Why is “discretionary authority” an important thing to be aware of when dealing with stock brokers?

Discretion in the securities industry, a broker who exercises discretion to make trades on behalf of a customer when not authorized by the customer could run afoul of securities regulators. “Discretion” in this context refers to discretionary trading, which is when a broker makes trades in a customer’s account without first consulting the customer. That generally means the broker can decide at any time how much of a stock, bond or other security to buy or sell, and at what price, without customer input. It’s a good idea to always research a broker even before investing any money  and it’s especially important to check a broker’s credentials before granting discretionary trading authority. If you see any evidence of unauthorized trading or errors, immediately notify your broker or his or her supervisor or compliance department. Make sure you take notes on any conversations with your brokerage firm concerning such disputes, send any complaints in writing and keep copies of all communications related to such disputes, including your own notes.

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