Discretionary investment management means a regulated firm buys and sells inside your portfolio without asking you first. The authority is written, and it is bounded by a mandate agreed before any money moves: an objective, a risk level, a base currency, and a list of what the manager may and may not hold. You learn what was done afterwards, through periodic reporting. That single transfer of decision-making is what separates the service from every other way of holding investments through a firm.
The label varies. Managed portfolio service, model portfolio service, bespoke discretionary — the marketing word matters far less than the regulatory permission behind it, which is managing investments. That permission is public, and verifying it takes about two minutes; the method is on our page about reading an entry on the FCA Register.
How a discretionary mandate moves the decision away from you
Under an advisory relationship nothing happens until you say yes. The firm researches, recommends, explains, then waits. Each recommendation carries its own suitability assessment and, for a retail client, its own suitability report. Go unreachable for three weeks and the portfolio sits exactly where you left it.
Discretionary management breaks that loop on purpose. Suitability is established once, against you and the mandate, and the manager then acts within it. Rebalancing on a Tuesday afternoon needs no signature from you. Neither does selling a holding whose investment case has collapsed. The regulatory duty does not vanish, it relocates: instead of testing each recommendation against your circumstances, the firm has to keep the entire portfolio suitable on a continuing basis. That is a heavier obligation, and a far less visible one.
Which is why the mandate document repays slow reading. It is the only place your constraints become enforceable. After signing, a limit you assumed was obvious — no single holding above five per cent, nothing unlisted, no tobacco — exists only if somebody wrote it down.
Discretionary, advisory and execution-only compared
Three service models sit side by side in the retail market and the sales language blurs them constantly. One test cuts through: who is allowed to press the button, and who answers for a decision that was wrong for you.
| Feature | Execution-only | Advisory | Discretionary |
|---|---|---|---|
| Who selects the investment | You | The firm proposes, you decide | The firm |
| Who places the trade | You | The firm, on your instruction | The firm, on its own initiative |
| Suitability assessed | Not on the decision | Per recommendation | Once on the mandate, then continuously |
| Typical trigger for action | Your login | A meeting or a call | An investment committee decision |
| What you can complain about | Execution and service | The recommendation | Departure from the mandate, or an unsuitable mandate |
The final row is the one people misread. A discretionary portfolio falling in value is not, by itself, a complaint. Markets fall. What is complainable is a portfolio that drifted outside what was agreed, or a mandate that never fitted your circumstances to begin with — which loads far more weight onto the risk-profiling conversation at outset than it appears to carry at the time.
What the discretionary management agreement has to pin down
Templates differ between firms, but a workable agreement covers the same ground. Read for the specifics. The prose around them is boilerplate.
- The investment objective, stated as something measurable rather than as an adjective. "Income of around four per cent with capital preserved in real terms over rolling five-year periods" can be tested against reality. "Balanced growth" cannot.
- The permitted universe and the exclusions: direct equities, funds, investment trusts, structured products, derivatives, unlisted holdings, and anything you want ruled out.
- Concentration and liquidity limits — how much may sit with one issuer, and how much in assets that cannot be sold within a few days.
- Whether the firm may allocate to its own funds or in-house models, and how it manages that conflict of interest.
- Cash policy: the maximum cash weighting, and whether interest earned on uninvested cash reaches you or is retained by the firm.
- Who holds the assets. Manager and custodian are frequently different firms, and the distinction decides what happens if either one fails.
- Notice period, exit charges, and whether you may leave by transferring holdings instead of being sold into cash.
That last item moves real money. Being liquidated on exit crystallises capital gains, incurs dealing costs, and leaves you out of the market for the length of the transfer. An in-specie transfer avoids all three. Whether one is available is a contractual matter, not a courtesy.
How discretionary management charges layer up
The headline rate is not the total. A managed portfolio carries several charges stacked on top of one another, levied by different parties, and only part of the stack appears in the figure quoted in the brochure.
The management fee pays the discretionary manager. Beneath it sits the platform or custody fee for holding and administering the assets. Beneath that sit the ongoing charges of any funds inside the portfolio, which the manager never receives but you still pay. Then dealing commission, stamp duty on relevant purchases, and foreign exchange spreads on overseas holdings. Where a separate adviser introduced you and continues to review the arrangement, their fee sits on top again.
