Discretionary Management Agreement Template for the United States

A Discretionary Management Agreement is a critical legal document that formalizes the relationship between you and a professional investment manager, granting them authority to make investment decisions on your behalf without requiring prior approval for each transaction. Under United States law, this agreement must comply with strict federal securities regulations to protect your interests while enabling efficient portfolio management.

When do you need this document?

You need a Discretionary Management Agreement when engaging a professional investment manager to handle your portfolio with full decision-making authority. This is essential for high-net-worth individuals seeking sophisticated investment strategies, institutional investors requiring active portfolio management, or anyone wanting professional oversight without the burden of approving every trade. The agreement is particularly important when you lack the time, expertise, or desire to make day-to-day investment decisions while maintaining specific investment objectives and risk parameters.

Key legal considerations

The agreement must clearly define the scope of discretionary authority, including which assets the manager can trade and any prohibited investments or strategies. Fee structures require detailed disclosure, covering management fees, performance-based compensation, and expense allocations. Risk management provisions should outline acceptable risk levels, diversification requirements, and loss limitations. The document must establish clear reporting obligations, specifying how frequently you'll receive performance updates and account statements. Termination clauses should address notice periods, asset transfer procedures, and final fee calculations to protect both parties' interests.

Legal requirements in United States

Under the Investment Advisers Act of 1940, investment managers must register with the SEC or state regulators and maintain fiduciary duties to clients. The agreement must include mandatory disclosures about the manager's background, potential conflicts of interest, and compensation structure as required by Form ADV. Securities Exchange Act provisions mandate proper custody arrangements and regular account reconciliation. The Dodd-Frank Act introduced enhanced oversight requirements for larger investment advisers, including additional reporting obligations and compliance monitoring. State laws may impose additional requirements, particularly regarding notice periods for termination and specific disclosure obligations that vary by jurisdiction.