Private Banking Investment Mandates: Advisory, Discretionary, and Execution-Only Explained

When you establish a private banking relationship and place assets with the bank for management, you must choose how those assets will be managed. The mandate type defines how decisions are made, where responsibility lies, and ultimately how much you pay. This choice has major implications for both investment outcomes and the client-bank relationship — yet many clients arrive at a mandate type by default rather than by deliberate selection.

This guide explains the three principal mandate types — discretionary, advisory, and execution-only — in depth, covering how each works, what it costs, the regulatory framework, and when each is appropriate.

Discretionary Investment Management

In a discretionary mandate, the bank (specifically its discretionary portfolio management team) makes investment decisions on your behalf, within pre-agreed parameters set out in an Investment Policy Statement (IPS). Day-to-day trading, rebalancing, and tactical adjustments are made without prior reference to you.

How it works in practice: At mandate inception, you and your relationship manager agree:

• Risk profile (typically Low/Medium/High or equivalent scale)
• Strategic asset allocation (e.g., 40% equities, 40% bonds, 10% alternatives, 10% cash)
• Currency exposures and constraints
• Exclusions (ESG restrictions, sector exclusions, geographies to avoid)
• Liquidity requirements (if you need periodic distributions)
• Benchmark (e.g., 60/40 MSCI World/Bloomberg Global Agg)

Within these parameters, the portfolio management team can buy and sell without seeking your approval. You receive regular reporting — typically monthly valuation statements and quarterly portfolio reviews — and may have periodic formal review meetings with your relationship manager.

Advantages:

• Convenience: no transaction-by-transaction decisions required
• Speed of execution: the team can react to market conditions without waiting for client approval
• Professional management: you benefit from the bank's full research capability
• Objectivity: removes behavioural biases (panic selling, chasing performance) from the process

Disadvantages:

• Loss of control: you cannot veto individual trades
• Alignment risk: the bank's house view drives decisions; if you disagree with a theme, you cannot opt out without changing the mandate
• Cost: discretionary mandates carry the highest management fees — typically 0.75–1.5% per annum on AUM for an established private bank, depending on size

Regulatory framework: Under MiFID II (and its UK equivalent, retained in the FCA Conduct of Business rules post-Brexit), discretionary managers are subject to suitability obligations. The IPS must be reviewed at least annually to ensure the mandate remains suitable for your circumstances. Discretionary managers are also required to provide cost transparency disclosures, showing total cost of ownership including fund fees and transaction costs.

Advisory Mandate

In an advisory mandate, the relationship manager and/or investment advisory team makes recommendations — but you make every final investment decision. No transaction is executed without your explicit approval.

How it works in practice: Your relationship manager (RM) will contact you (or you contact them) to discuss investment ideas, market conditions, and specific transaction recommendations. You review the recommendation, ask questions if needed, and give approval to execute or decline. Some banks provide a more structured advisory service with regular investment committee recommendations and formal portfolio reviews.

Types of advisory service:

• Bespoke advisory: High-touch, frequent contact with the RM, fully customised recommendations based on your individual portfolio.
• Model portfolio advisory: The bank offers a range of model portfolios (e.g., Conservative, Balanced, Growth) and recommends you replicate these proportions through specific investments. Less bespoke but more structured.
• Product advisory: The bank proposes specific products — structured notes, new equity issues, funds — on a transaction-by-transaction basis. Common for clients with large portfolios who manage most of it themselves.

Advantages:

• Retained control: every decision is yours
• Transparency: you know exactly what is in the portfolio and why
• Flexibility: you can introduce personal views, concentrate positions, or override recommendations
• Lower cost: commission-based advisory may be cheaper than discretionary for lower-turnover portfolios

Disadvantages:

• Time commitment: you need to be available to review recommendations and respond promptly
• Expertise requirement: you need sufficient financial knowledge to evaluate recommendations critically
• Behavioural risk: clients may make poor decisions (timing, concentration) that a discretionary manager would not make

Regulatory framework: Advisory mandates are also subject to suitability obligations. The bank must ensure each recommendation is suitable for your risk profile, investment objectives, and financial situation. Under MiFID II, the bank must document the suitability of each recommendation.

Fees: Advisory mandates may be commission-based (a percentage fee per transaction) or fee-based (a flat advisory retainer). The industry has moved away from pure commission structures in regulated markets. FCA rules now require disclosure of how the adviser is paid.

Execution-Only

An execution-only arrangement means the bank simply executes orders you give it, with no advice or suitability assessment. You take full responsibility for investment decisions.

Who uses it: Experienced investors who manage their own portfolio strategy and simply need a custodian to hold assets and execute trades. Suitable for clients who have professional investment expertise or who work with an external investment manager and need the bank purely as custodian.

Regulatory framework: Execution-only arrangements have a lighter regulatory touch — the bank does not assess suitability because it is not providing a service that includes a recommendation. However, the bank still has best execution obligations (MiFID II) — it must execute orders in a way that achieves the best available outcome for the client across price, costs, speed, and other relevant factors.

Fees: Lower than advisory or discretionary — typically custody fees plus transaction commissions. For very large portfolios, custody-only fees may be negotiated as a flat fee or a low percentage.

Choosing the Right Mandate

The right mandate depends on several factors:

Factor	Discretionary	Advisory	Execution-Only
Involvement preference	Low	Medium–High	High
Investment expertise	Any level	Moderate–High	High
Portfolio size	Any	Any	Typically £1m+
Time availability	Low required	Moderate required	High available
Cost sensitivity	Lower priority	Medium	High priority
Control importance	Low	High	Full

For most HNW private banking clients who are primarily property investors, entrepreneurs, or professionals — rather than professional investors — a discretionary mandate is the most practical choice. It frees time, applies professional management, and provides accountability (the bank's discretionary team is responsible for performance).

For clients with strong investment views, sector expertise, or existing external advisers managing part of their portfolio, an advisory mandate provides the right balance of professional input and personal control.

Execution-only is appropriate for the minority of clients who are genuinely self-directed investors.

Hybrid Approaches

Many private banks offer hybrid arrangements. A common structure:

• Core portfolio: discretionary mandate for 70% of assets (long-term strategic allocation)
• Satellite portfolio: execution-only or advisory for 30% of assets (specific thematic positions, alternative investments, or direct equities the client follows closely)

This gives the client control over their views while delegating the broad portfolio management to professionals.

Mandate Governance and Reviews

Regardless of mandate type, effective governance requires:

• Annual IPS review: Confirm that risk profile, objectives, and constraints remain appropriate
• Performance review: Assess performance against benchmark and peers
• Cost review: Scrutinise total cost of ownership annually — management fees, fund fees, transaction costs
• Counterparty review: Is the bank's financial strength and service quality still appropriate? Private banking relationships should be reviewed at least every three to five years

Changing mandate type or moving between banks is always possible, though there may be exit costs (deferred charges, loss of relationship value) and tax implications (depending on whether assets are sold on transfer).

Investment mandates involve financial risk. The value of investments can fall as well as rise, and you may receive less than you invest. This guide is for general information only. Past performance is not a reliable indicator of future results.

How Global Investments Can Help

Global Investments works with HNW clients to ensure their private banking arrangements — including mandate structure — are aligned with their broader wealth and property investment objectives. Whether you are establishing a first private banking relationship, reviewing an existing mandate, or considering a change of institution, our team can provide impartial introductions and guidance. Contact us to discuss your investment management requirements.