Discretionary portfolio management is a type of investment management in which a professional investment manager makes investment decisions on behalf of their clients.
There are several potential advantages to this approach:
- Expertise: Discretionary portfolio managers are typically highly trained and experienced in the field of investing. This may include earning a degree in finance or economics, obtaining professional designations such as the Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) certification, and gaining practical experience through internships or entry-level positions in the financial industry.
- Time-saving: Discretionary portfolio management can be a good option for investors who do not have the time or expertise to manage their own investments. For example, an investor who is busy with work or family commitments may not have the time to constantly monitor their portfolio, research potential investments, and make trades. By outsourcing these tasks to a professional, investors can save time and focus on other aspects of their lives.
- Diversification: Discretionary portfolio managers may be able to build a diversified portfolio that includes a range of different asset classes and investment strategies. This can include stocks, bonds, real estate, commodities, and other asset classes. By diversifying across different asset classes and investment strategies, portfolio managers can potentially reduce risk and improve the overall risk-return profile of an investment portfolio.
- Professionalism: Discretionary portfolio managers are held to a high standard of care and are required to act in the best interests of their clients. This includes following the principles of fiduciary duty, which requires them to place the interests of their clients ahead of their own and to make decisions that are in the best interests of their clients.
- Customization: Discretionary portfolio managers can work with clients to create a customized investment plan that is tailored to their specific financial goals, risk tolerance, and other personal factors. For example, an investor who has a high risk tolerance and a long investment horizon may be comfortable with a portfolio that is heavily weighted towards stocks, while an investor who is nearing retirement and has a lower risk tolerance may prefer a portfolio that is more heavily weighted towards bonds and other income-generating assets.
Overall, discretionary portfolio management can be a good option for investors who want to benefit from the expertise and experience of a professional investment manager, but still maintain control over their investments.