Discretion
There’s a great old piece of wisdom that states, “Discretion is the better part of valor.” In other words, choosing when to be brave (discretion) is more important than being brave itself. Nothing could be truer of the investing process. Knowing what to invest in (which security) is typically far more important than how the transaction takes place (when to invest and at what price). That doesn’t mean that timing doesn’t matter, but common sense says that buying the worst investment at the right time can be far more damaging than buying the right investment at the wrong time.
When a client initiates a new relationship with a securities professional, it is assumed that the client holds discretion over the types of securities that are bought in the account, the timing, and the price. In other words, a securities professional can’t just begin exercising decision-making power, or discretion, over a client’s account, making trades whenever he sees fit. If he does begin making trades without the client giving him the authorization to do so, he’s in violation and subject to legal consequences.
A client, however, may decide to give permission to her securities professional to exercise decision-making ability (discretion) over some or all aspects of the investments in her account. Most commonly, this comes in the form of time and price discretion, where the client has made the final decision on which securities to buy (usually based on her professional’s advice), but gives her professional the freedom to buy or sell that security when he thinks he can get the best price. This bestowing of time and price discretion can be done verbally and is unique to each transaction that is made, though it can be made for multiple fu