Discretionary Investment Management

Discretionary investment management is an arrangement where an investor hires a Portfolio Manager to manage money according to a set of parameters without having to discuss every transaction that takes place on an ongoing basis. I capitalized Portfolio Manager because it is a special type of registration that requires a certain amount of experience and either the completion of the CFA designation (Chartered Financial Analyst) OR completion of Level I of the CFA curriculum PLUS completion of the CIM designation (Canadian Investment Manager). Just because an advisor is a PM, doesn’t mean that all their client accounts are managed on a discretionary basis though.

One of the benefits for the advisor is that if they are running a large book of business, lets say they run $100 million in equities and $100 million in fixed income, then instead of having to call 200 of their clients to tell them about a trade idea they can just make one large transaction and then divide the number of shares amongst their accounts later. Discretionary clients have already established with the advisor the general parameters of how they want their accounts managed, and either don’t have the time to discuss every transaction with their advisor or don’t want to bother pretending they know what their advisor is saying.

Account minimums for discretionary accounts vary, but are in the $250,000+ range normally. Fee charged by the advisors (potentially tax-deductible for non-registered accounts) vary tremendously. Most people don’t know that you can negotiate fees with these types of advisors. Fees are almost always tiered (reduce as assets in the account increase).

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
Related Posts
Showing 2 comments
pingbacks / trackbacks