Pros and cons: Understanding discretionary investment accounts


In definition, a discretionary investment account is a form of investment management in which clients let experienced Asset Managers independently buy and sell securities without their consent. This is only possible when clients sign and agree on the terms of a discretionary disclosure, a kind of contract that will support the broker’s rights to control and manage the client’s assets without consulting them on every transaction. They would, however, make every decision based on their client’s specific wealth objectives and risk tolerance level.

This set up is ideal for busy executives who don’t have enough time to manage their portfolio or even for newbie investors whose knowledge in buying and selling is limited. While a discretionary account can be beneficial to these types of clients, it also has its downsides. Let’s take a look at them here:

Pros
  • Signing up for a discretionary account assures convenience and hassle-free investment management. Having a professional asset management team allocate investments per an agreed upon mandate or investment parameters.
  • Investment managers are disciplined professionals.
  • As a less experienced investor or a busy executive, you can always rely on a portfolio manager for up-to-date and daily investment decisions – something that can’t be done if you’re in a non-discretionary account where you have to make the crucial and final decision.
  • Discipline and efficiency are two of the best advantages of having a discretionary account where portfolio managers are always available to seize buying and selling opportunities based on strict analysis.
  • Knowing your investments are professionally managed will allow you to enjoy the fine things in life.

Cons
  • For some investors who prefer hands-on involvement in managing their portfolio and are more comfortable with making the final decisions, this set up can be restrictive.
  • Discretionary accounts require investors to have minimum investable assets that can sometimes be in millions of dollars. Hence, only those with sizable wealth can afford to apply for such account.

To know more about discretionary portfolios, talk to an LOM Financial advisor now by visiting this website. The company's asset managers and research analysts use advanced analytical tools to conduct capital market research while employing a rigorous and inductive process that includes a healthy exchange of ideas across the organization. The end result is a carefully constructed portfolio tailored to the client’s specific investment and estate needs.

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