Discretionary portfolios: Founded on trust, sustained by expertise

A discretionary portfolio is a form of securities investment where the vast majority of the strategic investment decisions are made by an asset manager on behalf of a client.  Commonly tailored for institutional businesses like trusts, pension funds, high-net worth individuals or family offices, Discretionary Investment Management is built around TRUST.  First and foremost, the client has a vested interest in becoming comfortable with a potential portfolio manager after conducting sufficient due diligence such that they will have full confidence in the investment manager’s capabilities before entrusting them with their hard-earned wealth. Next, the chosen portfolio manager uses all tools available to them to invest in accordance with an agreed upon investment mandate derived from the client’s goals and objectives within the context of market trends, forecasts and expectations.

Hassle-free wealth building

One of the main benefits to discretionary investment management is that it frees up clients’ time from the burden of making day-to-day investment decisions so that they can focus on other ‘big picture’ items like succession planning and/or philanthropy, etc. Given the sometimes demanding nature of the financial industry, delegating the investing process to an experienced and highly proficient manager shifts the investment responsibility to the investment managers. They have been able to acclimatize themselves to the whims and unpredictability of the market, allowing them to deal with crucial situations effectively and efficiently, essentially removing the emotions out of the investment decision that traditionally prevents others from success.  The client remains involved in the process through regular review and monitoring so that any updates in circumstance and/or long term goals can be accommodated within the investment strategy.

No time or opportunity wasted

Because discretionary managers have direct control over the client’s investment process through the agreed to investment mandate, they can act on available information as quickly and efficiently as necessary. This means that the manager is better positioned to seize opportunities to buy or sell as the markets dictate. Non-discretionary accounts by contrast, require a client to ‘approve’ any trading so when a particular stock, sector or entire market moves significantly, the non-discretionary manager would have to seek approval on EACH trade prior to execution. This often results in missed purchase opportunities prior to stocks/markets moving higher or limiting preventable loss prior to stocks/markets moving lower.

Streamlined financial objectives

Discretionary investment management is generally more cost-effective and more ‘personal’ as the account reflects the joint objectives of both the client and the manager.  Professional fees are usually based on assets under management (AUM), which aligns the interests of both the portfolio manager and client to focus their efforts on growing the portfolio over time in the best way possible.

Access to a diverse range of economic opportunities

Having established a comprehensive resource network, managers of discretionary portfolios have access to a wide spectrum of securities, such as global stocks, bonds, exchange-traded funds, currencies, and financial derivatives, which clients get to enjoy through their account.

Working with your financial advisor

Of course, the portfolio manager in a discretionary portfolio does not have the absolute freedom to decide on ALL things. It is important to work with your financial advisor to come up with investment goals and objectives, the right asset mix and any other investment criteria which will help make up the investment mandate. This investment mandate will eventually be the framework that the discretionary portfolio manager will work from and is undoubtedly correlated to the success of the portfolio.

Click here to learn more about setting up your own discretionary portfolio account.

 

The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.