Discretionary Account

A discretionary account, often referred to as a managed account, is an investment account owned by an individual investor but overseen by a professional money manager.

In a discretionary account, the account holder provides the manager with discretionary authority, allowing the manager to make buy and sell decisions without needing the account holder’s approval for each transaction.

This type of account is frequently utilized by investors who may not have the time or expertise to manage their portfolios effectively. The primary advantages of a discretionary account include:

• Expert Management: The account is overseen by professionals with extensive knowledge and experience in financial markets.
• Time-Saving: The investor is relieved from the need to monitor the markets or make trading decisions, which is beneficial for those with limited time.
• Customized Investment Strategy: The account manager can tailor the investment strategy according to the investor’s risk tolerance, financial goals, and other personal factors.
• Active Management: Discretionary accounts are actively managed, enabling the manager to swiftly respond to market changes without needing to consult the investor for approval.

However, there are also some potential drawbacks:

• Cost: Discretionary accounts typically incur higher fees compared to self-directed accounts due to the professional management services offered.
• Lack of Control: The investor relinquishes control over daily investment decisions, which may not be suitable for everyone.
• Risk of Misalignment: There is a possibility that the manager’s decisions may not always align with the investor’s objectives or risk tolerance.
• Performance: There is no assurance that the manager’s decisions will yield superior returns.

Considering these factors, it is crucial for investors to conduct thorough research and understand the terms, costs, and potential risks before establishing a discretionary account.