Series 14: 8.5.3.1. Discretionary Accounts

8.5.3.1. Discretionary Accounts

A discretionary account is one in which the customer authorizes her registered representative to place trades in her account without seeking permission prior to each individual order. Without this authority, the representative must receive the following three pieces of information from the customer in order to make a transaction in the customer’s account. These can be remembered by the acronym AAA.

1. Asset: The name of the security

2. Action: Whether to buy or sell the security

3. Amount: The amount of the security to be transacted

With discretionary authority, the broker-dealer and representative have, in effect, been granted limited authority to act as the customer’s fiduciaries. They must not use this authority to trade in ways that are excessive in size or frequency for that customer (see the discussion of quantitative suitability earlier in this chapter). Excessive buying and selling in a custom