5.3.2. Discretion
When a client initiates a new relationship with a securities professional, it is assumed that the client holds discretion over the types of securities that are bought in the account, the timing, and the price. 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 client authorization, he is violating securities regulations and subject to legal consequences.
A client, however, may decide to give permission to her securities professional to exercise decision-making ability (discretion) over some or all aspects of the investments in her account. Most commonly, this comes in the form of time and price discretion, where the client has made the final decision on which securities to buy (usually based on her professional’s advice), but gives her professional the freedom to buy or sell those securities when he thinks he can get the best price. This bestowing of time and price discretion can be done verbally and is unique to each transaction that is made, though it can be made for multiple future transactions that have not yet occurred as long as the transaction takes place by the end of the business day. It’s important to note that this level of discretion does not permit a securities professional to decide how much of a security to buy or sell.
If the client wishes to give her securities professional final decision-making authority over which securities to transact or how much to buy, then the professional must get this permission in writing. For investment advisers and investment adviser representatives, this written transfer of discretionary authority must be signed by the client within 10 business days of