In the discussion of the question of "discretion", the weight is therefore given to the ability to execute transactions.
- In a Class Action (Economic Jaffa Civil Case) 47119-12-15 Afrimov v. USG Capital Israel in a Tax Appeal (June 24, 2019) (hereinafter: the Afrimov case), the court (Justice R. Ronen) referred to the definition of the concept of "discretion" in the context of managing investment portfolios and noted the following:
"As a rule, discretion is the power to intelligently choose which transactions to execute, when and under what conditions. The use of the term 'discretion' distinguishes between cases in which the investor receives technical assistance from a third party in the execution of transactions chosen by the client himself; and cases in which the client entrusts his money to another whom he trusts and that other person is entitled to decide how to invest the money (when in order to make the decision he may use a variety of means). The transfer of discretion in relation to the investment of funds to another person therefore involves that the other person making a material decision regarding the investment, as opposed to the technical assistance of another person that does not involve the exercise of discretion. Only when a substantive decision is made by another person is it a matter of 'discretion.'"
- In its discussion of the question of "discretion" in the Afrimov case, the court clarified the issue by distinguishing between a substantive action and a technical action. Another point of view that may be useful is to sharpen the distinction between "discretion" and "control", in light of the defendant's claim that the funds were under the control of the client and not under his control, because the client and only he could withdraw funds from the account (see p. 1 of the written summaries of the defense).
The meaning of discretion is the ability to execute a transaction (in the client's account or money) with a great degree of independence and not necessarily after obtaining the client's consent regarding any concrete move (as opposed to the summary of the general outline for investment or trading). However, granting "discretion" does not mean granting control, let alone full and absolute control over what is going on in the account. The fact that the investment portfolio manager is authorized to decide on the execution of a concrete transaction in accordance with the profile agreed upon with the client does not mean that the client lacks control over what happens in the account. Even in the form of a client-manager relationship, the account remains under the control of the client. Control may manifest itself in several forms. First, the client has the authority to decide on the termination of the engagement between him and the manager and even the termination of activity in the account (and we should recall that the standard agreement under the Consulting Law requires that it include a condition that allows the client to do so). Second, the client has the option to change his preferences and accordingly the investment policy at each stage (see, for example, section 13(d) of the Consulting Law). Third, the fact that the investment manager is authorized to make a decision on executing a transaction does not mean that the client lacks such ability, since alongside the manager's ability to execute a transaction at discretion, the client's ability to execute transactions is also preserved. Moreover, in a standard normative situation, in exceptional cases, the client's consent to a specific action of the investment manager is required. Thus, for the sake of illustration, section 18 of the Consulting Law states that "a portfolio manager shall not execute a transaction involving a special risk for a client without the client's prior written approval for that transaction or for transactions involving the same risk."