Discretionary Mandates: Types, Suitability & Rights

A discretionary mandate transfers ongoing investment decisions to a wealth manager, within a strategy that is agreed jointly beforehand. For many investors, this is the way to place the management of their own assets in professional hands without having to answer for every individual transaction themselves.

This article explains the process from the first meeting to implementation, the types of mandates available, which rights are delegated to the manager, what belongs in the reporting, how the fees are structured, and how a mandate ends.

What is a discretionary mandate?

A discretionary mandate is a contract in which a client grants a wealth manager the authority to manage the agreed assets independently. The manager makes the investment decisions, buys and sells securities, and aligns the portfolio with the defined strategy, without consulting the client on every individual transaction.

The strategy is based on the client’s goals, investment horizon, and risk capacity. It sets the boundaries within which the manager acts. This is what distinguishes a discretionary mandate from an advisory mandate, where the manager only puts forward proposals and the final decision stays with the client.

The essentials at a glance

• Under a discretionary mandate, the manager decides independently within the agreed strategy; under an advisory mandate, the decision stays with the client.
• Wealth managers in Switzerland have needed a FINMA license under the Financial Institutions Act (FinIA) since 2020 and are supervised by a supervisory organization (SO).
• Conduct obligations toward clients are set out in the Financial Services Act (FinSA), clarified further by FINMA Circular 2025/2 (in force since January 1, 2025).
• On request, the manager reports on the portfolio, the services provided, and the costs (FinSA Art. 16).
• The agreement is legally a contract of mandate; under the Swiss Code of Obligations (CO) Art. 404, either party may terminate it at any time.
• Conflicts of interest, for instance when in-house products are used, must be disclosed and handled in the client’s interest. FINMA reaffirmed this in Guidance 03/2026 (June 3, 2026).
• The investor generally bears the market risk; the manager is liable for breaches of its duty of care and documentation obligations.

Process: from the first meeting to implementation

Before a discretionary mandate is up and running, it goes through several steps that build on one another. Each step defines what the manager is later permitted to do and how that is kept in check.

Client profile under FinSA

Before the mandate begins, the wealth manager draws up a client profile. Under the suitability assessment set out in FinSA Art. 12, the manager asks about the client’s financial circumstances, investment goals, and knowledge and experience. This profile forms the basis for the strategy that follows.

Investment strategy

The client profile is the basis for the investment strategy: the permitted asset classes, the risk allocation, and the ranges within which the manager will later act. It is recorded in writing and forms the binding framework for every subsequent transaction.

The mandate agreement

The discretionary mandate agreement sets out the strategy, the fees, and the mutual obligations. Legally, it is a contract of mandate under the Swiss Code of Obligations, which is among other things the basis for the right to terminate at any time described further below.

Custody with a custodian bank

The assets themselves are held with a custodian bank, not with the wealth manager. This separation is standard practice in Swiss wealth management: custody and management are two distinct functions, each requiring its own license.

Power of attorney

Only once the power of attorney is granted can the manager actually act within the strategy, buying and selling securities without consulting the client on every transaction. The power of attorney is limited to management; payouts to third parties remain excluded.

What types of discretionary mandates are there?

Which form is suitable depends on the investment strategy, risk capacity, and the assets available. The following approaches are common in Switzerland and differ mainly in the instruments used and the degree of customization.

Wealth management with index investments

In this approach, assets are invested in indices that broadly track the relevant market. The portfolio is adjusted to the chosen strategy through regular rebalancing. Index investments are cost-efficient and transparent because they follow a defined market rather than selecting individual securities.

Wealth management with investment funds

Here, assets are spread across a broadly diversified portfolio of funds. The weighting follows the strategy and risk capacity. Actively managed funds can complement the portfolio. Investments are typically spread across regions and sectors to cushion typical market fluctuations more broadly.

Wealth management with individual securities

This variant focuses on individual securities such as equities or certificates and offers the highest degree of customization, because individual companies are selected deliberately. The lower diversification increases concentration risk, which can be limited through deliberate diversification across several securities and sectors.

BVG-oriented wealth management

BVG governs Switzerland’s occupational pension system. A BVG-oriented mandate builds a portfolio following the investment profile typical of Swiss pension funds, combining equities, bonds, and real estate. This approach suits investors who want a risk profile modelled on regulated pension funds.

Discretionary mandate

With a discretionary mandate, an investment strategy is developed together with the client, setting the framework for how the mandate is managed. Within this framework, the manager acts independently. Because setting up and maintaining this form requires more effort, it is usually chosen from a higher investment volume upward.

What rights are delegated with a mandate?

A discretionary mandate places far-reaching authority in the hands of the manager and therefore requires trust. The manager acts within the agreed strategy and is bound by statutory conduct obligations as well as internal policies.

Which decisions does the manager make independently?

Within the agreed framework, the manager buys and sells securities independently, without consulting the client on every transaction. This authority allows the manager to respond promptly to market changes. The framework itself, such as permitted asset classes and the risk profile, remains fixed and limits the manager’s discretion.

What obligations apply to the manager?

As a manager of third-party assets, a Swiss wealth manager is subject to FinIA and the conduct obligations under FinSA. These include assessing the suitability of a strategy, maintaining complete documentation, disclosing risks, and adhering to the agreed investment guidelines. FINMA Circular 2025/2 has clarified these obligations since 2025.

Who is liable in the event of a loss?

The risk of value fluctuations arising from general market developments is generally borne by the investor, who is informed of this risk. The manager is not liable for market losses, but is liable for breaches of duty, for instance a lack of care, missing documentation, or disregard of the agreed investment guidelines.

Reporting: what a wealth manager must disclose

What does the duty to report under FinSA require?

