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Difficulty: Very hardCustomer Account Types and Ownership Structures

A registered representative receives a disbursement request from Marcus, who holds a Limited Power of Attorney (LPOA) over his mother's individual brokerage account. Marcus directs the firm to sell $40,000 of stock and wire the proceeds directly to his personal checking account, explaining that the funds will reimburse caregiving expenses he paid on her behalf. Which of the following statements correctly describes the broker-dealer's obligation regarding this request?

  1. The broker-dealer must refuse the wire transfer because a Limited Power of Attorney authorizes trading activity but strictly prohibits withdrawing or transferring assets to a third party.Answer
  2. B
    The broker-dealer may execute the transfer if Marcus provides a signed note from the account owner, because trading authorization automatically conveys disbursement rights under joint tenancy rules.
  3. C
    The broker-dealer must execute the wire transfer as requested, but it is legally obligated to file a Currency Transaction Report (CTR) because the disbursement exceeds $10,000.
  4. D
    The broker-dealer must immediately freeze all trading in the account under FINRA Rule 2165 whenever a third party with trading authority requests any distribution.

Answer

The broker-dealer must refuse the wire transfer because a Limited Power of Attorney authorizes trading activity but strictly prohibits withdrawing or transferring assets to a third party.
Under FINRA rules and industry standards, a Limited Power of Attorney (LPOA) allows a designated third party to enter trading orders (buy and sell securities) on behalf of the account owner. However, an LPOA strictly prohibits the third party from withdrawing funds or securities or transferring assets out of the account into their own name or to any third party. Only a Full Power of Attorney (FPOA) grants discretionary trading combined with check-writing and asset withdrawal privileges.

Step-by-Step Solution

1
Analyze the account ownership structure and third-party authority scope.
Marcus holds a Limited Power of Attorney (LPOA) over an individual account owned solely by his mother.
Evaluating the legal authority granted by an LPOA is necessary to determine permissible account actions.
2
Distinguish between Limited Power of Attorney and Full Power of Attorney permissions.
An LPOA permits placing trade orders (buying and selling securities) but strictly prohibits withdrawing cash/securities or transferring funds to third parties.
Asset withdrawal and third-party disbursement require a Full Power of Attorney (FPOA) with explicit withdrawal authorization.
3
Evaluate the broker-dealer's regulatory obligation for the requested wire transfer.
The firm must deny the request to wire funds to Marcus's personal checking account.
Executing a third-party transfer under an LPOA violates account control regulations and firm compliance rules.

Key Concept

Scope of Trading Authority (Limited vs. Full Power of Attorney) and Account Disbursement Rules
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Topics

Customer Account Types and Ownership Structures