Discretionary Accounts

What this video covers

• The exact four decisions (security, quantity, timing, whether to trade) that trigger full discretion when made without customer instruction per trade
• The time-and-price discretion exception: what qualifies, why it expires at the close of one business day, and how the exam stretches it across multiple days as a trap
• The three required writings: customer authorization, firm acceptance, and principal approval of each order promptly in writing, and why missing any one is a discrete violation
• Why oral customer authorization is never sufficient, and why family relationships do not eliminate the three-writings requirement
• The distinction between order-level approval (prompt, per trade) and account-level review (frequent intervals) for excessive size or frequency
• The two quantitative red flags for churning: turnover rate above 4, and costs-to-equity ratio above 15 to 20 percent annualized
• Why excessive trading in a discretionary account triggers not just Financial Industry Regulatory Authority (FINRA) suitability and supervision rules but also Securities and Exchange Commission (SEC) anti-fraud exposure under the Exchange Act