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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Operational Aspects of Portfolio Managers

In a discretionary portfolio management arrangement, which of the following best describes who takes investment decisions on behalf of the client?

In a discretionary PMS the portfolio manager decides which securities to buy or sell, using independent discretion within the portfolio management agreement. The client does not approve each trade, the custodian only safekeeps assets, and the distributor only sources clients and does not take investment decisions.

  1. AThe portfolio manager, using their own discretion, in accordance with the portfolio management agreementCorrect
  2. BThe client, who must approve every individual trade before execution
  3. CThe custodian, which selects securities for the client's account
  4. DThe distributor, who recommends the securities to be bought or sold

Explanation

Under the discretionary route the portfolio manager exercises independent discretion over investment and management of the client's funds or securities, within the terms of the agreement. The client does not approve each trade. Custodians only hold securities and distributors do not take the investment decisions.

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