← Broker database 2023-09-08
Charles Shields Suspended for Unauthorized Discretionary Trading
According to FINRA, Charles Daniel Shields Jr. was fined $5,000 and suspended from association with any FINRA member in all capacities for 15 business days for exercising discretion without proper authorization.
Shields exercised discretion in a customer's account without prior written authorization from the customer and without his member firm having approved the account for discretionary trading. Shields acted on oral instructions he received from the customer's family member in effecting securities transactions in the customer's brokerage account. Shields mistakenly believed that he was authorized to accept such instructions to effect the transactions at issue.
This case raises important issues about who can give instructions regarding a customer's account. Generally, only the account owner or someone with documented authority (such as through a power of attorney) can direct trading in an account. While family members may sometimes have informal arrangements to help manage an elderly parent's or relative's finances, these informal arrangements do not provide legal authority to direct trading in a brokerage account.
For a broker to accept trading instructions from someone other than the account owner, there must be proper legal documentation, such as a power of attorney or similar document, on file with the firm. This protects both the customer and the broker by establishing clear lines of authority and responsibility.
Shields' mistaken belief that he could accept instructions from a family member, while perhaps understandable in a practical sense, violated FINRA rules. The rules exist to protect customers from unauthorized trading and to ensure that only properly authorized individuals can direct trading in an account.
The 15-day suspension and $5,000 fine reflect that this appears to have been a mistake rather than intentional misconduct. However, it underscores the importance of brokers following proper procedures even when they believe they are helping customers.
Investors should ensure that if they want a family member or other trusted person to be able to direct trading in their account, they establish proper legal documentation such as a power of attorney and provide it to their brokerage firm.