Summary: With discretionary management, you set the rules once, in writing, and a registered portfolio manager makes the day-to-day decisions within them. You keep control of the objectives, risk, restrictions and cash needs, and you can see every holding and transaction; what you delegate is the trade-by-trade decision.
The short answer
With discretionary portfolio management, you agree the rules once, in writing, and a registered portfolio manager makes the day-to-day investment decisions within them, without calling you to approve each trade. You keep control of what matters: the objectives, the level of risk, any restrictions on what can be held, how much cash you need and when, and the right to change the mandate or end the relationship. Your assets are generally held in your name with a third-party custodian, and you can see every holding and every transaction.
What you give up is the trade-by-trade decision, and for many people after a sale or at retirement that is precisely the point. It means decisions are made promptly and consistently, rebalancing and tax-aware trading happen without waiting for a phone call, and the portfolio is managed to the plan you agreed rather than to the headlines of the week.
You are not handing over control of your money. You are handing over the execution of a plan you set.
Why the word discretionary makes people nervous
For a founder who ran a company, delegating investment decisions can feel like giving up the last piece of a world they controlled. Many have also worked with advisors before, perhaps a brokerage relationship in which every trade was a phone call, and the idea of trades happening without that call can sound like losing sight of their own money.
The concern is reasonable, and it deserves a precise answer rather than reassurance. Discretion in this sense is narrow and defined. It is the authority to make investment decisions within limits you have agreed, by a firm registered for that purpose, under rules that require it to put your interests first, with every action visible to you.
The question is not whether you are in control. It is which decisions you want to make yourself.
How does discretionary portfolio management work?
The relationship follows a sequence that is largely set by Canadian securities rules.
- Know your client. The portfolio manager gathers your financial circumstances, objectives, time horizon, risk tolerance and capacity for loss, along with your tax situation and any restrictions. For a managed account, this information must be kept current and reviewed at least every 12 months, and sooner if something significant changes.
- The investment management agreement. You sign an agreement that gives the firm discretionary authority over the account and sets out its obligations, its fees and how either party can end the relationship.
- The mandate and investment policy. The objectives, asset mix ranges, risk limits, restrictions and cash needs are agreed and documented, often in an investment policy statement. This is where your control is exercised, and it is the document the manager is held to.
- Implementation and ongoing management. The manager builds the portfolio, then monitors and adjusts it within the mandate, including rebalancing, responding to market changes and managing tax.
- Reporting and review. You receive regular statements and annual reports on performance and the fees you paid, and you meet to review the plan, the mandate and any changes in your life.
What do I keep control of?
More than most people expect.
The objectives and risk. You decide what the money is for, how much volatility the portfolio can carry and the range for each asset class, and the manager cannot move outside them.
Restrictions. You can exclude particular companies, sectors or types of investment, such as shares of a former employer you already hold, the buyer of your business or industries you prefer to avoid.
Cash flow. You decide how much income or cash you need and when, and the portfolio is positioned so that it is available.
Visibility. Your assets are generally held in your name with a third-party custodian, separate from the manager's own assets, and you receive statements from the custodian as well as reports from the manager, so you can see every position and transaction.
The relationship itself. You can change the mandate when your circumstances change, add or withdraw money, and end the agreement under its terms, taking your assets with you.
How is discretionary management different from working with an advisor?
The difference is who makes the trading decision and when.
| Discretionary management | Advisory account | |
|---|---|---|
| Who decides each trade | The portfolio manager, within the agreed mandate | You, on the advisor's recommendation |
| Speed of execution | Immediate, across all clients with the same mandate | After a conversation and your approval |
| Your role | Set and review the mandate | Approve each recommendation |
| Registration | Portfolio manager (adviser registration) | Often an investment dealer representative |
| Best suited to | People who want consistent execution of an agreed plan | People who want to be involved in each decision |
Neither model is right for everyone. Founders who want to stay closely involved in individual decisions, or who enjoy managing investments, may prefer an advisory relationship. Those who would rather decide the strategy and spend their time elsewhere, or who are managing a large and complex pool of money across a holding company and registered accounts, often prefer discretionary management.
