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name: investment-advisory-agreement language: en description: Drafts a U.S. Investment Advisory Agreement (IAA) for SEC- or state-registered advisers under the Investment Advisers Act of 1940, SEC Rules 204-3, 206(4)-2, and 206(4)-3. Use when onboarding an advisory client, establishing a new advisory relationship, or updating an existing IAA. tags:

• agreement
• drafting
• regulatory
• transactional

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Investment Advisory Agreement

Produces a compliant IAA covering fiduciary duties, authority scope, fee structures, Form ADV delivery, custody, proxy voting, and assignment restrictions under IAA § 205(a)(2).

Prerequisites

1. Adviser details — legal entity name, registration status (SEC or state), CRD number, principal office
2. Client details — full legal name(s), account type (individual, joint, trust, entity), investment objectives, risk tolerance, time horizon
3. Form ADV Part 2A & 2B — current brochure and brochure supplements
4. Fee schedule — AUM percentages, tier breakpoints, billing frequency, minimum fees
5. Custodian — qualified custodian identity or selection process
6. Service scope — discretionary vs. non-discretionary; ancillary services if any
7. Proxy voting policy — adviser's written policy if accepting proxy authority

Search uploaded documents for existing Form ADV, prior IAA, fee schedules, and client data before drafting. If any prerequisite is missing, pause and ask — do not assume or fill gaps.

Core Workflow

1. Cover Page

Agreement title, party legal names, effective date, and table of contents if >5 pages.

2. Services

Element	Content
Authority type	State discretionary or non-discretionary with practical implications
Portfolio management	Methodology, asset allocation, rebalancing frequency, review cadence
Ancillary services	Financial planning, retirement, estate coordination — only if in scope
Out-of-scope	Tax prep, legal drafting, accounting excluded; referrals to qualified professionals

3. Fees & Billing

Element	Content
Advisory fee	Annual % of AUM; tiered schedule with breakpoints and worked dollar examples
Calculation basis	Specify: beginning / ending / average daily balance
Billing frequency	Quarterly in advance, in arrears, monthly, or annual
Payment method	Direct debit (written authorization required) or invoice
Pro-ration	Mid-period opens/closes, significant deposits/withdrawals
Third-party costs	Custodial fees, commissions, fund expense ratios — distinguish from advisory fee
Minimums	Minimum account size and/or minimum annual fee if applicable

4. Custody & Brokerage

• Identify qualified custodian per SEC Rule 206(4)-2 [VERIFY current rule number]
• Adviser holds no physical custody; assets in client's name at custodial institution
• Disclose soft dollar arrangements, resulting conflicts, and best execution approach
• Disclose referral fees or revenue-sharing with custodians or service providers
• Client receives account statements directly from custodian at least quarterly

5. Risk Disclosures

Include with client acknowledgement, selecting those applicable to the strategy:

• Market risk
• Interest rate risk
• Credit / default risk
• Liquidity risk
• Concentration risk
• International / currency risk
• Alternative asset risk
• No guarantee of performance or return of principal; past performance ≠ future results

6. Regulatory Disclosures

Requirement	Provision
Form ADV delivery	Part 2A and 2B received ≥48 hours before execution (Rule 204-3)
Free-look right	Terminate without penalty within 5 business days if ADV not timely delivered
Annual update	Updated ADV within 120 days of adviser's fiscal year-end
E-signatures	Valid under ESIGN Act / UETA; client consent to electronic business

7. Proxy Voting

Option A — Adviser votes:

• Reference written proxy voting policies; describe methodology and conflict-of-interest handling
• Describe how client obtains voting records

Option B — Client retains authority:

• Adviser has no obligation to vote, recommend, or act on corporate actions
• Client receives proxy materials from custodian or transfer agent

Address class actions, tender offers, and rights offerings — state responsibility explicitly.

8. Term, Termination & Amendment

Provision	Language
Term	Effective on execution; continues until terminated
Termination	Written notice; specify notice period (typically 30 days)
Fees on termination	Pro-rate and refund prepaid unearned fees promptly
Amendment	Material changes require mutual written consent; fee increases require affirmative client consent
Assignment	Client consent required per IAA § 205(a)(2); define to include transfer of controlling interest

9. General Provisions

• Governing law (specify state)
• Severability
• Entire agreement / integration clause
• Confidentiality and client privacy (Regulation S-P [VERIFY])
• Limitation of liability to extent permitted by law
• Dispute resolution / mandatory arbitration if firm policy

10. Signature Block

Signatory Type	Requirements
Individual	Full legal name as on account registration + date
Joint account	All holders sign; each confirms receipt of disclosures
Entity	Authorized representative + title + representation of binding authority

Include dated acknowledgement that client received, read, and understands the IAA and all Form ADV disclosures.

Pitfalls & Checks

• Fiduciary standard — every provision must reflect duty to act in client's best interest; disclose and manage all conflicts
• No guarantee language — exclude anything that could be construed as guaranteeing returns, promising outcomes, or limiting fiduciary duties
• Solicitor disclosures — if solicitor arrangements exist, include cash solicitation disclosures per Rule 206(4)-3 [VERIFY]
• State registration — for state-registered advisers, verify state-specific contract and disclosure requirements beyond SEC rules
• Anti-hallucination — do not rely on parametric memory for regulatory citations; verify current rule numbers and statutory text
• Length target — 8–15 pages; use numbered sections and TOC for longer agreements
• Annual maintenance — flag for re-execution or client acknowledgement when material terms change or Form ADV is materially amended
• Attorney review required before execution — this is a securities regulatory document