How does discretionary investment management work?

Reviewed by Tom Kimche, Head of Advice, Netwealth [June 2026]

Discretionary investment management is a service where a professional portfolio manager makes all investment decisions on your behalf, executing trades and managing your actual client account without needing your prior approval for each move.

Discretionary investment management is ideal for individuals with busy lifestyles or limited investing knowledge who want professional expertise applied to their finances on an ongoing basis.

Key takeaways

•    A discretionary investment manager makes all investment decisions for you, within agreed parameters.

•    It differs from advisory management and execution-only platforms, where you retain control.

•    Day-to-day management covers portfolio construction, rebalancing, tax-loss harvesting, and performance reporting.

•    It pays for itself as portfolio complexity, tax drag, and asset coordination grow.

•    Netwealth combines discretionary portfolio management and financial planning at significantly lower fees.

At Netwealth, our experienced financial planners and investment team help clients put their money to work in a structured, tax-efficient way. Speak to our team today to find out how we can help.

What is discretionary investment management?

Discretionary investment management is a regulated service in which you give a professional fund manager the authority to manage your investment portfolio on your behalf. The manager handles all buying, selling, and rebalancing across your actual client account based on agreed parameters, without requiring your sign-off on individual transactions.

In the UK, it's a regulated activity under Article 37 RAO. Any firm offering this service must be FCA-authorised and meet ongoing compliance requirements covering suitability, conduct, and the client’s best interests.

Discretionary investment management is typically used by high net worth individuals and institutional investors, though the range of services provided has widened considerably and several firms now offer access at lower minimums.

How does the process begin?

The process typically begins with an initial consultation in which the manager gathers information on your financial goals, investment objectives, time horizon, risk tolerance, and any preferences or restrictions you want applied to your portfolio. 

Netwealth allows clients to complete this process online, setting their own risk level and initiating transfers without needing to speak to anyone first. From there, a portfolio is built based on your agreed goals, risk profile, and individual circumstances. The process operates within a formal investment mandate that sets out your risk level, investment goals, any sector restrictions, and the overall investment philosophy to follow. 

The mandate is reviewed at least annually, or whenever your circumstances change materially. It also captures your risk appetite, ensuring the investment approach stays aligned as financial markets and your situation evolve.

How does discretionary management differ from other investment services?

A financial adviser recommends what you should do with your money and some also manage portfolios on an ongoing basis. A discretionary investment manager takes direct control of the portfolio, making investment decisions on your behalf without requiring sign-off on each transaction.

Robo-advisers automate rebalancing within a limited set of risk models. They don't offer the personalised oversight, customised investment strategies, or access to a broader range of asset classes that a professional discretionary manager provides.

What does a wealth manager actually do for you day to day?

Discretionary fund managers employ various strategies tailored to each client's needs, focusing on asset allocation, risk management, investment approach selection, and portfolio monitoring and rebalancing. Here's what each looks like in practice.

Portfolio construction and asset allocation

Asset allocation, the distribution of your investments across different asset classes such as equities, fixed income, property, and alternative investments, is the single most consequential decision in long-term investing.

Professional fund managers bring a deep understanding of how different asset classes behave across different markets and economic cycles. They access a broader range of investment opportunities, including specialised investments not available to individual investors through retail platforms.

Ongoing rebalancing and strategy adjustments

Over time, asset weightings drift from the target allocation. Left unmanaged, a portfolio that started with 60% equities could drift to 70% or more after a strong equity rally, pushing risk exposure beyond your original target.

Discretionary managers make strategy adjustments continuously to keep the portfolio aligned with the investment manager's strategy and your agreed risk profile. Because they act across many actual client accounts, they can also result in better prices for executed trades than an individual investor acting alone.

Tax-loss harvesting and tax efficiency

Discretionary managers actively look for opportunities to realise losses that can be offset against gains elsewhere in your portfolio, reducing your tax liability without compromising your overall investment strategy.

They also structure withdrawals and contributions to make efficient use of annual allowances across ISAs, pensions, and general investment accounts.

Risk management

To manage risk effectively, discretionary managers diversify across different asset classes and geographic regions, use derivatives for hedging where appropriate, and monitor economic indicators and market trends.

