Single owner accounts

There are multiple types of accounts, and even multiple categories. Accounts could be registered to a single person, or they could be registered to more than one person.

Single-owner accounts

Cash account

The simplest of all accounts. These are accounts that are 100% owned, as if purchased in cash.

Margin account

Margin accounts are not 100% owned. The client has borrowed some money. These are the only accounts where investors can short stock, but you can also use margin to leverage your money in long positions. Margin accounts are discussed in more detail in their own section.

Day trading

A day trade is when a position is opened and closed within the same day; a long position is opened and then sold in the same trading day, or a short position is opened and then purchased in the same trading day.

Under FINRA’s intraday margin standard (effective June 4, 2026), a customer who day trades in a margin account must maintain equity commensurate with their market exposure at any point during the trading day. If an intraday margin deficit arises, the customer must satisfy it promptly (for example, with a deposit); a persistent failure to do so can lead to account restrictions.

FINRA lets firms that need more time phase in the intraday margin standard until October 20, 2027, so until then a firm may still be applying the old requirements.

Discretionary account

An account in which the representative has discretion. These could be discretionary cash accounts or discretionary margin accounts. We discuss discretion itself in more detail in Supervising. The representative holding discretion can make decisions about the transactions regarding the three A’s: action, asset, and amount. In most cases, the rep will meet with the client once or twice a year, or however often, review the account and update the client’s profile, and make decisions over the next period based on that updated profile. Discretionary authority requires the client’s prior written authorization and the firm’s written acceptance of the account as discretionary before the representative may exercise it. The client can always call and place direct transactions themselves, but most of the time the representative decides all activities, adhering to the customer’s financial objectives and risk tolerance.

There is a great deal more oversight required from a supervisory perspective: the firm must approve each discretionary order promptly in writing and review discretionary accounts at frequent intervals to catch trading that is excessive in size or frequency (FINRA Rule 3260). These accounts could be at risk more easily for churning and over trading, as the client isn’t the one placing the orders, and the person placing the orders might be getting paid on those orders being placed. There is an inherent potential conflict of interest that must be monitored.

Wrap accounts

Wrap accounts are accounts that “wrap” multiple services together for the client. There could be many services, but the most common are execution, carrying, advice, and research. It must be disclosed that the fee for these combined services may actually be higher than the combination of the fees from the individual services separately. Some experienced reps may only work by wrap account, so the client wants that particular experienced rep; they are potentially paying more for that specific representative. They don’t want the reps with two to three years of experience; they are willing to pay the higher fee for the rep with 20 or more years of experience.

Oftentimes, wrap accounts include advice, so we are dealing with advisory rules. Under the Investment Advisers Act of 1940, an investment adviser is a person or firm that, for compensation, is in the business of advising others about securities. If a broker-dealer is marketing certain advisory products directly to customers, it must be registered as an investment adviser. In practice, representatives handling these types of accounts and/or services are typically registered both with the firm’s broker-dealer and, as investment adviser representatives, with the firm’s investment adviser; because the advice is provided through that registered investment adviser, the broker-dealer does not need to separately register to offer the advice bundled into the wrap account.

Broker-dealers themselves, though, as stated, would have to register if they cross the line. If the advice is incidental and they are not separately paid for it - for example, telling a prospect to increase their 401(k) contribution to capture the full employer match - they will not have to register. Advice is incidental for the broker-dealer as long as the firm does not:

• Charge clients a separate fee for advice and/or require they sign a separate contract
• Hold themselves out as a financial planner, or offer advice as part of some type of “financial plan”
• Have investment discretion on the account.

There is a reason that if you have a discretionary account, your firm almost assuredly requires you to have a Series 65 or Series 66 license. That way, you are registered as an investment adviser.

Business accounts

When the account is in a business, partnership, or similar structure, the documents aren’t really that different than with individuals. You will need the identification documents of the company, the corporate charter, list of all authorized traders (not all employees can trade the company money), and any other requirements of the account.

One of the potential tricks comes with margin, and the difference between margin in a business account vs margin in a trust account. In a business account you are permitted, unless the documents say you can’t. In a trust you are NOT permitted, unless the documents say you CAN. It is the idea of what is the default, and if documents change it. Business is yes margin by default, trusts are no margin by default.