how discretionary investment management works
discretionary investment managers demonstrate their strategies using a systematic approach that makes it easier to report results and for investment strategies to be exercised in a specific way investments are not customized or tailored to a client rather investments are made according to clients strategies in other words clients are grouped according to their highlighted goals and risk tolerance each group will then have the same investment portfolio created from the pool of money deposited by the clients the actual client account is segregated and the funds invested are weighted to the individuals capital investments for example consider a portfolio with an initial capital of 10 million a high net worth individual that contributed 1 million will be said to have a 10 investment in the portfolio while another that contributed 300 000 will have a 3 investment in the portfolio benefits of discretionary managementdiscretionary investment management offers several benefits to clients it frees clients from the burden of making day to day investment decisions which can arguably be better made by a qualified portfolio manager who is attuned to the vagaries of the market delegating the investing process to a competent manager leaves the client free to focus on other things that matter discretionary investment management also aligns the investment manager s interest with that of the client since managers typically charge a percentage of the assets under administration as their management fee thus if the portfolio grows under the investment manager s stewardship the manager is compensated by receiving a higher dollar amount as the management fee this reduces the adviser s temptation to churn the account to generate more commissions which is a major flaw of the transaction based investment model discretionary investment management may also ensure that the client has access to better investment opportunities through the portfolio manager the client may also receive better prices for executed trades as the portfolio manager can put through a single buy or sell order for multiple clients for clients in discretionary accounts portfolio managers can act on available information quickly and efficiently selling the position out of all their accounts in a single cost effective transaction likewise the portfolio manager is better positioned to seize buying opportunities when the markets dip and a good quality stock temporarily drops in value risks of discretionary managementon the downside the minimum account balance and high fees can be a big hindrance to many investors especially those just starting out a new investor with a small amount to invest would not be able to benefit from this style of investment from the client s point of view there must be confidence in the portfolio manager s competence integrity and trustworthiness it is therefore incumbent upon clients to conduct adequate due diligence on potential portfolio managers before entrusting them with their life savings there is a risk of entrusting money to a portfolio manager who is either unscrupulous or pays little heed to a client s stated goals 