As with any profession, wealth management has its own jargon for clients to get a handle on. Understanding these key terms will help to empower investors, wherever they are on their wealth journey.
Discretionary, Advisory and Execution-only are different types of investment services. It’s important you understand the characteristics so you can select the option that is relevant to your needs.
Most wealth managers offer their investment services under three different labels: discretionary, advisory, and execution-only. These terms simply refer to the level of involvement the client is going to have in the management of their investments – how much control they are willing to cede to their investment manager when it comes to decision-making. Execution-only stands at one end of the spectrum, as the most hands-on option for the client, while discretionary stands at the other. In this guide we explain the differences between discretionary, advisory and execution-only investment management styles.
Discretionary investment management services
Discretionary investment management services are a popular option for those who have little experience in investing, or lack the time or inclination to be involved very much. If you opt for a discretionary service you and your wealth manager will start your relationship by working out your investment objectives and risk appetite, and then devising an investment strategy that precisely fits your profile and requirements. How much investment risk you are willing to take on, the level of returns you aim to receive for taking on that risk, and the asset classes and markets you do or don’t want be invested in are questions which will all be addressed.
Your wealth manager will then take charge of all investment decisions and will not require consent for individual transactions (you having signed over permission for this). Discretionary investment management is offered by most wealth managers and is the most common choice for private clients. This option frees you from involvement in day-to-day investment management decisions and makes it a lot easier to get the most out of long-term investments like trusts, ISAs and, increasingly now, pensions.
Your wealth manager will talk you through a wide range of investment strategies, or if you meet a minimum investment threshold, tailor a bespoke portfolio aligned with your unique requirements. Revising your investment strategy regularly as your needs evolve will form a core part of your service.
Advisory investment management services
Advisory investment management services tend to be offered by the larger private banks and investment management firms, along with specialist advisory boutiques. With an advisory investment management service, your wealth manager will advise you on investment strategy but you will make the final decisions (or at least approve ones that they suggest). This is a very labour-intensive style of wealth management, which requires a large amount of investment expertise and gives the wealth management firm a far less stable income stream from your business. For this reason, most investment managers ask for clients to open an account with a minimum of around £1 million to access advisory services.
Execution-only investment management services
Execution-only, as the name indicates, means that the investment firm only carries out the investment decisions of the client: here, you directly instruct your wealth manager to buy and sell assets on your behalf. You may be provided with market insights and news, but you will have to arrive at your investment decisions without the advice of a professional investment manager. Because execution-only is fully determined by the client, it is only really suitable for highly-experienced investors and financial professionals.
Execution-only services are typically offered alongside advisory services by private banks and boutiques (but rarely by investment managers). Clients are unlikely to come to a wealth manager purely to have transactions carried out for them. The real value a wealth manager adds comes from providing robust advice based on deep investment expertise and a thorough understanding of your situation.
There has been a real proliferation of what are variously called self-directed or DIY investment platforms in recent years. They hold out a low-cost investment route for the confident, technologically-savvy investor and some clients like to run such an account for smaller, less crucial pots of money, while entrusting the more important parts of their investment strategy to the professionals. When it comes to serious amounts of assets most people want a professional very much involved. Consistently, over 70% of the affluent individuals who come to findaWEALTHMANAGER.com are looking for a discretionary wealth management relationship.
To get connected to the most suitable wealth manager for your needs, try our smart online tool. It will also help you to think more deeply about where you stand financially. You can also call us today, to discuss your specific needs.