Client Accounts and Account Opening: Documentation and Authority
The account-opening file
Every account must rest on a documented relationship: a signed or electronically authenticated account application, an identity verification record, a suitability assessment, a risk-tolerance discussion, and a record of the representative's approval. For discretionary accounts, a written management agreement is required, and the supervisor must approve the account before trading begins. Questions frequently turn on what must happen before the first trade versus what may be completed shortly after.
Types of authority
Distinguish among cash accounts, margin accounts, discretionary accounts, and accounts held under a power of attorney or by a trustee. Each carries different documentation and different supervisory scrutiny. Third-party authority requires documented consent from the client, and the supervisor should confirm the scope of authority (trading only, or also withdrawals).
Traps to expect
Watch for questions where a representative opens an account for a relative, or where an unsigned application is accepted pending signature. The rule of thumb: no signature, no trading, except where the firm's written policy expressly permits a limited post-approval process with supervisor sign-off. Another trap is failing to update the file when the client's circumstances change.
Worked example
A client emails asking to add a spouse as a trading authorized party. The correct sequence is: obtain a signed authorization specifying the scope, verify the spouse's identity, update the account record, and have the supervisor approve before any order from the spouse is accepted.
Supervision of account activity
Supervisors should review new accounts within a defined period, monitor for unusual patterns (rapid trading, deposits inconsistent with the client profile), and confirm that account restrictions are recorded and enforced.