Understand how Supervisors should approve and restrict fee-based, margin, managed, and discretionary accounts when compensation, leverage, authority, and fairness controls differ.
Fee-based, margin, managed, and discretionary account approvals appears in the official CIRO Supervisor Exam syllabus as part of Specific supervision responsibilities in relation to account approvals. Questions here usually test whether you can distinguish account types that look similar commercially but create very different supervisory obligations.
The exam often gives a client who wants several features at once: fee-based pricing, margin access, managed services, or discretionary authority. The Supervisor’s job is not to package everything the client asks for. It is to decide which features are appropriate, what additional agreements or approvals are required, and whether the combination creates new risks.
| Account type | Main approval focus | Typical supervisory risk |
|---|---|---|
| Fee-based | Whether the pricing model and services fit the client’s activity level and needs | A fee model that overcharges a low-activity client or obscures the real cost of service |
| Margin | Whether leverage and financing terms are appropriate and disclosed | Clients misunderstanding liquidation rights, funding obligations, or magnified losses |
| Managed | Whether the account agreement, fair-allocation approach, and designated oversight are in place | A managed label being used without real managed-account controls |
| Discretionary | Whether the client has granted proper authority and the firm has the right approval structure | Informal trading authority being treated as if it were discretionary approval |
CIRO guidance on borrowing for investment purposes is explicit that leveraged strategies require suitability supervision and proper risk disclosure. For account approval, the key point is that leverage changes both risk and liquidity pressure. A margin account agreement and leverage disclosure are therefore not side documents. They are part of the decision to approve the account at all.
Candidates often miss how much stronger the control framework must be once the firm or portfolio manager can act without getting separate client instructions each time. Managed and discretionary accounts require:
The stronger answer usually notices that informal client trust, verbal instructions, or routine prior contact do not substitute for the proper discretionary framework.
The stronger answer asks what new control problem each requested account feature creates. If the answer is not clear, the Supervisor should narrow scope or delay approval rather than approve the entire package.
A client requests a fee-based account with margin access and also wants the representative to make trades quickly when opportunities arise. The file does not yet contain the required agreements or clear support for why all three features are appropriate together. What is the best response?
The best response is not to approve all features by default. The Supervisor should assess each feature separately, confirm the necessary documentation and authority structure, and restrict or refuse any element that is not yet properly supported.