The NASD hopes to shed new light on an old problem: the suitability of investments to retail investors. This time, however, the focus is not annuities, but the variety of hedge funds available for a mere $50,000 investment. Bloomberg News, citing sources with "direct knowledge" of the matter, reports that investment giants such as Merrill Lynch, Citigroup and UBS have received letters from the regulator asking them to spell out how they decided hedge funds were suitable for this less-well-heeled audience.

This latest NASD campaign is a follow-up to one last June when it asked investment firms to detail their HF marketing strategies to customers, and after learning that some firms have permitted $50,000 investments into the funds of hedge funds they offer. "You worry about small investors getting involved through the back door in investments that aren't suitable for them because they are too risky or the fees are too high," David Becker, a partner in the Washington, D.C., office of law firm Cleary Gottlieb and former chief counsel at the Securities and Exchange Commission, told Bloomberg News. "NASD requires brokers to have reasonable basis for recommending an investments, as a counterforce to the overwhelming economic incentives for salesmen to sell."