What Is in an Investment Management Agreement

Investment management is a crucial aspect of wealth management. It involves the management of investment portfolios on behalf of clients by investment managers and advisors.

To ensure that both the advisor and client are on the same page, there is a need for an investment management agreement (IMA). An IMA is a legal document that outlines the terms and conditions of the investment management relationship between the advisor and the client.

So, what does an IMA contain?

1. Investment Objectives and Restrictions: This section outlines the investment objectives, risk tolerance, and restrictions of the client. It includes the types of assets that the advisor can invest in, the investment timeframe, and the expected returns.

2. Compensation Structure: This section highlights the fees and payment structure for the advisor’s services. It includes the management fee, performance-based fee, and any other fees that may be applicable.

3. Termination Clause: This section outlines the conditions that may lead to the termination of the IMA. It includes the procedures for terminating the agreement, the notice periods required, and any penalties that may be applicable.

4. Custody and Brokerage: This section outlines the arrangements for holding the client’s assets. It includes the custody, brokerage, and trading arrangements that the advisor will use.

5. Reporting: This section outlines the reporting requirements of the advisor to the client. It includes the frequency and format of reports to be provided, and the information that should be contained in the reports.

6. Confidentiality: This section outlines the confidentiality requirements of the advisor. It includes the procedures for handling confidential information, and any limitations on the use of such information.

7. Responsibilities and Liability: This section outlines the responsibilities and liabilities of the advisor and the client. It includes the liability for any investment losses, and the procedures for resolving disputes.

In summary, an IMA is a critical document that governs the investment management relationship between the advisor and the client. It provides a clear framework for the management of the client’s assets, and protects the interests of both parties. It is, therefore, crucial to ensure that the IMA is well-drafted, concise, and unambiguous.