Glossary
Discretionary Management
Discretionary management is an arrangement in which a client authorizes an investment adviser to make and execute investment decisions in the client's account without approving each trade in advance.
The authority is granted in the advisory agreement and is limited: the adviser can trade within the agreed strategy, but the client owns the account at a third-party custodian, sees every transaction, and can revoke the authority at any time. Non-discretionary arrangements, by contrast, require client consent before each trade.
Why it matters in practice
Discretion lets rebalancing, tax-loss harvesting, and cash investment happen promptly rather than waiting on phone tag — and it removes the client from in-the-moment decisions during volatile markets, which is often where behavioral damage occurs. It also concentrates responsibility: an adviser exercising discretion is acting as a fiduciary, and its Form ADV must disclose the scope of that authority.
Related terms: Registered Investment Adviser (RIA) · Fiduciary · Custodian · Investment Policy Statement · Rebalancing