What is a Discretionary Brokerage Service

When you open a brokerage account, there will be an agreement between you and the manager of that account (a broker or a financial adviser) with regard to who makes the day-to-day investment decisions on buying and selling securities. When you hand over authority to the broker or the financial investor to take investment decisions on your behalf, it is known as a discretionary account. In such instances, the services rendered by your broker become a discretionary brokerage service.

What is the role played by the broker or the financial adviser in relation to a discretionary account?

When you authorize discretionary powers to your broker or the financial adviser, they will be able to make investment decisions such as which securities to buy or sell without consulting with you prior to performing the said transaction. However, the buying and selling that took place within a particular period will be notified to you through a statement or through the investment portfolio issued periodically.

What control do you have over discretionary brokerage services?

The only instance where you get involved in making decisions is at the time of creating the investment account, as it will be you that will define the financial goals that need to be achieved through your investment account. In doing so, you will define your financial status, the level of risk that you intend to take, your preferences in deciding on which securities to invest in, your experience with regard to making investment decisions and the amount of money that you wish to invest through the brokerage account. In most instances, the investment broker or the financial adviser will seek out this information from you using a questionnaire. Following obtaining such information, the broker or the financial adviser will produce an investment policy for your account and this document will function as the guideline for him or her to make investment decisions on behalf of you.

Who should open discretionary accounts?

Discretionary accounts are suitable for you if you are an investor who does not want to engage actively in the day-to-day investment operations. At the same time, it is also suitable in instances where you want a professional manager to design an investment portfolio to meet your financial objectives. In addition, it may be a wise idea to open a discretionary account when you lack experience in making investment decisions.

What are the risks of opening a discretionary account?

Unless you do the background checks with regard to the expertise of your chosen broker or the financial adviser, handing him or her control of your finances may be a risky decision. At the same time, not being clear and truthful about your intended financial goals and the level of risk that you intend to take may also put your finances in jeopardy placed in the hands of an uninformed manager. In addition, not being in control of your investment decisions would mean that there is a chance that the manager may make investments that you may see as unethical due to different reasons.

What is the payment involved in having a discretionary account?

In most instances, you pay a percentage fee for a particular period depending on the amount of assets that are under the management of the discretionary brokerage service or the accounts manager. In general, as the assets grow, the percentage paid for the services should decrease.