In some cases they set stop-loss limits to protect against significant risk from sharp market downturns. The investment process also involves monitoring regulatory changes and reviewing compliance requirements to ensure the investment approach continues to reflect your agreed risk appetite.

Emotional discipline and decision making

One of the most valuable services provided is the removal of emotion from decision making. Discretionary management can include this emotional discipline to prevent impulsive investment choices during market fluctuations.

Your manager makes decisions systematically within a defined investment process, not in response to short-term noise.

Reporting and communication

You receive regular reports detailing your portfolio's performance, asset allocation, and how your investments are tracking against your financial goals.

Most managers also conduct an annual review to revisit your objectives and ensure the mandate still reflects your individual circumstances.

At what asset level does discretionary management pay for itself?

The case strengthens as complexity increases. For many investors, the tipping point is less about a specific asset level and more about the coordination required to manage multiple accounts, tax wrappers, and asset classes efficiently.

Discretionary investment management can free clients from the burden of day-to-day investment decisions, allowing them to focus on other priorities.

The fee picture

Fees for a discretionary investment management service typically include an annual management fee, transaction fees, and in some cases a performance fee. Management fees typically range from 0.5% to 2% per annum.

Some discretionary fund managers charge a performance fee, which is a percentage of the investment profits, incentivising the manager to perform well. Managers typically structure these around a high water mark principle, meaning they earn the fee only on net new gains above the portfolio's previous peak value.

The total expense ratio, including management fees and additional costs such as custody and underlying fund charges, can range from 1% to 3% of AUM annually depending on portfolio size and complexity.

Netwealth's all-in fee structure is transparent and lower than most traditional wealth managers, who typically charge at least 1% for ongoing advice alone, before platform and fund costs are added.

Fees cover investment management, custody, transaction charges, administration, and any applicable VAT. Underlying investment fees of 0.10% to 0.45% apply in addition. No initial fees or transfer-in charges for pensions, ISAs or cash apply, though a £180 per annum charge from the scheme operator applies to Netwealth Personal Pension accounts.

On a portfolio of £500,000, a fee difference of 1% compounds to approximately £76,000 over 10 years and over £240,000 over 20 years, assuming gross annual returns of 5.3%.

High fees and minimum investment requirements can deter smaller investors from using discretionary services, which is why Netwealth's £50,000 minimum and tiered pricing make professional fund management accessible to a wider range of investors.

For families investing together, the Netwealth Network reduces this minimum to £5,000 for invited members, while pooling assets across the group to unlock lower fees for everyone.

The complexity threshold

The complexity threshold is lower than many investors assume. If you have multiple pension pots, ISAs from different providers, taxable investment accounts, and possibly a property portfolio or inheritance to manage, coordinating all of that tax-efficiently goes well beyond what most individuals can realistically do themselves.

If you're thinking "I know I should be doing more with my money but I just don't have the time", that's a clear signal that professional management has value for you.

The real question isn't about managing your investments yourself versus delegating. It's about this: can a professional investment manager, using a systematic investment process and dedicated tax oversight, deliver better after-fee, after-tax investment returns over a ten or twenty-year horizon?

For most investors with significant and growing assets across a broader range of asset classes, the answer is yes.

What to ask and expect when you first engage a discretionary manager

The initial consultation is your opportunity to assess if the investment philosophy, investment approach, and fee structure are the right fit.

Clients must place a significant amount of trust in their discretionary investment manager's competence and integrity, so thorough due diligence before engagement is essential. You can verify any firm's status on the Financial Services Register before proceeding.

Questions to ask a prospective discretionary manager

•    What is your investment philosophy, and how do you approach asset allocation and risk management across different markets?

•    How will my portfolio be constructed, and what asset classes, including alternative investments, will it cover?

•    How do you handle rebalancing and strategy adjustments, and how frequently does this typically happen?

•    What is your approach to tax efficiency, including tax-loss harvesting and use of different tax wrappers?

•    What are all the management fees and transaction fees I will pay, and do you charge a performance fee? If so, is it structured around a high water mark?

•    What is the total expense ratio I should expect, including underlying fund costs?

•    What reporting will I receive, and how often will we conduct an annual review of my investment objectives?

•    How do you manage compliance requirements and regulatory changes that affect the portfolios you manage?

