Quick Answer
A trading authorization grants specified account powers to another person. In common brokerage forms, full authority adds withdrawals while limited authority does not. The actual grant controls. Trustees, estate personal representatives, minor-account custodians, and court-authorized financial guardians or conservators act as fiduciaries within the governing instrument, applicable law, and any court order.
Building on the concept of discretionary authority, this section covers the formal documents that grant third parties the right to enter orders in a customer's account and the fiduciary obligations that come with certain account types.
What Types of Trading Authorization Exist?
A written trading authorization, often documented through a power of attorney or a firm's account form, grants specified powers to another person. Brokerage forms commonly use these labels:
| Type | Authority Granted |
|---|---|
| Full trading authorization | Trading plus withdrawals within the actual grant and account restrictions |
| Limited trading authorization | The authorized party may buy and sell securities but may not withdraw cash or securities from the account |
The common distinction is withdrawal rights. These labels do not replace the document: check which accounts and powers the customer actually included. A broad legal power of attorney is not identical to every firm's trading-access form.
Discretionary authority is a form of trading authorization that specifically authorizes the agent to choose the security, amount, or action without the client's prior consent on each trade.
How Does a Customer Grant Third-Party Authorization?
A customer may use a written power of attorney or the firm's authorization process to name a third party, such as a spouse, attorney, or investment adviser.
- The firm must know and retain the essential facts about the person's actual authority, including the account covered and permitted activity
- The firm preserves written powers of attorney and other authority records under the applicable recordkeeping rules
- For a discretionary account with a natural-person customer or owner, the SEC requires dated signatures from each customer or owner granting authority and each natural person granted it. FINRA separately requires each named associated person's dated signature
- The customer and firm can document a narrower permitted service. Validation, refusal, and restrictions remain subject to applicable law; a signature alone does not establish every requested power, and the firm has no unlimited right to disregard valid legal authority
Which Accounts Are Fiduciary Accounts?
Certain accounts involve fiduciary authority. The actual instrument, applicable law, and court order determine who can direct the account and the limits of that authority:
| Account Type | Who May Have Authority | Interests Served |
|---|---|---|
| Trust account | Trustee under the trust and governing law | Trust beneficiaries |
| Estate account | Executor or administrator acting as personal representative | Estate and persons entitled under the will or applicable law |
| Custodial account (Uniform Gifts to Minors Act / Uniform Transfers to Minors Act) | Custodian under the governing transfer law | Minor |
| Guardian-type financial account | Court-authorized financial guardian, conservator, or comparable fiduciary | Person represented under the actual order |
Fiduciary duties depend on the account, governing law, and actual appointment. Keep these roles distinct:
- Executors and administrators are personal representatives. They administer the estate for the estate and those entitled under the will or applicable law, not only heirs, and remain subject to the will, governing law, and court orders
- A guardian of the person handles personal affairs and does not automatically receive investment or account authority. A conservator, financially authorized guardian, or comparable fiduciary may act only within applicable law and the actual order
- Fiduciaries owe loyalty and prudence and must use the authority for the estate or represented person, not for personal advantage
- A role label does not supply unrestricted financial power. The firm must verify the actual authority and its limits before accepting account instructions
- A trustee invests and manages trust assets under the Uniform Prudent Investor Act
Exam Tip: Gotchas
A guardian of the person does not automatically have financial power. Identify the authority supplied by governing law and the actual court order before accepting account instructions.
What Should You Check on Exam Day?
- Verify the person's authority and its scope; preserve the applicable written grant and account records. Do not turn one firm's form process into a universal legal requirement.
- In common brokerage forms, full adds withdrawals and limited trading does not. The actual grant and account restrictions control.
- The SEC signature record applies to discretionary accounts with a natural-person customer or owner; it covers the granting customers/owners and natural-person grantees. FINRA separately covers named associated persons. Ministerial relay alone does not trigger these discretion rules.
- Executors and administrators direct estate accounts as personal representatives for the estate and persons entitled under the will or law, within the governing law and court orders.
- A guardian of the person has no automatic financial power. A court-authorized financial guardian, conservator, or comparable fiduciary follows the actual order and applicable law and may not use that authority for unauthorized personal gain.