Investment Management Agreement Template

In plain language: Names the client and the investment manager as legal entities, identifies the specific account or portfolio covered, and records the effective date of the agreement.

Common mistake: Identifying the client by an informal name or trade name rather than the registered legal entity. If the client is a trust or LLC, the entity name must match the custodial account title exactly — a mismatch can delay account opening or void the agreement.

In plain language: Defines what the manager is authorized to do — asset classes, geographic scope, permitted instruments — and ties the mandate to the client's stated return objective, risk tolerance, and time horizon.

Common mistake: Leaving the investment objectives blank or vague, such as 'maximize returns.' Courts and regulators hold managers to the written mandate — undefined objectives remove the manager's accountability and expose both parties to disputes.

In plain language: States whether the manager may transact without prior client approval (discretionary) or must obtain approval for each trade (non-discretionary), and any carve-outs or limits on that authority.

Common mistake: Granting blanket discretionary authority without any investment guideline restrictions. Unlimited discretion with no constraints has led to mismanagement claims even where the manager acted in good faith — always attach a Schedule A with written guidelines.

In plain language: Sets out the management fee rate (as a percentage of AUM), how often it is calculated and billed, any performance fee and its measurement period, the high-water mark mechanism, and what expenses are billed separately.

Common mistake: Omitting the high-water mark provision when charging a performance fee. Without it, a manager can charge performance fees on gains that merely recover prior losses — a practice that erodes client trust and may constitute a breach of fiduciary duty.

In plain language: Obligates the manager to provide periodic account statements, performance reports, and portfolio valuations at defined intervals, and specifies the methodology for valuing illiquid holdings.

Common mistake: No defined reporting frequency or benchmark reference. A client with no contractual right to regular reports has no early-warning mechanism for underperformance or style drift — by the time they discover an issue, significant losses may have already occurred.

In plain language: Requires the manager to disclose material conflicts — such as proprietary products, affiliated brokers, soft-dollar arrangements, and cross-trading between client accounts — and the procedures for managing them.

Common mistake: Including a generic boilerplate disclosure that lists no specific conflicts. Regulators treat insufficient conflict disclosure as a material deficiency — the clause must identify actual, specific conflicts relevant to the manager's business model.

In plain language: States the legal standard to which the manager is held (typically fiduciary, or a 'prudent investor' standard), and defines the circumstances under which the manager is liable to the client versus indemnified against claims.

Common mistake: Drafting indemnification so broadly that it shields the manager from ordinary negligence. Exculpatory clauses that eliminate liability for negligence are void in several jurisdictions and undermine the client's ability to recover losses caused by poor execution.

In plain language: Sets the notice period required to end the agreement, conditions permitting immediate termination for cause, how fees are prorated on termination, and the manager's obligations for transitioning the portfolio back to the client or a successor manager.

Common mistake: No transition obligations on the manager upon termination. Without them, a departing manager has no contractual duty to cooperate with the handover — causing portfolio disruption, trading gaps, and potential tax events at the client's expense.

In plain language: Specifies the jurisdiction whose law governs the agreement and the mechanism for resolving disputes — arbitration, mediation, or litigation — including the forum and applicable rules.

Common mistake: Selecting FINRA arbitration without noting that FINRA jurisdiction covers broker-dealers but not all registered investment advisers. Using the wrong forum clause can leave disputes in legal limbo until a court determines which body has jurisdiction.

An investment management agreement is a legally binding contract between an investor and a professional investment manager that authorizes the manager to oversee and transact on a portfolio of assets on the investor's behalf. It defines the scope of the mandate, permitted instruments, fee structure, reporting obligations, and the conditions under which either party may end the relationship. It is the foundational document for any discretionary portfolio management relationship.

Under a discretionary agreement, the manager may buy and sell assets without seeking approval for each individual trade — they act within the written investment guidelines but do not need transaction-by-transaction sign-off. Under a non-discretionary arrangement, the manager recommends trades but the client must approve each one before execution. Discretionary management is standard for professional managers and family offices; non-discretionary suits investors who want to retain hands-on control.

For most institutional, pension, or high-net-worth mandates, yes — legal review is strongly recommended. The fee structure, indemnification clauses, fiduciary standard, and conflict-of-interest disclosures all have direct legal and regulatory implications. A securities lawyer can confirm the agreement complies with applicable investment adviser regulations, that the fee terms are enforceable, and that the liability allocation is fair. A 1–3 hour review typically costs $500–$1,500.

At minimum, the agreement should state the management fee rate (typically expressed as an annual percentage of AUM), the billing frequency and calculation method, and which expenses are billed separately to the account. If a performance fee applies, the agreement must define the benchmark or hurdle rate, the measurement period, and the high-water mark mechanism. Failing to document any of these creates billing disputes and potential regulatory violations.

A fiduciary standard requires the manager to act solely in the client's best interests when making investment decisions — placing the client's interests above the manager's own and ahead of any affiliated party. In the US, registered investment advisers are held to a fiduciary standard under the Investment Advisers Act of 1940. Broker-dealers are subject to a lower suitability or best-interest standard. The agreement should explicitly state which standard applies and confirm the manager's registration status.

Most agreements allow termination by either party with 30 days' written notice delivered to the addresses in the contract. Immediate termination for cause — fraud, gross negligence, or regulatory suspension — is generally permitted without notice. Upon termination, the manager should cease trading, provide a final account statement, prorate the management fee to the termination date, and cooperate with the transfer of the account to a successor custodian or manager within a defined window.

Yes, in every major jurisdiction. In the US, investment management agreements involving registered investment advisers are subject to the Investment Advisers Act of 1940 and SEC rules, including recordkeeping and disclosure requirements. In Canada, provincial securities regulators set minimum terms for managed account agreements. In the UK, the FCA's COBS rules govern client agreements for discretionary managers. In the EU, MiFID II requires a written agreement before providing portfolio management services, with prescribed minimum content.

An Investment Policy Statement (IPS) documents the client's investment objectives, risk tolerance, time horizon, liquidity needs, and permitted asset classes. It should be attached as a schedule to the investment management agreement rather than embedded in the body — this allows the IPS to be updated as the client's circumstances change without requiring a full contract amendment. A missing or vague IPS is one of the most common sources of dispute between clients and managers.

Yes, but pension fund mandates require additional provisions beyond a standard IPS. Trustees must ensure the agreement reflects the fund's Statement of Investment Principles, complies with applicable pension legislation (ERISA in the US, the Pension Benefits Act in Canada, the Pensions Act in the UK), and includes appropriate reporting on ESG integration, stewardship, and voting policies if required by the fund's governing documents. Pension trustees should always obtain legal advice before executing a management agreement.