A family relationship does not grant trading authority. Check the account title and the documents.
Two questions, asked separately
Every account has an owner: the person or entity named on the registration, whose money is at risk. Ownership answers “whose account is this?”. It does not answer “who may give this firm an order?”. The exam keeps those two questions apart, and so must you.
Keep reading: 4 more paragraphs (about 1 min)
A firm must check the account title and the authority of the person entering an order. An owner may direct the account. A third party needs authority under a document the firm has reviewed, such as a trading authorization or power of attorney; a trustee or estate representative acts under the document that gives that role its powers. “My husband handles this” does not establish authority.
Beneficiaries and heirs are the classic trap. A transfer-on-death beneficiary has no trading authority from that designation while the owner is alive. After a death, the firm must verify the account title and the authority of the person asking to act. A relative cannot simply direct a sale; the documents and applicable law decide who may act. Do not infer that every account is frozen or every open order is canceled.
Discretionary authority lets a named individual choose the security, buy-or-sell action or amount. FINRA Rule 3260 requires prior written customer authorization naming that individual and written firm acceptance of the account. Family membership or a recorded phone call does not replace that authority.
The time-and-price exception applies when the customer fixes the security, buy-or-sell side and definite quantity and lets someone choose only when or at what price to execute. For a retail customer, that authority lasts only until the end of the business day unless the customer gives a specific contrary instruction in writing, signed and dated. Institutional not-held orders with valid good-till-canceled instructions have a separate exception; they are not the retail default.
Exam terms (5)
- Trading authorization
- A written document that lets a named third party enter orders within its stated scope. Check the document before assuming withdrawal power.
- Discretionary account
- An account where the representative may choose the security, the action or the amount under written authority.
- Transfer-on-death beneficiary
- A person who receives the account at the owner’s death. No rights while the owner lives.
- Executor / administrator
- The person appointed to act for a deceased owner’s estate.
- Durable power of attorney
- A financial authorization that can continue through the owner’s incapacity; check its powers and the firm’s record.
Standing to enter an order
| Owner | Written authorization | Beneficiary or heir | |
|---|---|---|---|
| May enter orders? | Yes | Yes, within the paper | No |
| Rests on | Name on the account | Document the firm accepted | Expectancy only |
| At owner’s death | Title and estate terms control | Firm verifies current authority | Proof of entitlement and authority needed |
Try it: Write these five people in a column: account owner; spouse with nothing on file; adult child named as transfer-on-death beneficiary; representative holding signed discretionary authority; executor holding court letters. Beside each write Y or N for “may enter an order today”, then name the document that would turn each N into a Y.
Check yourself
Try a question, then read the explanation to review the rule.
Opening your study record…
Worked example
A customer’s adult daughter calls his representative. Her father is abroad for a month, and she asks the representative to sell 400 shares of a stock she says he no longer wants. She is the named transfer-on-death beneficiary on the account.
- Identify the owner: the father. Only he, or someone he has authorized in writing, may enter orders.
- Test the caller’s standing. A transfer-on-death designation takes effect at death; it confers nothing while the owner is alive.
- Check for paper. No trading authorization is on file, so the representative must decline the order, however sensible the sale sounds.
- Say what would fix it: the father signs a limited trading authorization naming his daughter. Once the firm accepts it, she may act within the scope the document grants.
Same rule, new context
Opening your study record…
The closest contrast
Owner: may trade.
Beneficiary: may not.
When a stem has a spouse, heir or beneficiary trying to place an order, it is testing whether you look for written authorization rather than a family relationship.
Summary
- Ownership and authority are separate questions. Answer both.
- Check the account title and written authority before accepting an order; a family relationship alone is not enough.
- A beneficiary or heir does not gain trading power from that status alone. After death the firm verifies account title and current authority.
- Discretion over security, side or amount needs prior written customer authorization and written firm acceptance.
- Retail time-and-price authority for a specified order ends that business day without a specific signed, dated written extension.
Related practice
- Ownership vs trading authorityPractice this
Sources
- SIE Examination Content Outline (2025) · FINRA · checked 2026-10-12
- FINRA Rule 3260 — Discretionary Accounts · FINRA · checked 2026-09-04
- FINRA Rule 2090 — Know Your Customer · FINRA · checked 2026-09-04
- CFPB — What is a power of attorney? · CFPB · checked 2026-09-27
- Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) Accounts — 2019 Report on Examination Findings and Observations · FINRA · checked 2026-09-04
- Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death (FINRA investor insights) · FINRA · checked 2026-09-04
- Opening a Brokerage Account: Part 2 · FINRA · checked 2026-09-19