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Discretionary accounts allow a broker or authorized person to manage an investor’s assets without needing to settle transactions beforehand. The investor can revoke privileges at any time and still has access to reports and updates on their portfolio. It is ideal for busy investors who trust their broker.
Discretionary accounts are investment accounts that are structured to allow the broker or other authorized person to manage the investor’s assets without the need to settle transactions with the investor beforehand. This approach is typically used when the investor has great confidence in a brokerage house or individual and is comfortable enough to turn over all trading decisions to the broker or someone else. While the authority to make trading decisions on behalf of an investor is present in any discretionary account, the investor remains the owner of the account and has the ability to revoke privileges at any time.
Sometimes referred to as a controlled account or a managed account, the real advantage of a discretionary account is that it allows the investor to participate in the investment process as they wish. People who are extremely busy with professional or family concerns often find that creating a discretionary account is the ideal way to grow an investment portfolio. Because someone they trust is managing the investments, the investor doesn’t need to spend time researching possible purchases, projecting future returns, or wondering if a certain security will go on sale in the near future.
The investor who chooses to have their portfolio managed by a third party always has the ability to see the current status of the holdings, their current return levels, and the amount of return that has been generated in a recent period. It is not unusual for the discretionary account manager to provide the investor with periodic reports or arrange for the investor to peruse recent activity through a secure channel over the Internet.
At any time, the investor has the ability to revoke the privileges of the person or entity managing the discretionary account. This type of action can be taken when the investor begins to suspect that the manager is not making decisions that are in the best interest of the investor. At other times, the investor may simply wish to be more actively involved in the investment process. When this is the case, the discretionary account manager and the investor can develop a plan to gradually hand over various management functions to the investor, thus ensuring a degree of continuity during the migration of responsibilities.
Smart Asset.
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