You don’t need to go far back in stockbroking history to see how much has changed. The stock market of the late 1980s – with paper share certificates, cheques, two-week settlement periods, high dealing costs, and opaque pricing – looks very different from today’s fast-moving, tech-driven markets.
Costs are under pressure, clients expect more from their advisers, and professional investment managers must justify their recommendations and demonstrate value more clearly than ever.
One key decision for advisers and clients is whether to use advisory portfolio management or discretionary investment management. Below we look at the differences between them and how Parmenion can help with both.
Advisory vs Discretionary - what's the difference?
In summary:
- An advisory service involves the financial adviser building an investment portfolio and recommending it to their client. For an advisory service, when the adviser needs to buy, sell, or switch a fund, or rebalance, the client must give their approval before the changes are made.
- A discretionary service means the adviser appoints a discretionary fund manager (DFM) to manage the recommended investment portfolio. A DFM is different because they have the discretion to make changes to a portfolio without needing the client’s authority first.
A deep dive into the key differences:
| Advisory | Discretionary | |
|---|---|---|
| Who builds the portfolio? | Financial adviser | DFM (or adviser if they have discretionary permissions) |
| Client permission needed for changes to portfolio? (e.g. fund switches, buys, sells and rebalances) | Yes | No |
| Decision-making | Adviser/Client | Adviser/Manager |
| Client time commitment/engagement | Higher – client needs to be on hand to respond to every proposal | Lower – client doesn’t have to keep up with markets or be on hand to reply to emails |
| Client control | Higher – client is involved in the approval of all portfolio recommendations. They have the final say, whether that’s a buy or sell | Lower – client approves the initial investment with their adviser and DFM, but after than all decisions are made by the DFM |
| Speed of execution | Slower* – decisions need client input, so execution of key decisions can slow down if they’re unavailable or have questions | Immediate – with the DFM acting autonomously, they keep the portfolio aligned with long-term goals without delays |
| Adviser admin | Higher* – advisers need to keep track of client consent and potentially manage multiple versions of models (e.g. if some clients delay consent or don’t consent entirely) | Lower – DFM manages all trades and rebalances without the need for ongoing client consent, so investment admin for adviser much lower |
| Consistency of outcomes | Can be lower* – if clients delay consent, or don’t consent entirely, they can be left in an outdated model. This can lead to fragmented outcomes across clients | Higher – with the DFM acting autonomously, they keep the portfolio aligned with long-term goals without delays |
| Tax planning | More flexible – with advisory you can exclude or delay clients from portfolio decisions for tax planning reasons | Less flexible – DFMs don’t consider individual tax positions as part of their investment decisions, and you often can’t exclude clients from rebalances |
| Costs | Generally lower | Typically higher due to professional management |
| Flexibility | High – fully customised, tailored approach | High (within mandate) – manager works efficiently within agreed guidelines |
*These are the typical drawbacks of advisory portfolio management that Advisory Models PRO solves with hassle free digital consent (and reminder nudges), automatic trading and full audit trails.
Deciding whether to choose an advisory or discretionary solution doesn’t have to be binary - or set in stone. Clients sometimes go the advisory route initially and then move to discretionary management as the relationship develops or their circumstances change. Some like to use a combination of advisory for one pot of money and discretionary for another.
Which clients suit each approach?
Advisory is ideal for clients who enjoy engaging with their investments, while discretionary suits those who prefer a professional manager to act on their behalf.
Ultimately, the choice between offering advisory or discretionary management should align to your firm’s goals and beliefs, and the types of clients you have. Understanding your client’s comfort with risk, the complexity of their goals, and how much time they can dedicate to investment decisions will ensure the chosen approach complements their lifestyle and their long-term wealth strategy.
Advisory may suit clients who:
- Enjoy being involved in decisionsÂ
- Have specific preferences
- Hold smaller or straightforward portfolios
- Value transparency and control
This approach comes with a greater risk that clients will succumb to market noise, fear or greed and override the investment manager’s recommendations, which can damage their long-term investment outcomes.
Discretionary may suit clients who:
- Prefer convenience and time savings
- Have complex financial needs or multiple assets
- Are comfortable delegating decisions to a trusted professional
- Appreciate rapid execution and proactive management
Delegating decision-making means clients might not see every change immediately, but it also removes the need to monitor markets constantly and reduces decision fatigue.
How Parmenion supports both investment management styles
What’s important is that you choose a platform provider that offers the services and resources to meet your and your clients’ needs as seamlessly and professionally as possible.
That’s why we offer flexible solutions, allowing you to choose the level of involvement that works best for you and your clients. Whether you want a fully managed service, a collaborative approach, or the tools to do it yourself, we’re here to support you every step of the way.
Parmenion supports both advisory and discretionary approaches with:
- A wide range of managed portfolios and in-house investment strategies to cater for individual client needs provided by our investment team
- Advisory Models Pro to run your own model portfolios
- Partnership portfolio services which flex to the way you work because we don't believe one-size-fits-all
- Third-party DFMs so you can maintain existing client relationships
- Market-leading technology and platform tools to streamline portfolio management
The bottom line is this: advisers must consider a client’s risk appetite, financial literacy, lifestyle, and long-term goals before recommending an investment approach. Once that’s done, Parmenion can provide the tools, risk-profiling, and model portfolios to support both advisory and discretionary management, helping advisers deliver efficient and tailored outcomes.
Get in touch to book a demo today to see how Parmenion can enhance your investment proposition.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity.
Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns. Â
