Discretionary Management Agreement Definition: What You Need to Know

A discretionary management agreement (DMA) is a legal contract between an investor and a financial advisor or fund manager. In this type of agreement, the investor gives the advisor or manager full discretion to manage their investment portfolio without requiring prior approval for each individual trade or investment decision made on their behalf.

Under a DMA, the investor entrusts their assets to the advisor or manager, who then has the authority to buy and sell securities, make investment decisions, and manage the portfolio without consulting the investor beforehand. The investor sets the investment objectives and risk tolerance level, which the advisor or manager must consider when making investment decisions.

This type of agreement is often used by individuals or institutions with a significant amount of assets to manage, as it allows them to delegate the day-to-day management of their portfolio to a professional, freeing up their time and reducing the stress of managing investments.

In a DMA, the financial advisor or manager has a fiduciary duty to act in the best interest of the investor, meaning that they must make investment decisions that align with the investor`s goals and are not motivated by their own personal gain.

There are several benefits to utilizing a DMA, including:

1. Expertise: Financial advisors and fund managers have knowledge and experience in managing investment portfolios, which can lead to better investment decisions and potentially higher returns.

2. Time-saving: Delegating the management of investments can free up an investor`s time to focus on other aspects of their life or business.

3. Risk management: Advisors and managers are responsible for monitoring and managing risk, which can help protect an investor`s portfolio from market volatility.

4. Diversification: Advisors and managers can create a well-diversified portfolio with a mix of stocks, bonds, and other assets, which can help reduce risk and potentially increase returns.

It is essential to carefully review the terms and conditions of a DMA before signing, as there may be fees involved, such as management fees or performance fees, which can affect investment returns. It is also crucial to choose a reputable advisor or manager with a strong track record and experience in managing investments similar to the investor`s goals and objectives.

In conclusion, a discretionary management agreement can be an effective way for investors to delegate the management of their investment portfolio to a professional while maintaining control over their investment objectives and risk tolerance. It is important to work with a reputable advisor or manager and fully understand the terms and potential fees involved before signing the agreement.