What is a discretionary account?

What is a discretionary account?

• A. An account where clients make all investment decisions
• B. A securities account where the client gives authorization for a dealer to make decisions
• C. A simple savings account
• D. An account with no investment activity

Answer: (B)

A discretionary account is characterized by the client's authorization that allows a dealer or investment advisor to make investment decisions on behalf of the client. This arrangement is beneficial for clients who may not have the time, expertise, or inclination to manage their investment portfolio actively. In a discretionary account, the dealer has the authority to buy and sell securities without needing prior consent from the client for each transaction. This can enable more efficient trading and the ability to take advantage of market opportunities as they arise.

In contrast, the other options do not accurately reflect the nature of a discretionary account. An account where clients make all investment decisions describes a non-discretionary account, which places the responsibility entirely on the client. A simple savings account refers to a basic deposit account and does not involve investment activity. Lastly, an account with no investment activity would not meet the criteria for a discretionary account, as it implies that there are no transactions being facilitated by a dealer.