Discretionary Mandate: Definition and Role in Swiss Wealth Management
Definition
A discretionary mandate is a contractual arrangement in which a client delegates investment decision-making authority to a financial institution or portfolio manager. Under a discretionary mandate, the manager has the power to make investment decisions — including buying, selling, and rebalancing portfolio positions — without requiring the client’s prior approval for each transaction, provided the decisions fall within the agreed investment strategy and guidelines.
Legal Nature
Under Swiss law, the discretionary mandate is a form of the mandate contract (Auftragsvertrag) governed by Articles 394-406 of the Swiss Code of Obligations. The key legal characteristics include:
Delegation of authority. The client grants the manager authority to act on their behalf in investment matters, within defined parameters.
Fiduciary duty. The manager owes the client a duty of care and loyalty in the exercise of the delegated authority.
Terminability. Either party may terminate the mandate at any time, subject to any contractual notice provisions.
Accountability. The manager must account to the client for all transactions and decisions made under the mandate.
Structure of a Discretionary Mandate
A typical discretionary mandate agreement defines:
Investment Strategy
The agreed strategy — such as conservative, balanced, growth, or aggressive — establishes the framework within which the manager must operate. The strategy typically specifies target allocations to asset classes (equities, fixed income, alternatives, cash), permitted investment instruments, and any geographical or sectoral constraints.
Risk Profile
The risk profile reflects the client’s willingness and capacity to accept investment risk, as determined through the suitability assessment required under the Swiss Financial Services Act (FinSA). The mandate’s investment parameters must be consistent with the assessed risk profile.
Investment Restrictions
Clients may impose specific restrictions on their discretionary mandate, such as:
- Exclusion of particular sectors, companies, or instrument types
- Concentration limits on individual positions
- Currency restrictions or hedging requirements
- Ethical, environmental, or social investment criteria
Benchmark
Many discretionary mandates include a benchmark against which performance is measured. The benchmark is typically a composite of market indices reflecting the mandate’s target asset allocation.
Fee Structure
Fees for discretionary mandates are typically calculated as a percentage of assets under management (AUM), with rates varying by mandate size and the complexity of the investment strategy. Fee structures are discussed in detail in our analysis of wealth management fee trends.
Discretionary Mandate vs Advisory Mandate
The discretionary mandate stands in contrast to the advisory mandate, in which the bank provides investment recommendations but the client retains final decision-making authority.
| Feature | Discretionary Mandate | Advisory Mandate |
|---|---|---|
| Decision authority | Manager | Client |
| Transaction approval | Not required | Required for each transaction |
| Suitability standard | Full suitability assessment | Appropriateness assessment |
| Execution speed | Immediate | Dependent on client response |
| Manager accountability | Full accountability for portfolio | Accountability limited to quality of advice |
| Client involvement | Limited to strategy setting | Active involvement in decisions |
The choice between discretionary and advisory mandates depends on the client’s preferences, expertise, and availability. Clients who wish to remain actively involved in investment decisions typically prefer advisory mandates, whilst those who prefer to delegate to professional managers choose discretionary arrangements.
For a comprehensive discussion of both models, see our guide to Swiss portfolio management.
Regulatory Requirements
Under FinSA, discretionary mandate providers are subject to the most comprehensive conduct requirements:
Suitability assessment. Before establishing a discretionary mandate, the provider must conduct a full suitability assessment covering the client’s financial situation, investment objectives, knowledge and experience, and risk tolerance.
Best execution. Transactions executed under the discretionary mandate must be subject to best execution obligations — the manager must execute orders in the manner most favourable to the client.
Conflicts of interest. The manager must identify, prevent, and manage conflicts of interest that could adversely affect the client.
Reporting. The manager must provide regular and comprehensive reporting on portfolio composition, performance, costs, and risk.
Under the Swiss Financial Institutions Act (FinIA), portfolio managers offering discretionary mandates must hold an appropriate licence — either through a FINMA-authorised supervisory organisation (for independent asset managers) or through a bank or securities firm licence.
Discretionary Mandates in Practice
Discretionary mandates are the dominant service model in Swiss private banking for clients with substantial investable assets. Major Swiss private banks offer discretionary mandates across a range of investment strategies, typically with minimum asset thresholds of CHF 500,000 to CHF 5 million.
The practical advantages of discretionary mandates include:
- Professional management by experienced investment teams with access to institutional research and analytics
- Timely execution of investment decisions, enabling the portfolio to respond quickly to market developments
- Disciplined portfolio management through systematic rebalancing and risk monitoring
- Reduced client burden — clients need not monitor markets or make frequent investment decisions
Digital discretionary mandates — offered by robo-advisors and WealthTech platforms — have expanded access to discretionary portfolio management, typically at lower fee points and with lower minimum investment thresholds than traditional private banking mandates.
Client Protections
Multiple layers of protection safeguard clients in discretionary mandate relationships:
- Regulatory supervision by FINMA or FINMA-authorised supervisory organisations
- Fiduciary duty under Swiss mandate law
- Conduct rules under FinSA, including suitability, best execution, and conflicts management
- Ombudsman access for dispute resolution
- Civil liability for breach of duty, enabling clients to claim damages
Donovan Vanderbilt is a contributing editor at ZUG FINANCE, the Swiss private banking and fintech intelligence publication of The Vanderbilt Portfolio AG, Zurich. He covers wealth management, institutional finance, and regulatory affairs across the Swiss financial centre.