Disclosure of this stack is mid-transition. The Consumer Composite Investments regime, finalised by the FCA in policy statement PS25/20 of 8 December 2025, replaces the PRIIPs key information document and the UCITS key investor information document with a single product summary. The legislation commenced on 6 April 2026, manufacturers may adopt the new format from that date, and the regime becomes mandatory on 8 June 2027. Two providers compared on paper during that window can therefore be presenting costs under two different disclosure standards.
A way through it that firms are used to being asked: request the total cost of ownership as a single percentage and as a cash amount on your actual portfolio size, and ask explicitly whether that figure includes fund charges and transaction costs. Reluctance to answer in pounds is itself an answer.
Portfolio reporting, and the notification the FCA deleted in 2025
Discretionary clients receive periodic reporting covering holdings, valuations, transactions and costs. For retail portfolios this normally arrives quarterly, and the costs and charges disclosure has to show what you actually paid over the period rather than a published rate card.
A second stream used to exist. Article 62 of the MiFID Organisational Regulation, reproduced in the FCA Handbook at COBS 16A.4.3UK, required a firm to notify a retail client when a managed portfolio lost ten per cent of its value from the start of the reporting period, and again on each further ten per cent. The March 2020 sell-off turned that into a wave of alarming letters, and the FCA suspended enforcement almost immediately, then extended the forbearance repeatedly for five years while the Treasury reviewed the wider framework. In policy statement PS25/13, dated 9 October 2025, the regulator confirmed the deletion. The rule ceased to apply on 23 October 2025, the same date the underlying regulation was revoked.
The practical consequence is easy to miss. If you were assuming a sharp fall would generate a letter, it will not. Monitoring is now something you do, from the portal or the quarterly statement, rather than something that arrives unprompted.
Who a discretionary service does not suit
Fit turns on temperament and scale rather than sophistication. Four patterns recur.
- 1
Portfolios below the firm's natural minimum
Fixed elements in a fee structure eat disproportionately into a small portfolio. Where a bespoke service publishes a minimum, that figure marks the point below which the arithmetic stops working for the client, not for the firm.
- 2
Investors who want to keep a veto
A discretionary mandate held by a client who telephones about every trade is an advisory relationship being paid for at discretionary rates. Where the instinct to intervene is strong, the advisory model is the honest match.
- 3
Holdings with tax or sentimental constraints
Legacy shareholdings with a very low acquisition cost, or holdings you will not sell for family reasons, have to be written into the mandate as excluded assets. Left unwritten, the manager will eventually and quite properly sell them.
- 4
People whose real question is a planning question
Whether to take a pension lump sum, how to structure the proceeds of a business sale, when to start drawing income — these are financial planning questions. A discretionary manager runs the money once a plan exists. Buying portfolio management to answer a planning question is a common and expensive mismatch.
Four checks before you sign a discretionary agreement
Do them in this order
- Confirm the firm holds the permission to manage investments, and that the entity named on the agreement is the entity on the register rather than a trading style.
- Establish who the custodian is, and what happens to your assets if the manager or the custodian fails.
- Obtain the all-in annual cost in pounds on your portfolio size, with fund charges and transaction costs included in the figure.
- Read the exit clause before the entry clause: notice period, exit fee, and whether an in-specie transfer out is permitted.
Where full discretionary management looks disproportionate for the sum involved, the range of regulated help widened this year. A category sitting between generic information and personal advice became a regulated activity on 6 April 2026, and it is set out on our page comparing advice, guidance and targeted support.
Common questions about discretionary management
It means a regulated firm buys and sells inside your portfolio without asking you first, within a mandate you agreed before any money moved. You learn what was done afterwards, through periodic reporting.
Under an advisory service the firm recommends and you approve each trade, and suitability is assessed for every recommendation. Under a discretionary service suitability is established once against the mandate and then maintained continuously while the manager trades on its own initiative.
No. The requirement to notify a retail client of a ten per cent fall in a managed portfolio was deleted in FCA policy statement PS25/13 and ceased to apply on 23 October 2025, after five years of suspended enforcement. Monitoring now depends on your own use of statements and portal valuations.
A management fee, a platform or custody fee, the ongoing charges of any funds held, dealing and foreign exchange costs, and a separate adviser fee where an adviser introduced and reviews the arrangement. Ask for the all-in figure in pounds on your own portfolio size.
Only where the agreement permits an in-specie transfer. Without one, exiting means being sold into cash, which crystallises capital gains, incurs dealing costs and leaves you out of the market for the length of the transfer.