When an investor entrusts a portfolio to a professional manager, one of the first decisions to settle is the nature of the mandate itself. Will the manager be authorised to act at their own discretion within agreed parameters, or will each decision require the investor’s approval? The choice between a discretionary and a non discretionary mandate shapes the entire relationship, and understanding the difference is essential to choosing well.
Discretionary portfolio management
Under a discretionary mandate, the investor grants the manager authority to make and execute investment decisions without seeking approval for each individual transaction. This authority is not unlimited. It operates within a carefully defined investment policy that sets out objectives, permitted asset classes, risk limits, and any specific constraints the client wishes to impose.
The principal advantages are timeliness and professional oversight:
- Timely execution. Markets move, and opportunities can be time sensitive. A discretionary manager can act promptly rather than waiting for approvals.
- Continuous management. The portfolio is monitored and rebalanced actively, keeping it aligned with the agreed strategy as conditions change.
- Freedom from day to day involvement. The investor is relieved of the burden of individual decisions, which suits those without the time or inclination to be closely involved.
This structure suits investors who are comfortable delegating execution to professionals they trust, and who value discipline and responsiveness over hands on control.
Non discretionary portfolio management
Under a non discretionary mandate, the manager provides research, recommendations, and advice, but every investment decision remains subject to the client’s approval before it is executed. The manager proposes; the client disposes.
- Retained control. The investor makes the final call on each transaction, keeping decision making authority firmly in their own hands.
- Professional input. The investor still benefits from professional research, portfolio review, and considered recommendations.
- Active involvement. The structure suits those who wish to understand and participate in each decision affecting their capital.
The trade off is that execution depends on the client’s availability to review and approve. In fast moving conditions, the requirement for approval can mean opportunities are acted on less quickly than under a discretionary arrangement.
Which is right for you?
The better mandate is simply the one that fits how involved you wish to be, and how much time you can realistically give.
There is no universally superior choice. The right mandate depends on your circumstances, your temperament, and your objectives. Consider a few questions honestly:
- How much time can you devote to reviewing and approving decisions?
- How comfortable are you delegating execution to a professional within agreed limits?
- Do you want to be involved in each decision, or do you prefer to set the strategy and let professionals implement it?
Whichever structure you choose, the foundation is the same: a clear mandate that reflects your objectives, your risk appetite, your time horizon, and your liquidity needs. A well designed mandate, reviewed regularly, is what allows a portfolio to serve its purpose over time.
Managed to your principles
Both discretionary and non discretionary mandates can be structured to be fully Sharia compliant, with holdings screened and instruments selected in accordance with Islamic finance principles. Whatever the structure, transparent reporting should give you a clear and regular view of your portfolio, its performance, and its holdings.
SIBK provides both discretionary and non discretionary Contractual Portfolio Management Services, including Sharia compliant mandates, to individual, institutional, and corporate clients. If you would like to discuss which structure best suits your objectives, our advisers would welcome the conversation.