Discretionary Mandate

A discretionary mandate is a written authority for a manager to transact on a family's behalf within agreed limits. The family, or its investment committee, sets the objectives, asset ranges, excluded investments, and risk limits, usually in an investment policy statement. The manager then buys and sells without a phone call on every ticket. That is the difference from an advisory relationship, where the manager recommends and the family still signs each trade.

Discretion is common in listed portfolios and in separately managed accounts. It also sits underneath many OCIO relationships. It is not the same as handing over the entire family office. Cash, private commitments, entity-level decisions, and anything outside the stated box should still need a family decision.

The mandate has to be specific enough to be monitored. "Invest prudently" is not a limit. Ranges, permitted instruments, concentration caps, leverage rules, and a list of what requires prior consent are.

Why it matters for family offices

Families use discretion to get professional execution without building a trading desk. The cost of that convenience is agency risk. A manager can stay inside the letter of a loose mandate and still take risks the family did not intend. Reporting cadence, look-through holdings, and the right to terminate are how the office keeps control.

The office must still be able to say what is owned today. If the only current picture sits with the manager, the family cannot manage liquidity, taxes, or the rest of the book. Discretion over a sleeve is compatible with a family single source of truth. Discretion over the truth itself is not.

Conflicts belong in the mandate. Related funds, in-house products, and cross trades should be disclosed and either banned or capped. Fees should be readable in cash terms, not only as a percentage.

How it shows up in practice

A family gives a bank a discretionary mandate over a $40 million listed portfolio, with a 60/40 equity and bond range, no single equity above 4%, no emerging-market debt, and a requirement to notify the office of any derivative. The CIO does not approve daily trades. Each month the office receives holdings, transactions, and a compliance certificate against the ranges.

In month four the manager is at 64% equity after a rally. The mandate requires rebalancing toward the midpoint within a stated number of days. The office sees the breach in the monthly file, not in a marketing letter, and the manager trades back. The relationship continues because the box was written down and the reporting was good enough to show when it was left.