Archived Insight | June 17, 2020

Discretionary Investment Management: a Primer

Maximizing your investments means moving at the speed of the market. Empowering your investment manager to implement investment ideas  at their own discretion keeps your portfolio nimble and flexible, freeing you to concentrate on the big picture. With our seasoned professionals at the helm, we aim to provide smooth sailing for you and your plan’s assets.

Discretionary Investment Management

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The advantages of discretionary investment management

The benefits of discretionary investment management, also known as the outsourced chief investment officer (OCIO) model, extend beyond freeing you to focus on other important tasks. 

Decisions that could take months under a non-discretionary model can now happen in days, which can lead to stronger portfolio performance and better risk management.

Some of the other advantages of discretionary investment management include:

  • Fee and cost savings through scale
  • Access to the entire capital markets spectrum and best-in-class managers
  • Enhanced governance of your portfolio

You can explore more why this type of investment management has grown more popular with asset owners, plan trustees, and fiduciary intermediaries in recent years in our research.

The difference between centralized and decentralized decision making

Asset owners who decide that discretionary investment management is the way to go immediately face a different choice: do you use a management platform that follows centralized or decentralized decision making?

Smaller firms or subsets of banks usually operate under the decentralized structure, in which a single advisor (or a small team) has complete freedom to make whatever investment decisions they see fit. This provides the maximum amount of flexibility to the asset owner’s portfolio, but the minimal oversight involved introduces other risks that asset owners may find uncomfortable.

That’s why we opt for a centralized approach that hits the sweet spot of speed and care for your portfolio. Under this structure, we make sure professionals from legal, compliance, research and more weigh in and give their recommendation to senior investment officers in a timely manner. This means your portfolio benefits from the best investment advice and practices our firm has to offer, and our decisions remain transparent during every step of the process.

Your checklist for evaluating a discretionary investment manager

No matter which decision-making structure your discretionary investment manager operates under, they’re shouldering a huge amount of responsibility. That’s why you need to properly vet any potential investment managers to make sure their values and investment strategy align with your own. The following questions are a great place to start that process:

  • Is the investment manager free of conflicts or making money on other services (e.g. trading commissions, internally managed or proprietary funds, etc.)?
  • Are portfolio management decisions made using a centralized approach with input and oversight from the firm’s senior-most investment professionals?
  • Does the investment manager have a dedicated in-house investment administration team?
  • Are there stringent compliance procedures in place, including movement of discretionary account assets through a secure wire system and access to in-house legal support?

Answering these questions will help you find the right discretionary investment manager, but they’re just a starting point. Our professionals can advise you on the next steps you need to take toward finding the manager right for your assets.

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Segal Marco Advisors provides consulting advice on asset allocation, investment strategy, manager searches, performance measurement and related issues. The information and opinions herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This article and the data and analysis herein is intended for general education only and not as investment advice. It is not intended for use as a basis for investment decisions, nor should it be construed as advice designed to meet the needs of any particular investor. Please contact Segal Marco Advisors or another qualified investment professional for advice regarding the evaluation of any specific information, opinion, advice, or other content. Of course, on all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.

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