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. 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 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. The agreement should also provide for additional reports on appropriate request. 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 stipulate that the advisor provides his services in accordance with all laws and regulations. The agreement may also specify specific requirements, such as the registration of the advisor under the Federal Investment Advisors Act 1940 or under state law.