What is a key component of a discretionary account?

What is a key component of a discretionary account?

• A. Full control by the client over trades
• B. Authorization for a dealer member to make trades on behalf of the client
• C. No fees associated with the account
• D. Involvement of multiple clients in trading decisions

Answer: (B)

A key component of a discretionary account is the authorization for a dealer member to make trades on behalf of the client. In this type of account, the client entrusts the dealer with the discretion to manage the investments without requiring the client to approve each individual trade prior to execution. This level of trust allows the dealer to act quickly to take advantage of market opportunities and make investment decisions that align with the client's overall strategy.

In a discretionary account, the dealer member is responsible for understanding the client's investment goals and risk tolerance, ensuring that trades made align with the client's objectives. This differs from accounts where the client has full control over trades, as the dealer member in a discretionary account actively manages the portfolio on the client's behalf, which is a hallmark of such accounts.

Options that suggest no fees associated with the account or involvement of multiple clients in trading decisions do not accurately represent the fundamental characteristics of a discretionary account. While there may be various fee structures associated with investment accounts, discretionary accounts typically include management fees for the service provided. Additionally, discretionary accounts focus on individual client relationships rather than collective trading decisions made for multiple clients.