Trading, Accounts & Prohibited ActsQuestion 276 of 398
Why must discretionary accounts be reviewed frequently by a principal?
a.To increase the number of trades and commissions
b.To detect excessive trading (churning) and unsuitable activity
c.To guarantee the customer never loses money
d.To avoid having to keep any records
Explanation
Frequent principal review of discretionary accounts helps detect and prevent churning and other abuses, since the representative controls trading. Supervision is a core investor-protection safeguard for accounts where the firm exercises discretion.
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