Series 65: Discretion

Taken from our Series 65 Online Guide


When a client enters a relationship with a securities professional, the client holds sole discretion over the type and amount of securities that are bought or sold in the account. In other words, a securities professional can’t just begin exercising decision-making power, or discretion, over a client’s account, making trades whenever he sees fit. If he does begin making trades without the client giving him the authorization to do so, he’s in violation and subject to legal consequences.

A client may decide to give permission to her securities professional to exercise decision-making ability (discretion) over the investments in her account. If a customer authorizes her broker or adviser to make trades in her account without seeking permission prior to every order, she has granted her professional discretionary authority, and she has changed her account from a non-discretionary account into a discretionary account.

In a typical non-discretionary account, a securities professional must receive three pieces of information from the client before he 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 requirement. The professional may choose which security to buy or sell, and how much to buy and sell.

If a client wishes to grant her securities professional discr

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