Customer Accounts - Classification of Accounts

The principal types of account ownership are the following:

  • Individual
  • Joint
  • Corporate
  • Partnership
  • Fiduciary or Custodial

Individual Accounts
An individual account has one beneficial owner, who is the only person who can control investments within the account and request distributions or cash or securities from the account.

Joint Accounts
Two or more adults may act as co-owners of a joint account, with each allowed some form of control over the account. Joint accounts may be designated as Tenants in Common (TIC), Joint Tenants with Right of Survivorship (JTWROS) or Tenants by Entirety (TBE).

  • When one owner in a Tenants in Common account dies, the remaining interest passes to the decedent's estate in a proportion that matches the proportion of his or her ownership while alive. The percentage of ownership is not passed to the surviving account co-owner(s).

  • This is not the case with a Joint Tenants with Right of Survivorship account, in which case the remaining rights are passed in equal amounts to the surviving account co-owner(s).

  • Finally, Tenants by Entirety accounts may only be established by married couples. When one spouse dies, the surviving spouse simply retains ownership of the account.

Corporate Accounts
The corporate resolution will specify which officers may trade in the corporation's account. In addition, a certified copy of the corporate charter and the company's bylaws are required to open a margin account.

Partnership Accounts
A partnership account differs from a corporate account in that it is the unincorporated association of two or more individuals. The partnership account agreement will specify which partners can make transactions for the account. Partnerships can open cash, margin or retirement accounts, provided all investment limitations are disclosed.

Fiduciary or Custodial Accounts
A fiduciary is a person other than the owner who is legally appointed and authorized to act in the stead of a beneficiary. In most cases, the fiduciary should provide documentation of his or her authority. The fiduciary initiates trades, manages the account, approves distributions and makes whatever other decisions may be necessary to maintain the fiduciary account. Investments are made in the owner's best interests, but the owner does not have legal control over them.

The fiduciary is bound by Prudent Man Rules (also known as Prudent Person Rules) - that is, he or she must make decisions that are compatible with the account's investment objectives and that are in the best interests of the beneficiary. The fiduciary may not use the account for his or her own benefit; he or she can charge a reasonable fee for services, but cannot share in the account's profits. In some states, fiduciaries are also bound by the legal list of investments permitted by the state.

Fiduciaries include but are not limited to people performing the following roles:

  • Trustee - administers a trust

  • Custodian - manages a UGMA or UTMA account (discussed below)

  • Guardian - handles a minor's affairs until the minor reaches the age of majority or an incompetent person's affairs

  • Executor - manages the affairs of an estate

  • Administrator - liquidates the estate of a person who dies without a will

  • Conservator - acts for an incompetent person

  • Receiver - handles the details of bankruptcies
A Closer Look at Custodial Accounts
Related Articles
  1. Investing Basics

    How To Handle A Serious Dispute With Your Broker

    Find out what to do if you have a dispute with your broker.
  2. Professionals

    Hedge Funds and the Law

    Learn how hedge funds have gotten in trouble for illegal insider trading. Read about questionable high-frequency trading (HFT) strategies.
  3. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  4. Professionals

    Who Needs to Take the Series 65?

    Most states require individuals to pass the Series 65 exam in order to act as investment advisors.
  5. Investing Basics

    How to Vet Financial Advisors Via BrokerCheck

    Many people research restaurants or movies, but few select brokers or financial advisors with much research. Here's how BrokerCheck can help.
  6. Professionals

    Career Advice: Financial Planner Vs. Stockbroker

    Read an in-depth review of a career as a financial planner as opposed to a career as a stockbroker, including how to decide which is best for you.
  7. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  8. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  9. Professionals

    Is a Google Robo-Advisor on the Horizon?

    It's possible that Google is looking to get into the robo-advisor business, either as a new venture or as a way to provide more benefits to employees.
  10. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Series 79

    A examination to ensure a candidate is qualified to become a ...
  6. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  1. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  2. How are variable annuities regulated?

    The sale of a variable annuity is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory ... Read Full Answer >>
  3. Do financial advisors need to pass the Series 7 exam?

    The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
  4. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  5. Do financial advisors need to be approved by FINRA?

    The term "financial advisor" can refer to a couple of different roles. It most often refers to a broker-dealer or an investment ... Read Full Answer >>
  6. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  3. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  6. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
Trading Center