A wealth manager must account to the client on request. FinSA Art. 16 names three points: the financial services agreed and provided, the composition, valuation, and performance of the portfolio, and the costs associated with them. In addition, the manager must maintain the underlying documentation on an ongoing basis.

In practice, this takes the form of periodic reports: an overview of the portfolio value, its composition by asset class, the transactions carried out, and the costs incurred during the reporting period. How often a manager reports on their own initiative is set out in the agreement; the statutory duty applies on the client’s request.

Why does the independence of the manager matter?

An independent wealth manager is not obliged to include in-house bank products in a mandate and works without retrocessions. This removes a significant source of conflicts of interest that can arise when a bank uses its own products in wealth management.

Conflicts of interest cannot always be ruled out entirely, for instance when a manager uses its own strategies. FinSA requires that such conflicts be disclosed and handled in the client’s interest. FINMA has further specified these requirements through Circular 2025/2 and Guidance 03/2026 on product risks in individual portfolio management. For clients, what matters is not a blanket promise but how transparently a manager handles costs and conflicts.

Fees: what cost structures exist

A discretionary mandate costs money, and the fee structure varies from provider to provider. Concrete rates cannot be stated credibly here, because they depend on the mandate, the strategy, and the bank; a detailed breakdown of the cost blocks is available in Custody terms in Switzerland.

Flat fee and management fee

The most common approach is a management fee charged as an annual percentage of assets under management, often tiered with a lower rate at higher volumes. Some providers work with a flat fee instead, bundling several cost blocks together. Which model is cheaper can only be compared against a specific portfolio over a specific year.

Custody and transaction costs

In addition to the management fee, the custodian bank charges its own costs for safekeeping, account administration, and the execution of transactions. These costs are set by the custodian bank, not the wealth manager, and they are charged independently of the management fee.

Retrocessions and their disclosure

Retrocessions are compensation that flows to a financial service provider from third parties in connection with a financial service, such as commissions or brokerage fees. Art. 26 FinSA permits them only where clients have been expressly informed in advance and have waived them, or where they are passed on in full. An independent wealth manager typically works without retrocessions, removing a common source of conflicts of interest.

Termination: the right to withdraw at any time

A discretionary mandate agreement is legally a contract of mandate. Under CO Art. 404, either party may revoke or terminate a contract of mandate at any time, regardless of any notice period agreed in the contract. If termination occurs at an inopportune time, the terminating party is liable for the resulting damage.

In practice, this means the client can end the mandate without formal notice, after which the manager winds down or transfers the open positions and prepares a final statement. The custody account itself is unaffected by the termination; it remains with the custodian bank and can be taken to a new manager.

When does a discretionary mandate pay off?

A mandate hands day-to-day management to professionals, within a strategy set out in advance. Economically, this structure usually only pays off from a certain investment volume upward, because part of the cost is independent of portfolio size.

Management according to your own guidelines

The basic idea of a mandate is that day-to-day management is handed to professionals, while the strategy follows the client’s own guidelines. Anyone who does not want to dedicate the time or knowledge to ongoing management delegates the implementation, while keeping direction over the agreed strategy.

Why volume matters

A mandate comes with fees, usually as an annual percentage of the assets under management. Because part of the cost is independent of volume, a mandate usually becomes economical only from a certain level of investment assets upward. Many managers work with tiered rates, where the percentage decreases as volume increases.

Frequently asked questions about discretionary mandates

What is the difference between a discretionary mandate and an advisory mandate?

With a discretionary mandate, the manager makes investment decisions independently, within the agreed strategy. With an advisory mandate, the manager puts forward proposals, and the client makes the final decision. The difference lies in who holds decision-making authority, not in the scope of service.

How does setting up a discretionary mandate work?

The process begins with the client profile drawn up under the suitability assessment set out in FinSA Art. 12, from which the investment strategy is derived. The strategy, fees, and obligations are recorded in the discretionary mandate agreement. The assets are held with a custodian bank, and only once the power of attorney is granted can the manager act independently within the strategy.

What fees apply to a discretionary mandate?

Fees depend on the investment volume, the chosen strategy, and the management effort involved, so they cannot be stated as a flat rate. A common approach is an annual management fee as a percentage of assets under management, often on a sliding scale that decreases at higher volumes. What matters is full disclosure of all costs.

What must a wealth manager disclose in reporting?

Under FinSA Art. 16, the manager accounts to the client on request for the financial services agreed and provided, the composition, valuation, and performance of the portfolio, and the associated costs. In practice, this runs through periodic reports covering portfolio value, composition, and transactions.

What does a discretionary mandate mean?

A discretionary mandate is the authority to manage assets independently within a jointly defined strategy, without consulting the client on every individual transaction. The investment scope, permitted instruments, and risk profile are set out in writing beforehand and define the boundaries of the manager’s discretion.

Can a discretionary mandate be terminated at any time?

Yes. Legally, the agreement is a contract of mandate, and under CO Art. 404 either party may revoke or terminate it at any time, regardless of any agreed notice period. If termination occurs at an inopportune time, the terminating party is liable for the resulting damage. The custody account itself is unaffected by the termination.

Why does the independence of a wealth manager matter?

An independent wealth manager is not obliged to use in-house bank products and works without retrocessions. Conflicts of interest must be disclosed under FinSA and handled in the client’s interest. FINMA has clarified these requirements through Circular 2025/2 and Guidance 03/2026.

When does a discretionary mandate pay off?

A mandate hands day-to-day management to professionals, within a strategy set out in advance. Economically, it usually only pays off from a certain investment volume upward, because part of the cost is independent of portfolio size. Anyone who does not want to dedicate the time or knowledge to ongoing management delegates the implementation, while keeping direction over the strategy.