Glossary term
Non-Discretionary Portfolio Management
Non-discretionary portfolio management is an arrangement where an adviser may recommend trades or changes, but the client must approve decisions before implementation.
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What Is Non-Discretionary Portfolio Management?
Non-discretionary portfolio management is an arrangement where an adviser may recommend trades, allocation changes, or portfolio actions, but the client must approve decisions before they are implemented. The adviser gives advice; the client keeps decision authority.
This differs from discretionary management, where the client gives the adviser authority to make investment decisions within agreed guidelines without seeking approval for each trade.
Key Takeaways
- Non-discretionary management requires client approval before portfolio actions are implemented.
- The adviser may provide research, recommendations, monitoring, and planning support.
- The client remains responsible for approving or rejecting recommendations.
- The arrangement can give clients more control but may slow execution.
- The exact authority should be clear in the advisory agreement and disclosures.
How It Works
In a non-discretionary relationship, the adviser may review the portfolio and recommend a rebalance, fund change, tax-loss harvest, sale, or new investment. The recommendation is not executed until the client approves it.
This can work well for clients who want professional input but prefer to make final decisions. It can also create practical friction. If markets move quickly and the client is unavailable, the adviser may not be able to act.
The arrangement can also affect accountability. The adviser is responsible for the advice and disclosures provided, but the client is still choosing whether to proceed with each recommendation. That makes documentation and communication especially important.
Discretionary vs. Non-Discretionary
Arrangement | Who Approves Trades? | Typical Tradeoff |
|---|---|---|
Discretionary | Adviser acts within agreed authority. | Faster execution, less direct client approval. |
Non-discretionary | Client approves before implementation. | More control, slower execution. |
Limited discretion | Adviser has authority only for specific actions. | Depends heavily on agreement language. |
What Clients Should Review
The advisory agreement should explain what the adviser can and cannot do. Clients should understand whether the adviser can place trades, rebalance, select funds, choose timing, deduct fees, or only provide recommendations.
Clients should also ask how recommendations are delivered, how approval is documented, and what happens if the adviser cannot reach them. The operational details matter as much as the label. A client who wants hands-off management may be better served by a discretionary mandate, while a client who wants to approve each move may prefer non-discretionary advice.
The Bottom Line
Non-discretionary portfolio management keeps final investment authority with the client. It can be a good fit for investors who want advice and control, but it requires clear communication and timely decisions.