What Is Discretionary Asset Management?

Discretionary asset management is a professional service where financial experts manage investment portfolios on behalf of clients. This approach allows individuals to delegate the day-to-day decisions concerning their investments to experienced professionals. The service is designed to align investment activities with a client’s specific financial objectives without requiring constant direct involvement.

Defining Discretionary Asset Management

Discretionary asset management grants a financial advisor or firm the authority to make investment decisions, such as buying, selling, and rebalancing assets, without needing prior client approval for each transaction. This authority is typically established through a signed client agreement, a comprehensive management agreement, or a power of attorney. In contrast, non-discretionary management requires the client to approve every trade before it is executed. While the discretionary manager has autonomy over specific trades, their actions are bound by pre-agreed parameters and objectives established in collaboration with the client. This ensures all investment activity remains consistent with the client’s overall financial goals and risk tolerance.

The Discretionary Management Process

The process begins with a thorough client profiling and discovery phase. During this initial stage, the manager gathers detailed information about the client’s financial goals, their tolerance for investment risk, the intended time horizon for their investments, and any specific financial needs or preferences. This comprehensive understanding forms the basis for developing a tailored investment strategy. Following profiling, a formal document known as the Investment Policy Statement (IPS) is created. The IPS outlines the agreed-upon investment strategy, including target asset allocation, performance benchmarks, and any specific constraints or preferences, such as ethical investing guidelines. With the IPS in place, the manager implements the strategy by selecting securities, executing trades, and rebalancing the portfolio as necessary. Regular performance reporting, client statements, and periodic review meetings are provided to keep the client informed and to reassess objectives if circumstances change.

Ideal Clients for Discretionary Management

Discretionary asset management is particularly well-suited for individuals or entities who prefer to delegate the active oversight of their investment portfolios. This includes clients who may lack the time, specific expertise, or personal interest required to manage their own investments, such as busy professionals, retirees, or those with demanding schedules. The service also caters to individuals or families who seek the peace of mind that comes from professional oversight and continuous management of their financial assets. High-net-worth individuals, families with complex financial needs, or institutional clients like endowments and foundations often find discretionary management to be a practical solution for managing significant assets efficiently. While minimum investment requirements can vary, they often start at amounts such as $250,000.