direct Participation Programs (DPPs)
Certain investments are subject to stricter suitability requirements. Direct Participation Programs, for example, are relatively illiquid investments that carry a high risk over a considerably long term. DPPs are defined as limited partnerships where the income and losses are passed on to investors. Common DPPs include oil and gas programs and real estate partnerships. Because DPPs are limited partnerships, the investors’ losses are limited to their investment in the DPP. Taxes on DPPs are paid on an investor’s individual tax return rather than on a corporate tax return.
Because of their unique characteristics, DPPs require special suitability requirements. Representatives need to make sure that DPP participants have a relatively high risk tolerance and can have