An approved list is a list of securities deemed fit for purchase, prepared by financial experts or government officials. It can refer to a list of investments that trustees can legally purchase or a list of securities that members of a brokerage firm can purchase. The list is regularly updated to take advantage of market trends and weed out unsafe investments.
The term “approved list” is used in two different ways in the financial world. In both senses, the term refers to a list of securities that are deemed fit for purchase. The list may be prepared by financial experts or government officials, depending on the individuals or organizations for which it is being prepared, and may be prepared according to a variety of different standards.
In the first sense, an approved list is a list of investments that trustees can legally purchase. Trustees are individuals or organizations that are empowered to make financial decisions on behalf of others. Because they are buying for people other than themselves, they are held to a very high standard of financial behavior; People and institutions trust their trustees to make sound decisions, and therefore trustees are closely regulated to ensure they behave appropriately.
The approved list in this case consists of a high-quality stock list, as prepared by government agencies. These agencies consider issues such as investment ratings, past performance of similar investments, etc., to determine whether or not a given investment is of sufficient quality to be included on the approved list. Trustees should select investments from this list and should be aware that the list may be updated over time in response to changing conditions. An individual investment in the list is called a legal investment, and the list may be known as a legal list.
In the second sense, an approved list is a list of securities that members of a brokerage firm can purchase. The idea is to limit risk while allowing people to assemble their own portfolios. The list is generally kept broad and diverse to allow flexibility when developing portfolios, and is regularly updated to take advantage of market trends and weed out investments that are no longer considered safe.
For people with limited experience, having a limited selection of safe securities to choose from can be beneficial, allowing them to explore investing without exposing themselves to high risk. On the other hand, an approved listing can be extremely limiting for savvier investors or investors with specialized needs that cannot be met by the listing alone. Therefore, individuals should be aware of potential limitations before opening a brokerage account to ensure that they are working with the most suitable company for the type of investment in which they plan to participate.
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