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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 the investment decisions for the client's portfolio?

In a discretionary PMS the portfolio manager takes the investment decisions at its own discretion, acting on the client's behalf under the agreement. The client need not approve each trade, the custodian only safekeeps securities, and distributors do not decide the investments.

  1. AThe portfolio manager, at its sole discretion, in the client's name and on the client's behalfCorrect
  2. BThe client, who must approve every trade before execution
  3. CThe custodian, based on the client's standing instructions
  4. DThe distributor, who recommends each trade to the manager

Explanation

Under a discretionary PMS the portfolio manager exercises independent discretion over investment and management of the funds or securities, subject to the agreement. The client does not approve each trade (that resembles non-discretionary), and the custodian only holds and settles securities. Distributors only refer clients and do not take investment decisions.

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