Customer Accounts
Account Opening
Firms must know their customers, obtain required information, provide risk disclosure, and maintain records. Account types include individual, joint, corporate, partnership, trust, estate, omnibus, guaranteed, and managed accounts. A discretionary account requires written authorization, typically a power of attorney, before the representative can trade without specific customer approval for each order. Third-party trading authorization also requires proper written consent.
Joint accounts may be joint tenants with right of survivorship or tenants in common; the distinction controls what happens on death. Corporate and partnership accounts require documentation of authority. Customer funds must be segregated from the firm’s own funds and cannot be commingled with firm operating money. Omnibus accounts aggregate customers under a foreign broker or another intermediary.
Traps
Verbal discretion is insufficient; written authorization is required. Not every person named on an account has trading authority. Do not assume a joint account is always survivorship. A guaranteed account is guaranteed by a third party but remains the customer’s account. Customer funds are not available for firm expenses.
Rule of Thumb
No written authorization, no discretion. No segregation violation: customer funds stay in customer-segregated accounts. Confirm account type, ownership, and authorized traders before accepting orders.