Draft Investment Advisory Agreement

Skill: Draft Investment Advisory Agreement

1. Subject-matter triage

• Read the operative program materials before drafting: Form ADV disclosures, fee schedule, custody summary, investment strategy descriptions, client profile, and any business term sheet.
• Determine whether the program uses one strategy or multiple strategies, whether fees are flat or breakpoint-based, and whether the adviser will have fee-deduction authority over client accounts.
• Identify any inconsistent business terms across the source set before writing final agreement language.
• Treat the advisory agreement as the client-facing operative contract; treat the drafting-notes memo as secondary and explanatory only.

2. Failure modes the skill is correcting

• Drafting an agreement that is not aligned with the Form ADV Part 2A brochure or other controlling disclosure.
• Omitting fee-deduction authority language, client authorization, or custodian statement language in a way that creates avoidable custody risk.
• Leaving termination notice periods ambiguous or inconsistent across source materials.
• Failing to define household aggregation for breakpoint pricing with enough precision to avoid billing disputes.
• Writing an arbitration clause that bars regulatory complaints or emergency equitable relief.
• Omitting the annual brochure-delivery reference or the initial privacy notice reference.
• Failing to specify how the initial partial billing period is handled.
• Describing the investment mandate too loosely, especially where the strategy, target allocation, and allowable drift are part of the discretionary authority granted.

3. Legal frameworks / domain conventions that apply

• The advisory agreement should be consistent with the adviser’s Form ADV Part 2A brochure and related disclosures; material inconsistencies create compliance and enforcement risk under the Investment Advisers Act of 1940 and SEC brochure-delivery requirements.
• Fee deduction from a custodial account can implicate deemed custody under SEC custody-rule analysis; the agreement should clearly authorize debiting fees, confirm client consent, and reference direct account statements from the qualified custodian. Cite the applicable custody-rule authority used in the source set or, if absent, the SEC custody framework under Advisers Act Rule 206(4)-2.
• The agreement should include a specific termination provision with a clear notice period that matches the operative disclosure set and is operationally workable.
• If the program uses breakpoint pricing, the fee schedule should state how assets are counted for tiering and whether accounts in the same household are aggregated; define “household” precisely enough to administer billing.
• Any dispute-resolution clause should preserve the client’s and adviser’s ability to seek regulatory relief and interim injunctive relief without waiving arbitration rights.
• The agreement should reference the adviser’s annual brochure-delivery obligation under the applicable brochure rule and the initial privacy notice obligation under the applicable privacy rule. Cite the governing SEC rules or comparable authority reflected in the source documents.
• If the program is strategy-based, the agreement should identify each selected strategy, the target allocation, and the permitted drift band as part of the mandate granted to the adviser.
• For any legal proposition stated in the agreement or memo, anchor the proposition to the governing statute, regulation, or recognized authority rather than leaving it implied.

4. Analytical scaffolds

• Start with a term-by-term reconciliation of the source documents; do not draft around a conflict without flagging it.
• Draft the agreement first, then draft the memo after the agreement text is settled.
• Reconcile the agreement against the brochure and any compliance or custody materials before finalizing the governing clauses.
• For fee provisions, specify the billing base, any breakpoint mechanics, household aggregation rule, and treatment of the initial partial period.
• For custody-related provisions, include the fee-debit authorization, custodian statement language, and any disclosure needed to explain account access or fee collection mechanics.
• For termination, state the notice period clearly and note any source-document inconsistency in the memo rather than burying it in the operative text.
• For dispute resolution, preserve regulatory and equitable carve-outs and avoid broad waivers that could be read to block administrative filings or emergency court relief.
• For the investment mandate, describe the selected strategy or strategies with enough precision that the scope of discretion is administrable and not dependent on unstated assumptions.
• In the drafting-notes memo, separate settled business decisions from open items that still require client, compliance, or partner input.
• End the memo with action items that specify who must act and when.

5. Vertical / structural / temporal relationships

• The Form ADV is the controlling disclosure document; the advisory agreement should not promise a broader or different service model.
• Custody-related language in the agreement must track the actual account-access and fee-deduction mechanics described in the custody materials.
• The fee schedule, account profile, and strategy description should work together: the strategy determines the mandate, the profile determines allocation, and the fee terms determine billing administration.
• The agreement should reflect the initial onboarding moment, the ongoing annual brochure delivery cycle, and the termination process as separate temporal events.
• If source documents conflict on any timing item, resolve the business decision explicitly before execution or flag it as unresolved.

6. Output structure conventions

• Produce two finished documents: an execution-ready advisory agreement and a companion drafting-notes memo.
• The agreement should follow conventional contract architecture: parties and recitals; appointment and authority; investment mandate; fees and billing; custody and statements; client representations; confidentiality and records; term and termination; dispute resolution; miscellaneous provisions.
• The agreement should read as an operative client contract, not as a drafting exercise or summary.
• The memo should be concise but substantive: explain key drafting choices, identify cross-document inconsistencies, note regulatory considerations, and list open items or decisions needed before execution.
• When multiple strategies, fee tiers, or timing alternatives exist in the source set, address each explicitly rather than collapsing them into a generalized statement.
• Include an explicit recommendations section in the memo with imperative action items, responsible roles, and timing anchors tied to the transaction or regulatory process.
• Before finishing, ensure the primary agreement file is the substantive deliverable and the memo is a true companion document, not a substitute for missing agreement text.