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. A customer who is on active military duty for an extended period of time should open a military P O Box where mail may be sent.

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
Related Articles
  1. Personal Finance

    Introduction To Financial Planning Organizations

    Organizations such as the FPA and NAPFA are striving to provide higher standards for the financial planning profession and greater protection for consumers through a combination of community ...
  2. Professionals

    Key Steps To Building A Great Financial Planning Practice

    Following the status quo will kill your financial practice. Find out the tips you need to follow to keep you a step or two ahead of the competition.
  3. Professionals

    A Day In The Life Of An Economist

    We've interviewed three economists with very different job descriptions to give you an idea of the many possibilities this career choice offers.
  4. Professionals

    The Best Training Programs For CFP Exams

    The competition to become a financial planner is hot, and growing hotter. Find out the best way to preparing to land the CFP designation.
  5. Professionals

    The Claritas Investment Certificate: A New Foundation-Level Program From The CFA Institute

    The Claritas Investment Certificate is likely to find growing acceptance as the new foundation-level education and ethics standard for the financial service sector internationally.
  6. Professionals


    CFP Exam Guide
  7. Retirement

    Why Some Celebs Say 'No Inheritance for My Kids'

    To some of the super rich, inherited wealth is not the ultimate gift, it's a burden. Here's how their children—as well as charities—stand to benefit.
  8. Professionals

    Social Security COLA in 2016? Not Likely

    A cost of living increase for Social Security doesn't look likely in 2016. Here's what retirees should know and what they can do about it.
  9. Professionals

    This Group is the Most Underprepared to Retire

    More than any other demographic, this group is woefully underprepared for retirement. Here's what they can do to change that.
  10. Professionals

    Advisors: Why Older Clients Need Housing Help

    When was the last time you talked to your clients about housing in retirement?
  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. Open Architecture

    The option offered by an investment firm to let its clients invest ...
  4. Advanced Diploma In Insurance

    A qualification earned by insurance professionals and conferred ...
  5. Associate In Personal Insurance ...

    A designation earned by professionals looking for training in ...
  6. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Is a financial advisor allowed to pay a referral fee?

    A financial advisor is allowed to pay a referral fee to a third party for soliciting clients. However, the Securities and ... Read Full Answer >>
  3. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  4. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  5. Why is fiduciary duty so important?

    Fiduciary duty is one the most important professional obligations. It basically provides a much-needed protection for individuals ... Read Full Answer >>
  6. Do financial advisors have to find their own clients?

    Nearly all financial advisors, particularly when new to the field, have to find their own clients. An employer may provide ... Read Full Answer >>
Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!