Power of attorney

A power of attorney (POA) is a written legal authorization in which one person — the principal — grants another person, the agent or attorney-in-fact, the authority to act on their behalf. In the securities industry, a POA is the document that lets someone other than the account owner make decisions in a brokerage account.

POAs come in different scopes. A limited (special) power of attorney restricts the agent to specific actions — for a brokerage account, typically the authority to buy and sell securities but not to withdraw assets. A full power of attorney goes further, allowing the agent to deposit and withdraw funds and securities as well as trade. When a customer grants trading authority to their registered representative, the account becomes a discretionary account and requires written authorization plus principal approval before discretion is exercised.

Durability is the other key distinction. A standard POA automatically terminates if the principal becomes mentally incapacitated — precisely when it might be most needed. A durable power of attorney survives the principal's incapacitation, which makes it common in estate and elder-care planning. Every POA, durable or not, ends at the principal's death; after that, only the executor of the estate can direct the account.

The SIE, Series 7, and Series 66 exams all test third-party authorizations on brokerage accounts. Know the difference between full and limited POAs, what makes a POA durable, and that death of the principal revokes the authorization.