Discretionary Accounts
Accounts where the customer gives written authorization (power of attorney) for the rep to choose the asset, the action (buy/sell), or the amount without contacting the customer first; a principal must accept the account and review its activity.
The exam loves the “is this discretion?” sorting question — which order needs prior written authorization? The tell is who chose the security, the buy/sell, or the share/dollar amount — if the rep did, it is discretionary; if the customer specified those and left only when or at what price to the rep, that is a time-and-price (not-held) order, good only for that trading day (carry it past the day and it becomes discretionary). The timing trap: the customer’s written authorization (FINRA Rule 3260) must be on file BEFORE the first discretionary order — don’t confuse it with the principal’s prompt post-trade approval, and there is no “trade now, paper it later” grace period.
Two confusables. Opening authority (CIP) is not trading authority — name, DOB, address, and TIN open the account, not trade it. In a joint account any owner can enter orders without a POA because they own it; a third party needs one. Discretion spun for commissions is churning. Memory hook: discretion = the rep picking Asset, Action, or Amount (AAA).
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