From Our Voluntary Code of Conduct for the Stewardship of Your Wealth, under the Investment Management heading:
We will always
Trade for our clients first and simultaneously so as to give no particular client priority
With a non-discretionary account this just can't happen. Every trade has to be approved by the client (see yesterday's blog for the legal ramifications) and that means one client at a time.
So who will be first when it comes time to sell, buy or just re-balance? Whoever are the most important clients. Likely the ones who pay the biggest fees or commissions, which are likely the ones with the most assets. If you are in the middle of the pack in a stable with a large number of clients, it may take days or weeks to get looked after. You may never even talk to the "senior" advisor about the whys, the wherefores and rationale for giving your approval.
As a discretionary portfolio manager (at High Rock), we do one trade and every client is looked after instantly and simultaneously (as employees, our personal trades are the last ones to be filled) at the same price.
We have a report that continuously updates us on how each client portfolio sits relative to their asset allocation and portfolios are automatically re-balanced when they "drift" away from their allocation % (as prices change).
If we have something that needs to be bought or sold quickly, no client or client family is at a disadvantage.
That cannot happen with a non-discretionary advisor.
A huge disadvantage for the non-discretionary client.
I recall a situation back in 2014 (when I was a non-discretionary advisor) when the falling market did not quite get to our prices on some ETF's that we wanted to buy and we had a substantial number of (good until cancelled, GTC) client orders in for those ETF's.
When we decided to change the prices we wanted our clients to pay, we had to set up hundreds of calls to make the changes. It took months to contact every client who had one of those orders. Of course they all did not get the same prices.
I said to myself... never again!
There is an alternative to the old ways and we are leading the way forward at High Rock.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist