← Broker database 2023-09-13
Gustavo Rodrigo Suspended for Unauthorized Discretionary Trading
According to FINRA, Gustavo Rodrigo III was fined $2,500 and suspended from association with any FINRA member in all capacities for 10 business days for exercising discretion without proper authorization.
Rodrigo exercised discretion in a customer's account without written authorization from the customer and without his member firm having accepted the account as discretionary. Rodrigo effected trades in the brokerage account of the firm customer without speaking to the customer prior to execution on the date of the transactions.
Discretionary authority allows a broker to make investment decisions and execute trades without obtaining specific customer approval for each transaction. Because this represents significant power over customer assets, FINRA rules require that discretionary authority be granted through written customer authorization and that the firm formally accept the account as discretionary. This ensures proper documentation and supervision.
When a broker executes trades without speaking to the customer first and without written discretionary authority, it raises questions about whether the customer actually authorized the trading. Even if the customer generally trusts the broker to make investment decisions, proper documentation is required to protect both the customer and the broker.
In this case, Rodrigo effected trades without speaking to the customer on the date of the transactions and without proper written authorization. This meant the customer had no opportunity to discuss the specific trades or market conditions before they were executed, which is one of the key protections customers have against unsuitable or unauthorized trading.
The 10-day suspension and $2,500 fine are relatively modest, likely reflecting that this appears to be an isolated incident with no indication of customer harm or objection. However, the sanctions demonstrate that even when customers may be satisfied with their broker's trading, proper procedures must be followed.
Investors should understand the difference between giving their broker discretion to trade without prior approval and maintaining the right to approve each trade. If you want to grant discretion, ensure it is properly documented in writing. If you have not granted discretion, you should be contacted before each trade.