Consultants often invest all or part of their accounts in investment funds, hedge funds, bank funds and other bundled vehicles. These vehicles can be managed by an unrelated consultant or manager. Consultants can also enter into contracts with unrelated managers to invest all or part of your assets as a separate account. All of these arrangements support their own expenses, which are redirected to your account. You should understand the magnitude and structure of these expenses and check whether the advisory fees are properly offset by the fees paid to the administrator of the bundled vehicle or to a separate account. You should also be satisfied with the consultant`s diligence on all unrelated managers (to avoid the Madoff situation). 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 keep in mind: the fees to be paid to the advisor must be indicated in the agreement or annex. 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). Each investment manager has been appointed under an investment management agreement with the management company and the company, which can be modified from time to time to ensure the day-to-day management of the company`s investments, subject to overall supervision and responsibility of the management company. The agreement should consist of whether you or the advisor is competent for non-voting rights regarding the securities on the account. Some councillors do not like to elect substitutes because of the administrative burden. However, proxies can be important (for example. B a vote on an upcoming acquisition) and the advisor is often in a better position to assess the issues and ensure that your vote is recorded on time. For similar reasons, you may also require the advisor to bring a class action on your behalf. 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 agreement should designate the custodian who holds the assets in the account. The custodian should be a serious financial organization, for example. B a large bank or brokerage company, and be independent of the advisor (again to avoid the madoff situation). If the advisor recommends a particular director, he or she must explain the basis of his or her recommendation (for example. B lower costs, better services or the advisor`s familiarity with the trustee`s staff and systems). The advisor should also be willing to work with the administrator you are currently using or prefer in another way. The agreement should stipulate that the advisor provides his services in accordance with all laws and regulations.