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Non-Discretionary Account vs. Discretionary Account

When you open up a new account with a brokerage firm, one of the first things you need to know is whether your account is ‘discretionary’ or ‘non-discretionary’.

Many investors simply have no idea as to the status of their account.

One of the main reasons for this is that far too many brokers and brokerage firms fail to explain the important differences between these two types of accounts.

 

Discretionary vs. Non Discretionary Accounts

A discretionary account is an account that gives an investment adviser the authority to make individual trades without the consent of their client. A non-discretionary account is an account where the client always decides whether or not to conduct a trade.

What is a Discretionary Account?

In a discretionary account the broker will have the ability to determine if a certain trade is wise or not at their own ‘discretion’.

However, this type of account certainly does not give a broker the power to make whatever trades they want. Decisions must always be made that are in the best interests of the client and that are consistent with the client’s individual investment objectives.

What is a Non-Discretionary Account?

In the case of a non-discretionary account the broker’s job is to execute the desired transaction at the best available price. Depending on the exact nature of the broker-client relationship, a broker who oversees a non-discretionary account may still recommend trades to the client.

However, they do not have the legal authority to make any securities sales or purchases without first getting approval from the customer.

Which Type of Account Should You Choose?

The choice between a discretionary account and a non-discretionary account is an important decision that you will have to make when you first open an account. Ultimately, which choice is better for you will depend on your unique needs as an investor. Here, we discuss some general advantages of each type of account.

Advantages of Selecting a Discretionary Account

Advantages of Selecting a Non-Discretionary Account

Finally, it should be noted that your decision is never set in stone. You can always change your mind and give (or take away) trading discretion from your broker or brokerage firm.

Contact Our Office Today

If your investment adviser engaged in unauthorized trading, or if they have made unsuitable investments on your behalf, our team can help. From our primary office in Miami, we represent wronged investors throughout the United States, South America and Mexico. To set up a free review of your investment fraud claim, please call our team today at 1-877-969-2412.

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