Discretionary Services
Another distinguishing characteristic for advisors is their level of discretionary control over your assets. Think of discretion as who has the authority to make decisions in regard to your assets. The two options are you (non-discretionary) or the advisor (discretionary).
Non-Discretionary Services
A non-discretionary relationship has the following characteristics:
- You select a non-discretionary advisor to help you achieve your financial goals.
- The advisor does all of the planning and/or investment work.
- The advisor makes recommendations for strategy, asset allocation, money managers, buys/sells, and other decisions that have to be made.
- The advisor does not make any decisions on your behalf
- You make all of the planning and investment decisions
Discretionary Services
A discretionary relationship has the following characteristics:
- You select a discretionary advisor to help you achieve your financial goals.
- The advisor does all of the planning and/or investment work.
- A discretionary advisor does not make recommendations. This type of advisor has the authority to make decisions and initiate trades on your behalf.
- The advisor can make decisions without checking with you or obtaining your approval in advance - the true meaning of discretion.
Optimal Level of Service
Your optimum level of service is what you're comfortable with. Plus, you have to really trust advisors who have discretion. Given those considerations, there are certain advantages when your advisor has discretion.
- A major event occurs for one of your holdings and you're on vacation. A discretionary advisor could act on the information. A non-discretionary could not.
- Changes to your portfolio can occur much quicker when the advisor has discretion and doesn't have to check with you first. This can be very important during periods of market volatility.
- A quality professional will make better decisions than most investors.
- A quality professional will not be impacted by emotion the way most investors are.