What to expect from Netwealth

Netwealth builds its investment approach around the hybrid model: discretionary portfolio management combined with access to qualified financial planners, at a fee level that reflects the efficiency of a technology-enabled service.

Netwealth builds your portfolio on a globally diversified range of ETFs and passively managed funds, which an experienced investment team actively manages.

The Core service includes professional investment management, access to planning tools, and financial guidance from qualified advisers. The Advised service adds a bespoke financial plan, 1-to-1 reviews at least every 6 months, and tailored recommendations around investing and tax efficiencies.

The minimum investment is £50,000. Through the Netwealth Network, family members or friends can pool their assets for fee purposes while each remaining an independent client, reducing the minimum to £5,000 for Network members.

Netwealth's advice is restricted advice relating to its own products and services. It isn't independent advice across the whole market. If you need advice spanning providers, consult an independent financial adviser first.

Is it time to get professional help with your finances?

There are several benefits to delegating investment decisions to a professional: systematic portfolio management, access to a broader range of asset classes, tax efficiency, emotional discipline, and the freedom to focus on other priorities while your financial goals are actively managed.

If your financial picture has grown to the point where coordinating it effectively takes more time and professional expertise than you can realistically commit, discretionary investment management is worth considering seriously. The first step is a conversation.

Start getting everything in order with Netwealth

Netwealth exists to handle exactly this. Our investment team manages your portfolio across different asset classes and markets on an ongoing basis, while our financial planners work with you on the broader picture: retirement income, tax planning, pension strategy, and estate planning.

Find out more about our financial planning service or speak to our team today.

Please note: the value of your investments can go down as well as up. Netwealth offers advice restricted to our services and does not provide independent advice across the market. This article does not constitute financial advice and should not be interpreted as a personal recommendation.

Frequently Asked Questions

What is discretionary investment management?

Discretionary investment management is a service where a professional portfolio manager makes investment decisions on your behalf, executing trades and managing your portfolio without needing your prior approval for each transaction. Clients agree on a strategy and risk level at the outset, and the manager operates within those parameters on an ongoing basis.

What does a discretionary investment manager do?

A discretionary investment manager handles all aspects of portfolio management on a day-to-day basis: building and maintaining your asset allocation, making strategy adjustments as market conditions change, implementing tax-efficient strategies such as tax-loss harvesting, and monitoring economic indicators and regulatory changes.

They provide regular reports on performance and act in your best interests within the investment mandate you've agreed.

What’s the difference between a financial adviser and a wealth manager?

A financial adviser recommends actions for you to take, but you retain control of decision making. A wealth manager, in the discretionary sense, actively manages your investments on an ongoing basis without requiring your prior approval each time. Netwealth offers financial planning alongside discretionary portfolio management, giving you access to both within a single service.

How much do I need to invest to use a discretionary investment management service?

Many traditional discretionary wealth managers set minimums of £250,000 or more for bespoke portfolio services. Netwealth's minimum is £50,000, reducing to £5,000 for members of the Netwealth Network.

What are the risks of discretionary investment management?

All investing carries significant risk and the value of your investments can go down as well as up. Clients must place a significant amount of trust in their manager's competence and integrity, so thorough due diligence is essential.

Confirm any manager is FCA-authorised using the Financial Services Register and understand the full fee structure including the total expense ratio, as high costs are one of the most reliable predictors of underperformance over the long term.

What's the difference between Netwealth's Core and Advised service?

Both services include professional discretionary investment management and access to Netwealth's planning tools. The Core service is for clients who want their portfolio managed professionally without ongoing personalised financial planning.

The Advised service adds a bespoke financial plan, tailored recommendations around investing and tax efficiencies, and 1-to-1 portfolio reviews every 6 months. You can move between the two as your needs change.

How does Netwealth manage investment portfolios?

Netwealth builds its portfolios on a globally diversified range of ETFs and passively managed funds, which an experienced investment team actively manages. Clients choose from seven risk levels, ranging from very low risk (money market and fixed income assets) at level one to approximately 90% global equities at level seven.

Management, custody, and transaction charges are all included in the headline fee shown above. Underlying fund costs of 0.10% to 0.45% apply in addition.

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