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When the market is changing under your feet, does your financial advisor have the authority to act on your behalf for the betterment of your investments?
They may or may not. That’s why you should ask them.
Some financial advisors don’t have the ability to buy and sell your stocks/investments on your behalf without your prior authorization. If you trust your financial advisor, wouldn’t you want them to have this ability?
This ability is what’s called “discretionary investment management.” This is one type of investment management that allows investment managers to buy and sell investments at their own discretion without prior approval from their clients.
Aligning Goals
Both the investor and the financial advisor have an interest in making money. Many financial advisors charge a fee for their services based on a percentage of assets under management. Therefore, it is in the best interest of the investor to seek a financial advisor who both charges a percentage of assets under management and provides discretionary investment management – when a client’s portfolio goes up in value, so does the investment advisor’s paycheck. Discretionary investment management has the potential to increase earnings for both the client and their financial advisor.
This alignment of goals benefits the client as the financial advisor has a real incentive to increase the client’s portfolio value.
Efficient Service
Non-discretionary investment managers unfortunately have their hands tied behind their backs when they see an opportunity for their clients because they must first gain their approval. Sometimes this takes a great deal of time, as clients are not always readily available to authorize their financial advisor’s recommendations.
Discretionary investment managers are able to take action on their recommendations immediately. This gives clients of discretionary investment managers a huge advantage as their financial advisors can take timely action in the midst of changing market conditions. This level of efficiency may make a real difference in a portfolio’s performance over time.
Strategic Portfolios
At my firm, Strategic Income Group, we undertake discretionary investment management on behalf of our clients. The ability to make decisions for our clients without calling them ensures we can provide our clients with the prompt service they deserve.
For example, when emerging markets are dropping like a rock, we can do something about it immediately to ensure our clients aren’t subject to further loss.
We practice discretionary investment management through the use of our Strategic Portfolios. These portfolios are tailored to specific types of clients and their investing goals. When our team feels strongly that a change needs to be made to one, several, or all of our Strategic Portfolios, we’re able to execute trades right away so that the clients who are invested in our Strategic Portfolios are positively impacted.
Fiduciary Responsibility
Financial advisors like those of us at Strategic Income Group have a fiduciary responsibility to do what is in the best interest of their clients. This responsibility is mandated by various credentials and also through government regulation.
However, some financial advisors – although they have a fiduciary responsibility to their clients – aren’t able to immediately do what’s in the best interest of their clients because they are non-discretionary investment managers.
That’s why it’s so critically important to figure out which type of financial advisor you have and ensure that your financial advisor has the power to make trades on your behalf in your best interest without your prior authorization.
Take a few moments to call your financial advisor to learn more. If they can’t make changes without your authorization, you might want to consider giving this ability to your current advisor. Be sure to also ask them if they are acting in fiduciary capacity so that your interest are placed first!