As with registered representatives of broker-dealers, an IA must not exercise discretionary power over securities transactions without obtaining the proper discretionary authority from the client.
- Only oral discretionary orders are permitted in the 10 days following the first transaction in a client account.
- Thereafter, specific written discretionary authority is required.
- As with registered representatives of broker-dealers, an IA may use their discretion as to the time and price of an execution - discretionary authority is not required for these details.
A question on time and price is sure to be tested and is easy to recognize.
However, you can expect additional questions on discretionary powers, particularly regarding scenarios in which a client is unavailable and the client\'s spouse is placing orders or giving approval to an IA\'s suggestion of a buy or sell order.
Exam Tips and Tricks
Custody questions tend to focus on the standards of the Investment Advisers Act. Consider this sample question:
The following statements about IAs that take custody of client funds are true, EXCEPT:
- Each client must receive a statement of transactions in the account at least quarterly
- The IA must be audited at least annually
- Each client's funds must be segregated from other client's funds
- Client funds must not be commingled from the IA's funds
The correct answer is "c" - while the funds must not be commingled with the IA's funds, there is no requirement that they not be commingled with other clients' funds.
Restrictions on IA Recommendations
Managing WealthInvestment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
InvestingDiscretionary income is an economic term referring to income left over after a person pays taxes and living expenses.
Financial AdvisorLosing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
InvestingDiscover consumer discretionary mutual funds and learn about three dividend-paying consumer discretionary funds available
Financial AdvisorOne of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
TechFinancial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
Financial AdvisorFinancial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
Small BusinessFiguring out how often an investment advisor should contact clients is not easy.
InvestingLearn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
Financial AdvisorFinancial advisors have to carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.