Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
What is Discretionary Authority?
Discretion means choosing which security, how many shares, or whether to buy or sell without the client's prior approval. Choosing only the time or price of an order the client already specified is not discretion. An investment adviser may exercise discretion on oral authority for up to 10 business days after the first discretionary trade, but must have written authorization by then. An agent of a broker-dealer needs written authorization before the first discretionary trade.
Discretionary Authority: a worked example
A client says 'buy 100 shares of XYZ today whenever you think the price is right' - that is time and price only, not discretion.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.
Principal Transactions by Advisers
Selling to or buying from a client for the adviser's own account needs consent each time.