Thursday, May 4, 2017

Discretionary or Non-Discretionary?



Quite simply put, when you get non-discretionary advice and agree (because you must approve each and every trade) to the transaction (purchase and/or sale of a stock, bond, ETF or fund) all the responsibility shifts to you. You have little recourse once you have signed the account application and followed the advice of the salesperson on whom you have just placed your trust (salespeople are good at talking it up, its their job). 

However they do not have a Fiduciary Duty to provide you with on-going advice (when to exit the trade, for example, because the risk profile has changed). Only a standard of care that it was a "suitable" trade in the first place:

IIROC Rules:

3500.2. Definition of account relationship types (1) An “advisory account” is an account where the client is responsible for investment decisions. The registered representative is responsible for the advice given. In providing this advice, the registered representative must meet an appropriate standard of care, provide suitable investment recommendations and provide unbiased investment advice. 

More here:


My friends, those are some very broad strokes beyond which you own the liability. So if you are up to it and capable of it and want to do all your homework (basically Do It Yourself / DIY type of stuff), away you go. But there is enormous risk and few have any real concept of what that risk is and it is no longer the advisor's responsibility, it is yours. Period.

Did you realize that?

Now for the legal stuff...


Canadian courts have identified five non-exclusive and interrelated factors to assist in this determination: vulnerability, trust, reliance, discretion (over the client's account or investments), and professional rules or codes of conduct (see "When does a fiduciary duty arise at common law?" in Part 3 above).
The fourth factor, discretion, is an especially important element in the context of an investment advisory relationship because the advisory industry generally distinguishes between clients based on whether they have discretionary accounts or non-discretionary accounts. A discretionary account (also known as a managed account) is a type of client account for which an adviser or dealer has the discretion to make investment decisions and transact in securities without the client's express consent to each transaction; in a non-discretionary account, the client must consent to each transaction.
Accordingly, a common law fiduciary duty will virtually always arise where the client has a discretionary account. A fiduciary duty may also arise where the client has a non-discretionary account depending on the actual power or influence that the adviser or dealer has over the client, and the extent to which the client relies on the adviser or dealer. On this point, the Supreme Court of Canada recently stated that:
"[t]he nature of this discretionary power to affect the beneficiary's legal or practical interests may, depending on the circumstances, be quite broadly definedIt may arise from power conferred by statute, agreement, perhaps from a unilateral undertaking or, in particular situations by the beneficiary's entrusting the fiduciary with information or seeking advice in circumstances that confer a source of power"{34} (italics added).

Sorry for all that legal stuff, but it is so very important:

Discretion places the responsibility on the adviser.

Where do you want to place your trust? 

In someone who has a legal responsibility to provide you with that trust or someone who wants to create a trusting relationship to sell you something so that they can be paid a commission (with a potential conflict of interest)?

The world of investing and advice is going to change and we (at High Rock) are paving the way forward, providing solid wealth and discretionary portfolio management at a better cost and with better service than all the old school style financial (non-discretionary) advice givers.

Join us...

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