Series 99

AAA

Chapter 4: Customer Accounts - B. Types of Accounts

Mailing Instructions

All confirmations and statements will be sent to the customer’s address of record.  Statements and confirmations may be sent to an individual with power of attorney if the duplicates are requested in writing.  A customer’s mail may be held by a brokerage firm for up to two months if the customer is traveling within the United States and for up to three months if the customer is traveling outside the United States.

Individual Account

An individual account is an account that is owned by one person. That person makes the determination as to what securities are purchased and sold. In addition, that person receives all of the distributions from the account.

Joint Account

A joint account is an account that is owned by two or more adults. Each party to the account may enter orders and request distributions. The registered representative does not need to confirm instructions with both parties.  Joint accounts require the owners to sign a joint account agreement prior to the opening of the account. All parties must endorse all securities and all parties must be alive. Checks drawn from the account must be made out in the names of all of the parties.

Joint Tenants with Rights of Survivorship (JTWROS)

In a joint account with rights of survivorship, all the assets are transferred into the name of the surviving party in the event of one tenant’s death. The surviving party becomes the sole owner of the assets in the account.  Both parties on the account have an equal and undivided interest in the assets in the account.

Joint Tenants in Common (JTIC)

In a joint account that is established as tenants in common, the assets of the tenant who has died become the property of the decedent’s estate. They do not become the property of the surviving tenant. An account registered as joint tenants in common allows the assets in the account to be divided unequally; one party on the account could own 60% of the account’s assets.

Note: Any securities registered in the names of two or more parties must be signed by all parities and all parties must be alive to be considered good delivery.

Transfer on Death (TOD)

An account that has been registered as a transfer on death (TOD) account allows the account owner to stipulate to whom the account is to go to in the event of their death. The party who will become the owner of the account, in the event of the account holder’s death, is known as the beneficiary. The beneficiary may only enter orders for the account if they have power of attorney for the account. Unlike an account that is registered as JTWROS, the assets in the account will not be at risk should the beneficiary become the subject of a lawsuit, such as in a divorce proceeding.

Death of a Customer

If an agent is notified of the death of a customer, the agent must immediately cancel all open orders and mark the account “deceased.” The representative must await instructions from the executor or administrator of the estate. In order to sell or transfer the assets, the agent must receive:

  • Letters testamentary
  • Affidavit of domicile
  • Inheritance tax waivers
  • Certified copy of the death certificate

The death of a customer with a discretionary account automatically terminates the discretionary authority.

Partnership Accounts

When a professional organization such as a law partnership opens an account, the registered representative in addition to the standard paperwork must obtain a copy of the partnership agreement. The partner­ship agreement will state who may enter orders for the account. If the partnership wishes to purchase securities on margin, it must not be prohibited by the partnership agreement.

Corporate Accounts

Corporations, like individuals, will purchase and sell securities. In order to open a corporate account, the registered representative must obtain a corporate resolution that states which individuals have the power to enter orders for the corporation. If a corporation wants to purchase securities on margin, the registered representative must obtain a corporate charter that states that the corporation may purchase securities on margin.

Trading Authorization

From time to time, someone other than the beneficial owner of the account may be authorized to enter orders for the account.  All discretionary authority must be evidenced in writing for the following accounts:

  • Discretionary account
  • Custodial account
  • Fiduciary account

If a customer dies, any trading authorization is automatically cancelled.

Operating a Discretionary Account

A discretionary account allows the registered representative to determine the following, without consulting the client first:

  • The asset to be purchased or sold
  • The amount of the securities to be purchased or sold
  • The action to be taken in the account, whether to buy or sell

The principal of the firm must accept the account and review it more frequently to ensure against abuses.  The customer is required to sign a limited power of attorney that awards discretion to the registered representative. The limited power of attorney is good for up to three years and the customer is bound by the decisions of the representative, but may still enter orders for themselves. Once discretion is given to the representative, the representative may not give discretion to another party. If the representative leaves the firm or stops managing the customer’s account, the discretionary authority is automatically terminated. A full power of attorney allows an individual to deposit and withdraw cash and securities from the account. A full power of attorney is usually not given to a registered representative. A full power of attorney is more appropriate for fiduciaries, such as a trustee, custodian, or a guardian.

Margin Accounts

Investors may borrow a portion of a security’s purchase price directly from the broker dealer to establish a position. Investors who borrow money to purchase securities are said to be buying on margin. The term margin refers to the portion of the securities purchase price that must be deposited by the customer to establish the position.

C. Regulations
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