An investment consulting agreement is a crucial legal document between an investment consultant and a client. It outlines the services to be provided, fees charged, and other key terms governing their business relationship. With trillions in global assets under management, the investment consulting industry plays a vital role advising institutional investors like pension funds, endowments, and corporations on asset allocation, investment strategy, manager selection, and performance monitoring. Well-drafted agreements protect both parties and ensure alignment on expectations. This article provides an overview of key elements in investment consulting contracts and sample clauses as reference.
Defining Investment Consulting Services
A core component is clearly defining the services, such as: Asset allocation studies, Investment policy development, Investment manager searches, Performance measurement and attribution, Education on investment principles and practices, Preparation of fund manager presentations and questionnaires, Attending meetings with client regarding investment matters, Monitoring legal and regulatory changes pertaining to investments.
Stating Term Length and Renewal Provisions
The agreement should state the initial term length (e.g. 12 months) and provisions for renewal, such as: This Agreement will automatically renew for successive 12-month terms unless earlier terminated. Either party may elect not to renew by providing 60 days’ written notice prior to the end of a term.
Specifying Fees and Payment Terms
Typical fee structures include: – Flat annual retainer fee (e.g. $50,000/year) – Asset-based fees based on a percentage of Assets Under Management (AUM), often scaled down as AUM grows – Hourly fees for advisors’ time – Fees for additional services outside the scope of the retainer Detailed payment terms should establish: – Fee amounts and calculation methodology – How and when fees will be billed – Payment due dates – Reimbursement of expenses
Defining Performance Standards
Service level agreements provide measurable performance standards, such as: – Timeframes for completing deliverables – Guidelines on communication frequency, channels, and response time – Quantitative portfolio performance targets relative to benchmarks – Qualitative expectations regarding expertise, capabilities, reporting, responsiveness – Processes for review meetings to provide feedback
Handling Confidential Information
Given sensitive client financial information, confidentiality is critical. Key aspects are: – Definition of confidential information – Limits on disclosure: Consultant may not disclose confidential information without client’s written consent, except to its employees as needed to deliver services – Survival of obligations beyond agreement term – Remedies for unauthorized disclosure: Equitable relief, monetary damages
Investment consulting agreements allow alignment between advisor and client on critical aspects of the engagement. Well-drafted agreements clearly define services, fees, performance standards, confidentiality, term length, and other key provisions. They provide clarity and protection to support a productive long-term partnership focused on client needs.