The agreement should describe how the advisor will act assets on the account as soon as a decision is made to buy or sell. If the advisor acts through a related broker, you should get some certainty that you will get the best total price. The agreement will often allow the consultant to obtain research or brokerage services from the brokers he uses. This is permissible, but you should be aware that the advisor will have a financial interest in using these brokers. You can also order the advisor to act through a particular broker, but this can increase your trading fees. The agreement gives the advisor discretionary or non-discretionary powers. With discretion, the advisor can create your account without consulting you beforehand. In the case of non-discretionary authority, the advisor must obtain your prior approval for each transaction. For both types of powers, the agreement should clearly state which assets should be managed.
This is usually done by reference to a particular account or an account held in your name with a particular custodian. Agreements between an investment advisor and his client will be translated into an investment management agreement. While the advisor usually announces his or her own form of agreement, the client must make certain decisions, can negotiate certain points and must in any case understand the fundamental terms of the agreement. If you are the customer, some of the basic conditions you want to meet are: The contract should provide that it can be terminated by you at any time or relatively quickly (for example. B 30 days) without penalty. If you are dissatisfied with the counsellor, you should be able to terminate the relationship without incurring additional costs. Investment management agreements generally provide that the advisor is not held liable to the client if he has no intentional misconduct, bad faith, simple or serious negligence and/or breach of the duty of loyalty. Some agreements may also provide that the client compensates the advisor for third-party claims.
While you should try to reduce these types of rules, advisors tend to resist significant changes. In addition, consultants are not allowed to limit debts they would otherwise have under securities legislation. The fees due to the advisor are defined in the agreement or in an appendix. As a general rule, fees are shown as a percentage of the account`s assets (for example. B 1% per year) and are due quarterly in advance or late. Although consultants have standard pricing plans, fees can be negotiated. For example, the advisor should be willing to charge a lower fee for a larger account and for easier-to-manage parts of the account (for example. B, bonds and cash). In addition to the advisor`s fee, you are responsible for brokerage commissions and fees and expenses of the custodian and other service providers (unless it is a „Wrap” account).
The agreement should specify the nature and frequency of written and oral reports. Reports are generally quarterly and should include general market conditions, all account activity, outstanding account assets and account performance from relevant repositories.