What protects me in a discretionary relationship?
Registration. Firms that manage money on a discretionary basis must be registered as portfolio managers with the provincial securities commissions, and their advising representatives must meet proficiency standards. You can check a firm's registration through the Canadian Securities Administrators' national registration search.
The best interest standard. Under the client focused reforms, fully in force since 2021, registered firms must put your interests first when assessing whether investments are suitable and must address material conflicts of interest in your best interest.
Separate custody. Holding your assets with an independent custodian, in your name, means the manager can trade within your account but cannot simply withdraw your money to itself.
Reporting. Annual reports on performance and fees, together with custodian statements, let you check what was done and what it cost.
How does discretionary management help with tax and complexity?
For families with a holding company, registered plans and personal accounts, much of the value lies in coordination that is difficult to do trade by trade.
Asset location. Deciding which investments sit in the holding company, the RRSP or RRIF, the TFSA and personal accounts can reduce the tax on the same overall portfolio, because interest, capital gains and dividends are each taxed differently in each place.
Tax-aware trading. Realizing losses to offset gains, managing the timing of gains in a holding company and avoiding the superficial loss rule, which denies a loss if the same property is bought back within 30 days, are easier when decisions can be made promptly.
Cash flow from the right place. Positioning cash for dividends from a holding company, RRIF withdrawals or planned spending, so that nothing has to be sold at a bad moment, is part of managing the mandate.
What should I ask before agreeing to discretionary management?
- How is the firm registered, and who exactly will make decisions on my account?
- What will the mandate say, and can I see a draft before I sign?
- What restrictions can I set, and how are they monitored?
- Where will my assets be held, and will I receive statements directly from the custodian?
- What will I pay in total each year, in dollars, and what is included?
- How often will we review the plan, and how do I change the mandate or end the relationship?
Where Westmount starts
Westmount Wealth Management is a Canadian portfolio manager with offices in Vancouver, Qualicum Beach and Toronto. It is registered in BC, Alberta, and Ontario and provides discretionary portfolio management to founders during and after a business sale, as well as to incorporated and asset-rich retirees.
In a discretionary relationship, the mandate is built with you before any money moves: what the portfolio is for, how much risk it carries, what it must avoid and how it fits with your holding company, registered plans and tax position, coordinated with your accountant. The first conversation is a discovery meeting to understand your situation and how involved you want to be.
Frequently asked questions
What is discretionary portfolio management?
It is an arrangement in which a registered portfolio manager makes investment decisions on your behalf, within objectives, risk limits and restrictions you have agreed in writing, without asking you to approve each trade. You keep control of the mandate, can see every transaction and can change or end the arrangement.
Do I lose control of my money with a discretionary manager?
No. You decide the objectives, risk level, restrictions and cash needs, your assets are generally held in your name with a third-party custodian, and you can see every holding and transaction. What you delegate is the day-to-day trading decision within the limits you set.
Can I restrict what a discretionary manager invests in?
Yes. Restrictions on particular companies, sectors or types of investment can be written into the mandate, for example to avoid adding to a concentrated position you already hold, and the manager is required to follow them.
How often does a discretionary manager review my account?
The portfolio is monitored continuously within the mandate, and for managed accounts Canadian rules require your client information to be reviewed at least every 12 months, as well as whenever something significant changes.
What is the difference between a portfolio manager and an investment advisor?
A portfolio manager is registered to make investment decisions on your behalf within an agreed mandate, while an investment advisor at a dealer typically makes recommendations that you approve trade by trade. Both are subject to the best interest standard under the client focused reforms, and a firm's registration category can be checked in the CSA national registration search.
References
- Osler, CSA finalizes client focused reforms to Canadian securities registration rule (best interest standard; KYC review at least every 12 months for managed accounts).
- Canadian Securities Administrators, CRM2 executive summary (annual disclosure of performance and fees).
- TaxTips.ca, Superficial losses and other disallowed losses (30-day rule).
This information has been prepared by Westmount Wealth Management Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc.
This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax, or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
