An investment adviser may legally have custody of client funds or securities if the Administrator has not prohibited custody arrangements and the adviser has notified the Administrator in writing that it has custody.

Discretionary authority and custody are separate concepts. An adviser can have discretion without custody, and custody does not depend on avoiding discretion. Also, advisers with custody are generally subject to bonding or minimum financial requirements, so the absence of bonding is not what allows custody.

An agent does not need written discretionary authority to decide only the time or price at which to enter an order. These are considered limited execution details.

Written discretionary authority is required when the agent chooses the security, the action of buying or selling, or the amount of securities to buy or sell. In this question, the customer already selected the security and amount, so the agent may choose the timing or price of execution without written discretionary authority.

A discretionary account may hold registered nonexempt securities, as long as the account is handled properly and the transaction is suitable for the client. Discretionary trades are generally treated as solicited transactions, so if the security is nonexempt, it should be properly registered.

The other choices describe prohibited practices. All transactions, including exempt transactions, must be recorded on the broker-dealers books and records. Sharing in a customers profits requires proper consent from both the customer and the employing broker-dealer. Placing a conservative client exclusively in speculative securities would be unsuitable, even if the client gave trading authorization.

An investment adviser that maintains custody of client funds or securities must provide written notice to custodial clients at least quarterly. The notice must include the location of the assets and the value of the assets under custody.

If the location of the assets changes, the adviser must notify the client promptly. The quarterly custody notice is not primarily about prepaid fee refunds, the advisers financial condition, or securities recommended to other clients.

A discretionary account must be approved by a designated supervisory person at the broker-dealer. Once approved, the account must also be reviewed frequently to make sure the trading remains suitable and to reduce the risk of churning, which is excessive trading designed to generate commissions.

The written discretionary authorization must be received before discretionary trading begins. It is not enough for the customer to say the authorization is in the mail. The state Administrator does not approve individual discretionary accounts.

The Administrator has authority under the Uniform Securities Act to make certain rules for state-registered investment advisers. One of those rules may require an investment adviser to notify the Administrator if the adviser plans to maintain custody of client funds or securities.

The Administrator cannot require customers or agents to waive protections under the Uniform Securities Act. The Administrator also cannot suspend federal law. In addition, federal covered advisers are generally regulated at the federal level, and states have limited authority over them except in areas such as antifraud enforcement.

An agent may decide the time or price for entering an order without written discretionary authority. These are considered execution details, not full discretion.

Written discretionary authority is required when the agent chooses the security, the action of buying or selling, or the amount of securities to buy or sell. Here, the customer already selected the security, the action, and the number of shares, so the agent may choose only the timing or price of the order.

An agent of a broker-dealer may decide the time or price of an order without written discretionary authority. Time and price decisions are not treated as full discretion because the client has already decided the important parts of the order, such as the security, whether to buy or sell, and the amount.

The other actions are unethical. An agent cannot sell more shares than the client authorized. An agent of a broker-dealer cannot rely on oral discretion to choose securities for a client. An agent also cannot sell at a price below what the client authorized.

When an investment adviser has custody of client funds or securities, the client assets must be segregated from the advisers own assets. The adviser must also send an itemized account statement to each custodial client at least every three months.

The Administrator does not have to give written approval before the adviser may have custody. However, if custody is not prohibited, the adviser must generally notify the Administrator. Discretionary authority is also different from custody. An adviser can have discretion over an account without physically holding or controlling the clients funds or securities.

An investment adviser with custody of client funds or securities must keep client assets separate from the advisers own assets. Depositing client funds into the advisers own bank account is improper, even if the adviser keeps careful records.

The adviser must also provide clients with account statements at least quarterly, not merely once per year. Having an independent CPA perform an unannounced examination of client assets is not a violation. That is part of the custody safeguards designed to protect client property.