Discretionary Account: Definition & Meaning

KEY TAKEAWAYS

• A discretionary account is an account where you give someone else permission to buy and sell investments for you.
• The account holder can give the money manager suggestions about their investment goals and what they would like to achieve. However, it is up to the money manager to make the day-to-day decisions about which investments to buy and sell.
• Discretionary accounts are often used by people who have a lot of money. These people don’t have the time or knowledge to manage their own investments, so they hire someone else to do it for them.
•  These accounts can be helpful for investors, as they let you work with experts who decide investments based on their expertise.

What Is A Discretionary Account?

Discretionary accounts are investment accounts. Here, the account holder gives discretionary authority to a money manager to buy and sell investments on their behalf.

The account holder may provide guidance to the money manager on their investment goals and objectives. But the day-to-day decision-making on what investments to buy and sell is left up to the discretion of the money manager. 

Discretionary accounts are often used by wealthy people who don’t have time to manage their investments.

How To Set Up Discretionary Account

If you are interested in setting up a discretionary account, you will first need to find a money manager that you are comfortable working with.

You will then need to sign a discretionary account agreement, which will outline the authority that you are giving to the money manager.

It is important to carefully read and understand the agreement before signing it.

Once the account is set up, the money manager will have discretion over the investments in the account. Investment management services are essential for many reasons. They can help make sure you maintain a minimum account balance.

Discretionary account managers have a commitment to users, as they’re seen as an object of user trust. If there’s cause for human intervention, you’ll have professional discretion to assist. For example, you might need guidance on the execution of trades.

Such expert services ensure assets under management of your normative accounts. Also, these services serve to meet the expectations of users. Thus, you have some broker latitude in your trading decisions. 

Even if you have a money manager, you should still check in with them occasionally to make sure that they are making the right decisions for you.

It’s important to understand the differences between discretionary accounts and non-discretionary accounts.

The main difference here is who has authority over the investment decisions.

In a discretionary account, the money manager has discretion over the investment decisions.

In a non-discretionary account, the investor has authority over the investment decisions.

Both types of accounts have their own benefits and drawbacks.

These accounts can be helpful for investors, as they let you work with experts who decide investments based on their expertise.

However, there are also some drawbacks to investing in a discretionary account. For example, investors may have less control over their investments and may be subject to higher fees.

This means that they might not be able to make the same choices about their investments as they would if they had a different type of account.

Non-discretionary accounts can give investors more control over their investments. However, these types of accounts may require the investor to have more knowledge about investing.

Advantages And Disadvantages Of Discretionary Accounts

There are both advantages and disadvantages to investing in a discretionary account. 

Some of the advantages include: 

• Access to professionals who can make investment decisions based on their expertise.
• Less work for the investor because the money manager makes all of the investment decisions. 
• The ability to invest in a wider range of assets than the investor might be able to access on their own. 

Some of the disadvantages include: 

• Investors may have less control over their investments. 
• Investors may be subject to higher fees. 
• The investor may not be able to make the same choices about their investments as they would if they had a different type of account. 

Discretionary accounts can be a helpful tool for investors. However, it is important to understand the advantages and disadvantages before deciding whether or not to invest in one. 

When it comes to investing, there are a lot of different options available. Deciding which option is right for you can be difficult. 

If you wish to invest in a discretionary account, it is important to understand the definition and meaning of a discretionary account.

You should also be aware of the advantages and disadvantages before making a decision. Be sure to check in with the money manager to make sure they are making investment decisions that align with your goals.

Summary

A discretionary account is an investment account in which the investor gives the money manager permission to make trades on their behalf without having to get prior approval for each trade.

Discretionary accounts are often used by institutional investors and high net worth individuals who do not have the time or inclination to manage their own investments.

The money manager will make decisions about what securities to buy and sell based on their investment strategy.

Discretionary accounts can be contrasted with non-discretionary accounts, in which the investor must give prior approval for each trade. 

Discretionary accounts can also be contrasted with managed accounts, in which the money manager does not have complete discretion and must adhere to pre-determined guidelines set by the investor.