Investment discretion pertains to the authority of an individual to determine the purchases or sales made for an account, or to exert influence over such decisions while adhering to specific rules and regulations established by a regulatory body like the Securities and Exchange Commission. This implies that the person possesses the power to make investment choices on behalf of another party or to provide guidance that aligns with legal obligations.
Investment discretion is the authority to make decisions regarding the purchase or sale of assets for an account. This can involve the power to determine transactions, even if another party is responsible for the account, and may also include influencing investment decisions within regulatory guidelines. For example, a financial advisor may have investment discretion over a client’s account, allowing them to make decisions about buying and selling stocks or bonds without obtaining approval for each transaction. Similarly, a mutual fund manager has investment discretion over the fund’s assets, enabling them to make investment decisions on behalf of the fund’s shareholders. It is important to note that individuals with investment discretion, such as corporate insiders with access to non-public financial information, must adhere to strict rules and regulations to prevent insider trading. While investment discretion grants the power to make significant investment decisions, it also comes with the responsibility to act within regulatory boundaries and ethical considerations.
Investment discretion refers to the authority given to a financial advisor or investment manager to make investment decisions on behalf of a client without obtaining prior approval for each transaction.
Investment discretion is typically granted through a written agreement between the client and the advisor or manager. This agreement outlines the scope of the advisor’s authority and the client’s investment objectives.
Yes, investment discretion can be revoked by the client at any time. The client can choose to terminate the agreement or modify the level of discretion granted to the advisor.
Investment discretion allows for quicker decision-making and execution of investment strategies, which can be beneficial in rapidly changing market conditions. It also relieves the client of the burden of making every investment decision.
Yes, there are risks associated with investment discretion. The advisor’s decisions may not align with the client’s objectives or risk tolerance, leading to potential losses. It is important for clients to carefully select advisors and regularly review their investment performance.
Yes, investment discretion can be limited to certain types of investments or asset classes. The client and advisor can agree on specific investment guidelines or restrictions to ensure the advisor’s decisions align with the client’s preferences.
If the advisor exceeds the granted investment discretion, it may be considered a breach of the agreement. The client may have the right to take legal action or seek compensation for any losses incurred as a result.
Yes, investment discretion can be given to multiple advisors. In such cases, it is important for the client to clearly define each advisor’s responsibilities and ensure they are not duplicating efforts or conflicting with each other.
There may be legal requirements depending on the jurisdiction and the type of investment involved. It is advisable to consult with a legal professional or financial advisor to ensure compliance with applicable laws and regulations.
Clients can monitor the actions of an advisor with investment discretion by regularly reviewing investment reports, performance statements, and transaction records. It is also important to maintain open communication with the advisor and raise any concerns or questions promptly.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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