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Question

Difficulty: MediumCustomer Account Types and Ownership Structures

A customer executes a written Limited Power of Attorney (LPOA) designating her financial advisor as an authorized agent on her individual brokerage account. Following a severe storm, the advisor learns that the customer's primary residence suffered roof damage while the customer is traveling out of the country. To assist the customer, the advisor submits a request to the broker-dealer to withdraw $10,000 from the brokerage account to pay a licensed roofing contractor directly. Which of the following statements correctly describes the firm's obligation regarding this request?

  1. The firm must decline the withdrawal request because a Limited Power of Attorney grants trading authority only and prohibits third-party disbursements.Answer
  2. B
    The firm may execute the withdrawal if the advisor provides documentation establishing that the funds will be placed into a Tenants in Common account.
  3. C
    The firm is required to process the disbursement automatically under FINRA rules because any form of power of attorney grants full custodial access to customer assets.
  4. D
    The firm should approve the transfer because the advisor is acting as a dealer executing transactions to preserve the customer's financial well-being.

Answer

The firm must decline the withdrawal request because a Limited Power of Attorney grants trading authority only and prohibits third-party disbursements.
A Limited Power of Attorney (LPOA) permits an authorized third party to enter trade orders for securities within an account but specifically excludes authority to withdraw cash or securities. To disburse funds to a third party, the account owner must execute a Full Power of Attorney (FPOA) or directly authorize the transfer in writing.

Step-by-Step Solution

1
Identify the type of third-party authorization granted on the customer account.
The account holder granted a Limited Power of Attorney (LPOA).
Determining the scope of authority is necessary to verify permissible account actions.
2
Differentiate between Limited Power of Attorney (LPOA) and Full Power of Attorney (FPOA).
An LPOA allows trading execution only, whereas an FPOA allows both trading execution and fund/securities disbursements.
FINRA regulations strictly enforce asset protection by requiring explicit Full Power of Attorney for third-party withdrawals.
3
Evaluate the advisor's disbursement request against the account's authorization limits.
The disbursement request must be rejected by the broker-dealer.
Even in emergency situations, an agent operating under an LPOA cannot withdraw or disburse funds from the account.

Key Concept

Discretionary and Third-Party Account Trading Controls (LPOA vs. FPOA)
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Topics

Customer Account Types and Ownership Structures