Discretionary

How often do you want to talk to your financial company?  What questions do you want to answer?  How many decisions do you want to have to make in your portfolio?

Over the past 15 years, I have heard countless clients tell me “I pay you to make those decisions” when I ask them about what they want to buy or sell in their portfolio.  This doesn’t mean the clients don’t care about what they own or how well their portfolio performs.  It simply means they want us to do the job that they hired us to do.

These questions and that statement go to the heart of determining whether a client should be in a discretionary or non-discretionary account.  A discretionary account is one that allows the financial professional to make decisions for the client.  While the advisor must do what’s in the client’s best interests, there is no need for a conversation prior to placing trades.  At Raymond James Financial Services, Majestic Financial had to apply for discretionary authority and document our processes for evaluating investments before we could act in this manner.  The process took over a year and comes with a higher fiduciary responsibility.  After all, it’s simpler to claim the client “told me to sell XYZ stock” than to learn enough about a client’s needs, risk tolerance, and preferences to choose investments that will help them reach financial goals.

Not all financial firms allow discretion at the advisor level – some only allow the home office to use discretion.  Clients at firms that don’t allow discretion are often surprised that Majestic Financial has discretionary authority because they have never experienced anything other than constant phone calls from the advisor.  Some financial advisors don’t want the responsibility of discretionary authority.  In some cases, advisors will shift the responsibility for portfolio decisions to an outside third party which may create a form of discretion.  At Majestic Financial we embrace the responsibilities and duties that come with discretionary accounts.  Brandon, Leon and Sean meet every 4 months to do research on investments and portfolios to help ensure our clients are in alignment with their goals and risk tolerance.  We make changes to investments when they are no longer performing to our expectations or when we believe the market/economy has shifted.  We also add portfolios that align with the changing needs/desires of our clients.  The Faith Based portfolios are an example of expanding our offerings to meet client preferences.

With that being said, not all clients should be in discretionary accounts.  Some clients will have concentrated positions (30% of their portfolio is in one stock, or they love technology and it makes up 50% of their stocks).  If you prefer monthly or quarterly portfolio reviews (not conversations about goals, financial plans, etc) or want to have input on any and all changes to your account, non-discretion is the way to go.  However, a client shouldn’t expect both in the same account.  You can’t tell us “I am paying you to make the decision but consult with me before making any changes.”  This would be non-discretion in a discretionary account and would cause compliance issues.

We are proud of the work we do for clients at Majestic Financial.  We want to make sure that the account type meets your goals, needs, and personality.  If you believe that you are in the wrong account, please contact us and have that conversation.  It’s your money, but you hired us for a reason.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
​Disclosures: *Any opinions are those of Sean Budlong and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
*In a fee-based account, clients pay a quarterly fee, based on the level of assets in the account, for the services of a financial advisor as part of an advisory relationship. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm's Form ADV Part 2 as well as the client agreement.