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. 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.
  2. 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.
  3. Investing

    3 Dividend-Paying Consumer Discretionary Mutual Funds (VCDAX)

    Discover consumer discretionary mutual funds and learn about three dividend-paying consumer discretionary funds available
  4. 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.
  5. Tech

    Advisors Need to Talk Less, Ask and Listen More

    Financial 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.
  6. Financial Advisor

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  7. 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.
  8. Small Business

    How Often Should You Contact Clients?

    Figuring out how often an investment advisor should contact clients is not easy.
  9. Investing

    Consumer Discretionary ETFs Shedding Assets (AMZN, WMT)

    Learn about five consumer discretionary exchange-traded funds that experienced the largest year-to-date capital outflows as of March 4, 2016.
  10. Financial Advisor

    How Financial Advisors Manage Liquidity Risk

    Financial advisors have to carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
Frequently Asked Questions
  1. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ...
  2. Which socially responsible retailers appeal most to ethical investors?

    Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ...
  3. What are Some Examples of Free Market Economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement, ...
  4. Who Decides When to Print money in India?

    Find out the role of the Reserve Bank of India, or RBI, and the amount of authority given to the government. Learn who is ...
Trading Center