Series 26: Improper Use Of Discretionary Accounts

Improper Use of Discretionary Accounts

A discretionary account is one in which the customer authorizes her financial adviser to place trades in her account without seeking permission prior to every order. Without discretionary authority, a broker must receive three pieces of information from the client before it can make a transaction in the client’s account:

• • The name of the security
• • Whether to buy or sell
• • The amount of the security to be transacted

A discretionary account eliminates this step. With discretionary authority, the financial adviser in effect has been granted limited authority to act as the client’s fiduciary.

As fiduciaries, firms who have been gra