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Question

Difficulty: MediumCustomer Account Types and Ownership Structures

An investor opens an individual cash account and wishes to grant a trusted third party authority to act on the account. The investor is considering granting either a Limited Power of Attorney (LPOA) or a Full Power of Attorney (FPOA). Which of the following statements regarding third-party trading authority and account controls are correct?

  1. A Limited Power of Attorney permits the designated third party to enter buy and sell orders but does not permit them to withdraw cash or securities from the account.Answer
  2. A Full Power of Attorney allows the designated third party to withdraw funds and transfer assets out of the account in addition to making trading decisions.Answer
  3. C
    Any power of attorney automatically remains in full legal effect following the owner's death, allowing the authorized agent to settle the account without court intervention.
  4. D
    A Limited Power of Attorney grants the third party ownership of the account assets upon the death of the primary account holder.

Answer

The correct statements are that a Limited Power of Attorney allows order entry without withdrawal privileges, while a Full Power of Attorney grants both trading authority and the ability to withdraw cash or securities from the account.
Limited Power of Attorney allows an authorized third party to place buy and sell orders on behalf of the account holder without allowing withdrawals, whereas Full Power of Attorney permits both trading activity and cash/security disbursements.

Step-by-Step Solution

1
Analyze the scope of Limited Power of Attorney (LPOA).
LPOA grants discretionary trading privileges (entering buy/sell orders) to a designated third party but explicitly excludes authority to withdraw cash or transfer securities.
Brokerage rules strictly separate trading authorization from asset disbursement authority to protect account owner assets.
2
Analyze the scope of Full Power of Attorney (FPOA).
FPOA grants comprehensive authority, enabling the designated agent to place trades, withdraw funds, and transfer securities out of the account.
Full authority confers operational rights equivalent to the account holder.
3
Evaluate the impact of the account owner's death on third-party powers of attorney.
Both LPOA and FPOA automatically revoke upon the legal death of the principal.
Power of attorney exists only during the principal's life; upon death, legal authority transfers to an executor, administrator, or named transfer-on-death beneficiaries.

Key Concept

Third-Party Trading Authority and Power of Attorney Controls
Estimated Time:1m 15s
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Topics

Customer Account Types and Ownership Structures