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Discretionary Management

Discretionary management in the context of finance/Financial Advisory/Wealth Management refers to the practice where a client authorizes an investment advisor to make trades and investment decisions on their behalf without requiring the client's approval for each individual transaction. The advisor has the authority to act on behalf of the client based on the agreed investment strategy and objectives.

Example #1

An investor engages a financial advisor for discretionary management. The advisor, following the agreed-upon investment plan, buys and sells assets within the client's portfolio without needing to seek approval for each transaction.

Example #2

A wealth management firm is granted discretionary authority by a client to rebalance their investment portfolio as needed to maintain the desired asset allocation.

Misuse

Misuse of discretionary management can occur when an advisor trades excessively within a client's account to generate more fees for themselves, without considering the client's best interests. This practice can lead to increased costs, tax implications, and risks for the client, eroding their wealth.

Benefits

The benefit of discretionary management is that it can provide timely responses to market changes and opportunities without needing constant approval from the client. This can enable quicker decision-making and implementation of investment strategies.

Conclusion

Consumers need to be aware of the potential misuse of discretionary management and ensure that advisors act in their best interests. Regularly reviewing account activity and performance can help detect any signs of misuse. On the other hand, the benefits of discretionary management lie in the efficient management of investments, especially in dynamic markets.

Last Modified: 4/29/2024