Customer accounts & suitability

Discretionary accounts allow registered representatives to trade securities without obtaining prior consent for each transaction, provided the customer has given written authorization. However, this authority does not permit brokers to act without oversight or withdraw client funds for personal use. Supervision by a principal is always required to prevent abuse.

A direct transfer from a 401(k) to an IRA custodian avoids withholding taxes and penalties because the account owner never takes physical possession of the funds. In contrast, a physical withdrawal (Option D) paid directly to the owner triggers a 20% mandatory withholding tax and potential early withdrawal penalties.

Suitability rules require registered representatives to have a reasonable basis to believe a recommendation is appropriate for the customer based on their financial profile and objectives. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Option D is incorrect because ignoring a client's risk profile directly violates this fundamental regulatory obligation.

Answer each from memory — you'll see instantly whether you're right and why.

Run a focused 10-question mini-mock on Customer accounts & suitability and see it stick.