Discretionary Accounts: Written Authorization and Time/Price Discretion
A registered representative executes a trade for a client choosing the security and the number of shares without calling the client beforehand. Under FINRA rules, what documentation MUST be in place?
If a representative exercises discretion over Asset (which stock) or Amount (number of shares), prior WRITTEN trading authorization (Power of Attorney) from the client AND written acceptance by a designated principal are legally required.
Complete Analysis & Legal Rationale
EXCEPTION: Time and Price discretion (e.g. 'buy 100 shares of IBM today when you think price is best') only requires verbal permission, but is valid ONLY for that single trading day.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Discretion over Asset/Amount requires prior written POA and principal approval.
Verbal discretion is strictly limited to Time and Price for one trading day only.
Post-dated consent violates FINRA rules; authorization must be in advance.
Profitability is irrelevant to regulatory violations.