FINRA Series 7Opens Accounts and Evaluates Customer ProfileEasy
A customer wants to give her registered representative the authority to enter buy and sell orders in her account without prior approval each time, but she does not want the representative to be able to withdraw cash or securities from the account. Which type of authorization should be used?
- ALimited (trading) power of attorney
- BVerbal discretionary approval only
- CDurable power of attorney
- DFull power of attorney
Show answer & explanationAnswer & explanation
Correct answer: A. Limited (trading) power of attorney
A limited (trading) power of attorney grants authority to enter trades on behalf of the customer but does not permit withdrawals of cash or securities. A full power of attorney would additionally allow withdrawals, which the customer wants to prevent.
Why the other options are wrong
- B. Discretionary authority must be documented in writing, not merely verbal.
- C. Durable POA relates to continuing effectiveness after incapacity, not the scope of trading vs. withdrawal.
- D. Full POA would also allow withdrawals, which the customer wants to restrict.
Limited vs. Full Power of Attorney
A limited POA allows an agent to trade in an account but not withdraw funds; a full POA allows both trading and withdrawals.
- Limited POA = trading only
- Full POA = trading + withdrawals
- Must be in writing and on file with the firm
Memory trick: Limited lets you trade, Full lets you take.