Investment Advisory Contracts
At the core of the formal client-professional relationship, especially investment advisory relationships, is the client contract, also called the investment advisory contract. This document outlines the services that a securities professional will provide for his clients, spells out what the fees or commissions will be, discloses conflicts of interest, etc. Since this is such an important piece of documentation, the NASAA has put standards in place regarding the contract.
New and renewed investment advisory contracts must:
- • Be in writing
- • Outline all services to be provided
- • Contain a term (time limit) for the contract
- • Contain the advisory fee
- • Include the formula for calculating the fee
- • Specify the amount to be returned if the client terminates early
- • Specify whether the contract grants the adviser discretionary authority over the client’s portfolio
- • Include specific wording that the contract may not be assigned to another investment advisory firm without the client’s consent
- • If the investment adviser is a partnership, notify clients of changes in the partnership (for example, a partner has been added or left)
- • State whether the investment adviser will be compensated on the basis of capital gains or capital appreciation (performance-based fees; see Compensation section later in this chapter for more detail)
- • Further, no advisory contract can be entered into or can contain language that requires a client to waive any part of her rights under the Investment Ad