What Does "Discretionary" Actually Mean
Commentary • Education
Date posted
Oct 19, 2026
When You Hire a Portfolio Manager?
"Discretionary portfolio manager" is one of those terms that gets used constantly in wealth management marketing and rarely explained. For an investor deciding how to structure their relationship with an advisor, the distinction is worth understanding, it determines who actually presses the button on every trade in your portfolio, and what legal obligations exist around that authority.
The Legal Definition
In Canada, "portfolio manager" isn't just a job title. It's a specific securities registration category. British Columbia's Securities Act defines a portfolio manager as an advisor who manages the investment portfolio of clients through discretionary authority granted by one or more clients. That authority is the defining feature: it's what separates a portfolio manager from other kinds of registered advisors.
Under National Instrument 31-103, the rule that governs registration for Canadian investment firms, advisors are registered as either portfolio managers or restricted portfolio managers, each with its own proficiency, capital, and insurance requirements. The Canadian Securities Administrators' companion policy to that rule notes that an advising representative may have discretionary authority over investments of others, and that this category of registration involves the most onerous proficiency requirements of any advisor category.
Discretionary vs. Non-Discretionary: Who Presses the Button
The practical difference comes down to trade authorization.
In a discretionary account, the client grants written authorization up front, through an investment policy statement or managed account agreement, allowing the portfolio manager to buy, sell, rebalance, and manage the portfolio without calling for approval on each individual transaction. The manager operates within agreed parameters (risk tolerance, mandate, restrictions), but doesn't need a green light for every trade.
In a non-discretionary (advisory) account, the advisor can recommend trades, but the client must explicitly approve each one before it's executed. The client retains final say on every transaction.
An academic study of Canadian investment accounts found that under the regulatory regime governing investment dealers, only a minority of accounts — 8.7% in that dataset, were licensed under the discretionary model, with the large majority requiring client permission before every trade.
Neither structure is inherently better; they suit different levels of involvement an investor wants in day-to-day decisions. But the obligations that come with each are different, and that's where it gets more specific to Canadian regulation.
What "Discretionary" Obligates the Manager To Do
Granting discretionary authority doesn't mean handing over a blank cheque. Canadian securities regulators are explicit that discretionary authority is bounded and continuously monitored:
Know-your-client (KYC) obligations never stop.
Regulatory guidance describes KYC as an ongoing process that does not end after the initial account opening, a portfolio manager is required to obtain and periodically update information about a client's financial situation, investment knowledge, objectives, time horizon, and risk tolerance to support suitability determinations throughout the relationship.
Suitability is a continuing obligation, not a one-time check.
The Canadian Securities Administrators have stated that a portfolio manager's suitability obligation, in the context of a managed account, is a continuing obligation to ensure that the investment strategy the manager has chosen remains suitable for the client, not just suitable at the moment the account was opened.
The obligation can't be delegated or reduced to a form.
Regulatory guidance is explicit that relying only on a KYC form, without genuine understanding of the client's circumstances, is not sufficient to fulfill a registrant's suitability obligation.
In practice, this means a discretionary mandate is closely bounded by what the client and manager agreed to at the outset, and by ongoing regulatory obligations that apply regardless of how much day-to-day input the client wants.
Why This Distinction Matters for High-Net-Worth Investors
For an investor managing significant, often complex wealth, the discretionary structure exists to solve a specific problem: markets and opportunities move faster than a phone call and email chain typically allow. A discretionary mandate lets a manager rebalance a portfolio, harvest a tax loss, or respond to a market move without waiting for a client's explicit sign-off on each individual transaction, while still operating inside the boundaries the client set and under the continuing suitability obligation described above.
Frequently Asked Questions
What's the difference between a discretionary and non-discretionary investment account?
The core difference is who has final authority over each trade. In a discretionary account, the manager can execute trades within an agreed mandate without asking for approval on every transaction. In a non-discretionary account, the client must approve each trade before it's placed.
Does discretionary authority mean the manager can do anything they want with my money?
No. Discretionary authority operates within a mandate the client and manager agree to in advance, covering things like risk tolerance, asset allocation ranges, and any restrictions, and is subject to an ongoing legal suitability obligation that Canadian regulators require the manager to meet continuously.
Is a discretionary portfolio manager the same as a financial advisor?
Not necessarily. "Portfolio manager" is a specific securities registration category under Canadian law tied to discretionary authority, with its own proficiency and regulatory requirements. Not every financial advisor holds this registration or discretionary authority.
Who regulates discretionary portfolio managers in Canada?
Portfolio managers are registered and regulated under provincial securities legislation and National Instrument 31-103, overseen by the Canadian Securities Administrators (the umbrella body for provincial securities regulators) and, for dealer members, the Canadian Investment Regulatory Organization (CIRO).
Disclosures
This article is provided for general educational and informational purposes only and does not constitute investment, legal, or financial advice. Kinsted Wealth Inc. is a registered portfolio manager under applicable Canadian securities legislation, including National Instrument 31-103. Descriptions of regulatory obligations reflect publicly available securities law and regulatory guidance as of the date of writing and are general in nature; they are not a substitute for Kinsted's own client agreements or a legal opinion. Please speak with a Kinsted Wealth portfolio manager to understand the specific terms of any discretionary mandate.
Sources
- British Columbia Securities Commission. "33-706 - Discrepancy in Terms, Definitions and Registration Categories between the Securities Act and National Instrument 31-103."
- Ontario Securities Commission. "National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations" (unofficial consolidation).
- British Columbia Securities Commission. "Companion Policy 31-103CP, Registration Requirements, Exemptions and Ongoing Registrant Obligations."
- Canadian Securities Administrators. "CSA Staff Notice 31-336, Guidance for Portfolio Managers, Exempt Market Dealers and Other Registrants on the Know-Your-Client, Know-Your-Product and Suitability Obligations."
- Canadian Investment Regulatory Organization. "Know-Your-Client (KYC) and Suitability."
- Canadian Securities Administrators / Canadian Investment Regulatory Organization. "Joint Staff Notice 31-368, Client Focused Reforms: Review of Registrants' Know Your Client, Know Your Product and Suitability Determination Practices and Additional Guidance."
- "Measuring Financial Advice: Aligning Client Elicited and Revealed Risk." arXiv preprint.
Regards,
Kinsted Wealth
