Discretionary management is an often misunderstood term which is why we find it helpful to point out the distinction between non-discretionary and discretionary.
In a non-discretionary advisor-client relationship, no decision to buy or sell securities in a client's account can be made without consulting the client. Even if it fits the client’s goals and values, the advisor needs to speak directly with the client first before pursuing opportunities. This often leads to inefficiency and bottlenecks in the investment process. A financial professional with a license to provide advice in this manner has the title Investment Advisor. They are an advisor, whereas the client is the decision-maker. Portfolio results are a collaboration between what the advisor suggests and what the decision-maker is willing to agree to. This is a great relationship when the client wants to manage their own portfolio, with advice.
In a discretionary manager-client relationship, a written Investment Policy Statement sets out the rules and strategies used to manage investments and the manager uses their discretion to make decisions within the confines of those goals and values. Reporting allows comparison of portfolio results to the plan, giving the client confidence they are on track. A financial professional with a license to provide management in this manner has the title Portfolio Manager. The client collaborates on forming the goals, risks, strategies, and guidelines around management, but the Portfolio Manager is the decision-maker. This is a great relationship where the client wants to delegate management of their portfolio, under supervision with written guidelines.
Here’s why we take a discretionary approach with our clients: