Section 9.5: Fiduciary Accounts & Powers of Attorney

  • What is a Fiduciary?

    • A fiduciary is any person legally authorized to represent another person, act on their behalf, and make decisions necessary for prudent management of their financial or legal affairs.

    • Fiduciaries have a legal and ethical duty to act in the best interests of the beneficiary.

Trading Authorization (Power of Attorney):

  • If someone other than the account owner is given authority over an account, the account owner must file written authorization with the broker-dealer.

  • This authorization takes the form of a Power of Attorney (POA).

  • Important POA Rules

    • The POA is granted to a person, not a firm.

    • All POAs end upon the death of either the account owner or the person holding power.

    • All POAs impose a fiduciary duty on the holder.

    • Granting a POA does not remove the account owner’s authority.

Examples of Fiduciaries

Fiduciary Type / Description

  • Trustee / Administers a trust for beneficiaries.

  • Executor / Designated in a will to manage the affairs of a deceased person.

  • Administrator / Appointed by a court to liquidate the estate of a person who died without a will.

  • Guardian / Designated by a court to handle a minor’s affairs until they reach majority.

  • Custodian / Manages a minor’s account (e.g., UTMA/UGMA).

  • Receiver / Appointed in bankruptcy to protect assets.

  • Conservator / Handles the affairs of an incompetent person.

Power

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Types of Power of Attorney

Type / Power Granted / Notes

  • Full Power of Attorney (FPOA) / Complete control – can deposit/withdraw cash or securities and make investment decisions. / Rarely used outside full trust or estate accounts.

  • Limited Power of Attorney (LPOA) / Allows some control, usually to enter buy/sell orders but not withdraw assets. / Also called Limited Trading Authorization. Common for spouses or investment advisers.

Durable Power of Attorney:

  • A Durable POA continues even if the account owner becomes incapacitated.

  • Regular POAs end if the owner becomes incapacitated or dies.

  • Durability must be explicitly stated in the POA document.

Chapter 10

✺ Review questions ✺

  • To act in the best interests of the beneficiary and manage assets prudently.

  • Trustee, Executor, Guardian (also Custodian, Receiver, or Conservator).

  • No. They may only charge a reasonable fee for services.

  • The Prudent Investor Rule.

  • Full Power of Attorney (FPOA) and Limited Power of Attorney (LPOA).

  • Limited Power of Attorney (LPOA).

  • It is automatically canceled.

  • It remains effective even if the account owner becomes incapacitated.