Discretionary Powers
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.


Look Out!
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.
  • Remember: If the spouse has not been given written power of attorney on the account, it is always incorrect to choose an answer involving the spouse.
  • In particular, watch out for a multiple-choice option stating the spouse can give approval as long as the client signs a power of attorney within 10 days after the trade: the 10-day rule above only applies following the first transaction to occur in a new account.



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:

  1. Each client must receive a statement of transactions in the account at least quarterly
  2. The IA must be audited at least annually
  3. Each client's funds must be segregated from other client's funds
  4. 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

Related Articles
  1. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  2. Insights

    Explaining Consumer Discretionary

    Consumer discretionary is a term from economics that refers to the sector of the economy that produces goods and services that are nonessential.
  3. Financial Advisor

    Manage Your Clients' Expectations

    You can't control how they react to the market, but you can help them understand the reality of the situation.
  4. Investing

    What is Discretionary Income?

    Discretionary income is an economic term referring to income left over after a person pays taxes and living expenses.
  5. Investing

    3 Dividend-Paying Consumer Discretionary Mutual Funds (VCDAX)

    Discover consumer discretionary mutual funds and learn about three dividend-paying consumer discretionary funds available
  6. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  7. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  8. Financial Advisor

    What Is Your Client's Willingness and Ability to Take Risk?

    Financial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  9. Financial Advisor

    What To Do When Your Client Behaves Badly

    As a financial advisor managing your client's assets is only part of the job; sometimes you have to manage your client, as well.
  10. Investing

    How to Sell Mutual Funds to Your Clients

    Learn 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.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center