Legal List

A legal list is a selection of eligible companies and investments, determined by local state governments, for institutions such as insurance companies and pension plans. Legal lists are also known as approved lists.

Legal lists are generally low risk, low volatility investments that insure the well-being of investors in institutions where safety of principal is of concern. They can be considered relatively safe investments, from both the financial institution’s perspective and the client’s perspective, as there is not a large amount of risk involved on either side.

Financial institutions or mutual fund organizations such as state-chartered banks, insurance companies, and pensions use legal lists to outline which investments they are allowed to invest in. The exact requirements of a legal list can vary from state to state, but in general, any investments within the list must be low-risk, low-return investments that protect the organization’s interest. In order to qualify for inclusion on a legal list, the securities must be very high quality and meet certain specifications set by the state. In some instances, a legal list may be called up on to adhere to the Prudent Man Rule.

Clients of investment firms or financial organizations can request and should be able to easily access the legal list, or approved list of the investments that they may have as customers in the firm.

Legal lists were enacted as far back as 1940, when it was identified that there needed to be a way to protect from the risk of surcharge for trustors, who may not have been able to confront trustees with potential issues with their investments.  The legal list ensured that the investments the they were adding would not financially bankrupt them.

However, while working from a legal or approved list sounds like an ideal way to protect a customer, but there are some critics of using a legal list. By limiting the amount of investments for the entire firm, one is also limiting the opportunity for a truly customized and personalized investment option that may arise. It may also favor the firm’s financial bottom line, as it can support the use of utilizing an inexperienced broker who can choose from reputed safe investments off the legal list instead of taking their client’s full financial portfolio, assets and risk tolerance into account.