Does having discretionary authority over an account imply having custody?

Having discretionary authority over an account does not imply having custody. Discretionary authority allows an investment advisor or broker to make investment decisions on behalf of a client without obtaining prior consent for each transaction. This authority pertains to the investment strategy and individual transactions, not the physical handling of the client's assets.

Custody, on the other hand, involves holding the client's funds or securities. For instance, a firm may have the authority to trade an account, but if it does not physically hold the client’s assets, it does not have custody. Regulatory guidelines distinguish between these two roles to ensure proper oversight and management of client assets. Therefore, just because a firm has the power to exercise discretion in trades does not mean it is responsible for safeguarding or controlling the client's property.

This distinction is important in compliance and regulatory contexts, where entities are required to follow different rules based on whether they have discretionary authority or custody.