Account Authorizations: Power of Attorney
Quick Answer
A Power of Attorney (POA) lets a third party act on a customer's account. Full POA allows trading and withdrawals; limited (trading) POA allows trading only. Durable POA survives the principal's incapacity; non-durable POA terminates at incapacity. Every POA, durable or not, is immediately revoked at the principal's death, freezing the account pending estate documents.
So far, only the customer can trade in their account. A Power of Attorney (POA) is the legal document that changes that. It lets a third party (a spouse, an adult child, or a professional money manager) act on the account. The Series 6 tests whether you know which type of POA permits what, when incapacity breaks (or does not break) the authority, and what death of the customer does to every POA in the drawer.
What are the basic requirements of a Power of Attorney for a brokerage account?
A POA is a legal document by which a customer (the principal) authorizes another person (the attorney-in-fact or agent) to act on the customer's behalf.
Requirements on file at the broker-dealer (BD):
- The POA must be in writing
- Signed by the principal (and typically notarized)
- A copy of the executed POA must be on file, along with the firm's own trading-authorization paperwork, before the agent is allowed to transact
How do full and limited Powers of Attorney differ?
The scope of the POA determines what the agent may do.
| Type | Authority | Typical Use |
|---|---|---|
| Full (General) POA | Agent may buy, sell, and withdraw funds or securities from the account | Adult children managing an elderly parent's account; spouses |
| Limited (Trading) POA | Agent may buy and sell securities but cannot withdraw funds or securities | Third-party money manager with trading authority but no custody of customer assets |
Think of it this way: A full POA is a house key. A limited POA is a car key. The agent with a full POA can walk out the front door with anything in the house (including cash). The agent with a limited POA can drive the car (trade the account) but cannot take furniture (withdraw assets).
Exam Tip: Gotchas
- A Limited (Trading) POA authorizes the agent to trade but does not authorize withdrawals. If the question asks which POA an outside money manager needs, the answer is limited, because the manager should not have direct access to move customer funds.
How do durable and non-durable Powers of Attorney differ?
The duration of the POA determines whether it survives the principal's incapacity.
| Feature | Durable POA | Non-Durable POA |
|---|---|---|
| Principal becomes incapacitated | Remains in effect | Automatically terminates |
| Designation required | Must expressly state it is durable | Default if not expressly durable |
| Principal dies | Revoked immediately | Revoked immediately |
Death of the Principal
- Death automatically revokes every POA, durable or not
- The agent has no authority to trade after death
- The account is frozen pending delivery of estate documents (death certificate, letters testamentary or letters of administration)
Exam Tip: Gotchas
- Death of the principal revokes ALL POAs immediately, including durable ones. The agent's trading authority ends on the date of death. A trade executed by an agent after the principal's death (even in good faith, unaware of the death) must be reversed.
- A non-durable POA is revoked when the principal becomes incapacitated, without any further action by the customer or the firm. If the question says the customer was declared incompetent and the POA is non-durable, the agent's authority is already gone.
How is a Power of Attorney revoked?
- The principal may revoke a POA at any time by written notice to the agent and the firm
- Revocation is effective when received and logged by the firm
- The firm should require a new POA from any replacement agent (a revocation does not automatically appoint a new agent)
What are the most tested Power of Attorney rules?
Exam Tip: Gotchas
- Full POA = trade + withdraw. Limited POA = trade only.
- Durable POA survives incapacity. Non-durable does not.
- No POA survives death. The account freezes.
- An outside money manager should have a limited POA, not a full one.