Discretionary Investment Management: Definition, Benefits & Risks (2025)

As Australians look for smarter ways to grow their wealth in 2025, many are turning to discretionary investment management for expert, hands-off portfolio management. But what exactly does this service entail, and how do its benefits stack up against the risks? Here’s what every investor should know before handing the reins to a professional.

What Is Discretionary Investment Management?

Discretionary investment management is an arrangement where an investor gives a licensed portfolio manager or firm the authority to make investment decisions on their behalf. Rather than seeking approval for every trade or asset allocation, the manager operates within a mandate tailored to the investor’s risk profile, objectives, and preferences. This approach is increasingly popular among high-net-worth individuals, busy professionals, and retirees who want professional oversight without the day-to-day involvement.

• Key features: Manager chooses, buys, and sells assets without needing investor sign-off for each transaction.

• Mandate-driven: The manager must operate within agreed guidelines, such as risk tolerance, ethical screens, or asset class limits.

• Ongoing monitoring: Portfolios are actively managed and rebalanced to suit changing markets and personal circumstances.

In Australia, discretionary investment managers must hold an Australian Financial Services Licence (AFSL) and are regulated by ASIC, ensuring a minimum standard of professionalism and compliance.

Benefits of Discretionary Investment Management in 2025

This approach can be a game-changer for investors who value expertise and efficiency. Here’s why:

• Professional oversight: Portfolios are managed by seasoned investment professionals with access to research, analytics, and institutional-level insights. In 2025, with ongoing market volatility and geopolitical uncertainty, this expertise is more valuable than ever.

• Time-saving convenience: Investors can step back from day-to-day market watching, trusting their manager to act swiftly on opportunities or market shifts.

• Customisation: Managers tailor portfolios to the client’s goals, which can include tax efficiency, ESG preferences, or income targets. For example, an investor focused on sustainable growth may direct their manager to avoid fossil fuel stocks entirely.

• Responsive decision-making: Discretionary managers can act quickly—crucial in 2025’s fast-moving markets. For instance, when the RBA shifted rates unexpectedly in early 2025, discretionary managers were able to rebalance fixed income holdings immediately, protecting capital and capturing new yield opportunities.

• Reduced emotional bias: By delegating decisions, investors may avoid the common pitfalls of panic-selling or market-timing mistakes.

Risks and Considerations Before You Sign Up

While the benefits are compelling, discretionary investment management isn’t for everyone. Here are the main risks and issues to weigh up:

• Loss of direct control: Investors must be comfortable with delegating authority. If you like to be hands-on or want to approve every trade, this model may not suit you.

• Fees: Discretionary management usually comes with higher fees than DIY investing or robo-advisers. These may be charged as a percentage of assets under management (AUM), and in 2025, average fees range from 0.8% to 1.5% per annum, depending on portfolio size and complexity.

• Manager risk: Performance is tied to the skill and integrity of the manager. Even with regulatory oversight, poor investment choices or misaligned incentives can impact returns. Always check track records, mandates, and how performance is measured.

• Transparency: While most reputable managers provide regular reporting, some investors may feel removed from day-to-day portfolio activity. It’s important to set clear expectations on communication and review cycles.

• Potential for conflicts of interest: Some firms may have incentives to favour in-house products or certain asset classes. In light of ASIC’s 2025 updated guidance on managed account transparency, investors should seek full disclosure of all fees and relationships.

Who Should Consider Discretionary Investment Management?

This service is best suited to:

• Busy professionals or business owners lacking the time to manage portfolios themselves

• Retirees seeking professional income management and capital preservation

• High-net-worth individuals with complex needs (tax, estate planning, philanthropy)

• Anyone who prefers a professional, hands-off approach but wants a tailored investment strategy

It’s less suitable for those who enjoy hands-on investing, want absolute control, or are highly fee-sensitive. For many Australians, the peace of mind and expertise can justify the cost—especially in a year like 2025, where economic conditions are changing rapidly and new asset classes (such as green bonds and digital assets) are entering mainstream portfolios.

Conclusion

Discretionary investment management is a powerful tool for Australians who want professional guidance and agile decision-making in a fast-changing market. The key is to weigh the benefits—expertise, time savings, and tailored strategy—against the risks of cost, control, and manager selection. With ASIC’s regulatory updates and the evolving financial landscape in 2025, now is an ideal time to review whether this approach fits your goals.