Third-Party Accounts
Most customer accounts involve two parties:
- 1. The customer, or owner, of the account
- 2. The broker-dealer, acting on the directions of the customer
In some accounts, however, a third party may be authorized to direct the dealer to take action on the account in addition to or instead of the customer.
Fiduciary accounts are one example of a third-party account. In this case, a fiduciary is the third party who acts on behalf of the customer and is required to put the customer’s interests above her own in managing the account. The administrator of a trust or guardian account is an example of a fiduciary.
Discretionary accounts are another type of third-party account. The third party here is the broker-dealer, which has been given written authority by the customer to buy and sell securities on his behalf without the client’s prior approval. A discretionary trade gives the broker-dealer discretionary authority to decide for the client one or more of the following order