Discretionary vs. Non-Discretionary

By Thomas Abrahamson, Spring 2014 Student Intern

questionThere are two types of investment accounts: discretionary and non-discretionary.  A discretionary account is one that allows a broker to buy and sell securities without the client’s consent.  However, they still must make decisions in accord with the clients stated investment goals.

A non-discretionary account is one where the client makes all the trading decisions.  With these types of accounts, the broker’s job is simply to receive and execute the clients requested trades, and try and get the best price possible.  The broker may still make recommendations on what to purchase, but they will not make these purchases without first getting the investors consent.

Choosing between discretionary and non-discretionary is an important choice the investor must make in opening an account.  There can be many pros and cons to this decision as outlined here.  This decision is solely up to the investor and must be decided upon before the account can be opened.  However, the investor is not stuck with this decision and may give or take away the discretion of the broker if they so choose.  After the investor and broker have agreed upon the details of the account the investor will sign an account opening statement.  This statement should designate all the agreed upon details of the account.  Among these should include your investment goals, risk tolerance, and the type of account being opened.  For more information on opening an account visit here.