A discretionary account is an investment account that allows a designated financial professional, typically known as a portfolio manager or investment advisor, to make trading decisions on behalf of the account holder without obtaining their prior approval for each transaction. In a discretionary account, the account holder delegates the authority to the portfolio manager to manage and execute investment strategies based on the agreed-upon objectives and guidelines.

Key features and considerations regarding discretionary accounts include:

1. **Investment Authority:**
– In a discretionary account, the portfolio manager has the authority to make investment decisions on behalf of the client. This includes buying and selling securities, managing asset allocation, and implementing trading strategies without requiring explicit approval for each trade.

2. **Client Objectives and Guidelines:**
– The portfolio manager operates within the framework of the client’s stated investment objectives and guidelines. These objectives may include considerations such as risk tolerance, investment time horizon, and financial goals.

3. **Communication and Reporting:**
– While the account holder delegates trading authority, the portfolio manager is often required to communicate regularly with the client. This communication may include updates on the portfolio’s performance, changes in strategy, and any significant transactions made.

4. **Risk Management:**
– Effective risk management is crucial in discretionary accounts. Portfolio managers are expected to make decisions that align with the client’s risk tolerance and overall financial objectives. Risk management strategies may involve diversification, asset allocation, and other techniques.

5. **Legal Agreements:**
– Establishing a discretionary account involves legal agreements between the client and the financial institution or investment advisor. These agreements outline the scope of the manager’s authority, the investment objectives, and any fees or compensation structures.

6. **Regulatory Compliance:**
– Financial professionals managing discretionary accounts are subject to regulatory oversight to ensure compliance with securities laws and industry regulations. This oversight helps protect investors and maintain the integrity of the financial markets.

7. **Fees and Compensation:**
– Portfolio managers in discretionary accounts are typically compensated based on a fee structure, which may include a percentage of assets under management (AUM) or performance-based fees. These fees are disclosed in the agreements and are an important consideration for investors.

8. **Monitoring and Review:**
– While the client delegates decision-making authority, they retain the right to monitor and review the performance of the discretionary account. Regular reporting and communication help maintain transparency and build trust between the client and the portfolio manager.

Discretionary accounts provide a level of convenience for investors who prefer to delegate day-to-day investment decisions to professionals with expertise in managing portfolios. However, investors should carefully consider the reputation, qualifications, and track record of the portfolio manager and thoroughly review the terms and conditions before establishing a discretionary account.