The agreements between an investment advisor and his client are recalled in an investment management contract. Although the advisor generally recognizes his or her own form of agreement, the client must make certain decisions, may want to negotiate certain points, and in any case must understand the basic terms of the agreement. If you are the client, some of the basic conditions to keep in mind are: Advisors often invest all or part of their accounts in mutual funds, hedge funds, bank funds, and other pooled vehicles. These vehicles can be managed by the consultant or by disconnected managers. Advisors can also contract with unaffiliated managers to invest some or all of your assets in a separate account. All of these agreements have their own expenses, which are transferred to your account. You must understand the scope and structure of these expenses and determine whether the consultant`s fees are adequately offset by the fees paid to the manager of the pooled vehicle or by a separate account. You should also be familiar with the care the consultant takes with unaffiliated managers (to avoid the crazy situation). The agreement should specify whether you or the advisor is responsible for the power of attorney for the account securities. Some consultants do not like to elect MPs because of the administrative burden. However, proxies can be important (p.B a vote on an upcoming acquisition), and the advisor is often in a better position to assess issues and ensure your voice is recorded in a timely manner. For similar reasons, you may also ask the consultant to file class actions on your behalf.
The agreement should specify the nature and frequency of written and oral reports. The reports are generally quarterly and should cover general market conditions, all account activities, current assets in the account and the performance of the account against relevant benchmarks. The agreement should also provide for additional reports upon reasoned request. The contract must provide that it can be terminated by you at any time or relatively quickly (for example. B 30 days) without penalty. If you are not satisfied with the consultant, you should be able to end the relationship without incurring any additional costs. The agreement should describe how the advisor will negotiate the assets in the account once a purchase or sale decision has been made. If the advisor is trading through an affiliate broker, you should have peace of mind that you are getting the best total price. The agreement often allows the advisor to receive research or brokerage services from the brokers he or she uses. This is allowed, but you should know that the advisor has a financial interest in using these brokers. You can also ask the advisor to trade through a specific broker, but this can increase your trading costs. The agreement gives the advisor discretion or non-discretion.
With discretionary authorization, the advisor may create your account without prior consultation with you. In the case of a non-discretionary authority, the advisor must obtain your prior consent to each transaction. For both types of powers, the agreement should clearly indicate which assets are to be managed. This is usually done by referring to a specific account or accounts held in your name with a particular custodian. The agreement must name the depositary who will hold the assets in the account. The custodian bank must be a reputable financial organization, para. B example a large bank or brokerage firm, and must be independent of the advisor (again, to avoid the crazy situation). If the advisor recommends a particular custodian bank, he or she must explain the basis of his or her recommendation (p.B. cost reduction, better services or the consultant`s knowledge of the depositary`s staff and systems).