Discretionary vs. Non-Discretionary Investment Management
Understanding Discretionary vs. Non-Discretionary Investments
When it comes to managing your investments, one size doesn’t fit all. Some people prefer to hand over the reins to a professional, while others like to stay in control of every decision. These two approaches—discretionary and non-discretionary investment management—offer distinct ways to manage your portfolio. Understanding the difference can help you decide which is best for your financial goals and comfort level.
What Are Discretionary Investments?
Discretionary investment management is a hands-off approach for you, but a hands-on approach for your advisor. By granting discretion to your advisor, you allow them to make investment decisions on your behalf, without needing to check in with you before every trade or portfolio adjustment.
Why People Choose Discretionary Management:
Time-Saving: Life is busy, and not everyone has the time or energy to track the markets daily. With discretionary management, your advisor handles the details, so you don’t have to.
Quick Action: Markets can move fast. A discretionary manager can act immediately when opportunities arise, or adjustments are needed.
Expertise at Work: You’re trusting a professional to make decisions based on your agreed-upon financial goals, risk tolerance, and timeline.
Example: Let’s say the market experiences sudden volatility, and an opportunity arises to invest in an undervalued asset or market segment. With discretionary management, your advisor can act swiftly, making the trade without waiting for your approval—helping you seize the moment.
What Are Non-Discretionary Investments?
Non-discretionary investment management is for those who prefer to stay in control. In this arrangement, your advisor provides recommendations and insights, but you call the shots. No trades or changes are made without your explicit approval.
Why People Choose Non-Discretionary Management:
Full Control: You have the final say in every investment decision, allowing you to steer your portfolio in the direction you’re comfortable with.
Hands-On Involvement: If you enjoy researching investments and staying up to date on market trends, this approach lets you take an active role in managing your wealth.
Collaborative Advice: Your advisor is still there to guide you with financial planning, offering recommendations and market insights to support your decisions.
Example: Imagine your advisor suggests reallocating a portion of your portfolio to bonds to reduce risk. With non-discretionary management, you’ll review their suggestion, ask questions, and decide whether to move forward.
How to Choose the Right Approach
Choosing between discretionary and non-discretionary management depends on your personal preferences, schedule, and comfort level with decision-making.
Ask Yourself:
1. How involved do I want to be?
If you prefer to leave the day-to-day decisions to an expert, discretionary management might be the better fit.
If you enjoy being hands-on, non-discretionary lets you stay in control while benefiting from your advisor’s guidance.
2. How much time can I dedicate to managing my portfolio?
If your schedule is packed, discretionary management can save you time while keeping your investments aligned with your goals.
If you have time to dedicate to research and decision-making, non-discretionary might suit your lifestyle.
3. How comfortable am I with market fluctuations?
If market ups and downs make you uneasy, a discretionary manager can help you avoid emotional decision-making.
If you’re confident in navigating market movements, non-discretionary may give you the control you’re looking for.
A Balanced Option: Combining Both
For some investors, the best approach is a blend of both. For example, you might choose discretionary management for a portion of your portfolio—such as your retirement accounts—while using non-discretionary management for an investment account where you want more direct involvement.
This hybrid approach allows you to take advantage of professional expertise while staying hands-on where it matters most to you.
Final Thoughts
Whether you choose discretionary or non-discretionary management—or a combination of the two—what matters most is that your investment strategy aligns with your financial goals, risk tolerance, and lifestyle.
At Vector Wealth, we understand that no two investors are the same. That’s why we take the time to get to know you, your priorities, and your preferences. If you’d like to explore which approach is right for you, let’s start a conversation.