Securities portfolio management contract

The securities portfolio management contract is the document by which an investordelegates the administration of his portfolio to a third party (the manager).

In other words, the investor instructs the management of his capital to specialized professionals. Thus, he seeks to earn higher income than he would obtain if he himself directed the management of his funds.

Main characteristics of the securities portfolio management contract

The main features of the securities portfolio management contract are:

  • It regulates the individualized administration of an investment portfolio, that is, the manager signs a different contract with each of its clients.
  • It is a bilateral agreement where obligations arise for both parties.
  • It is not exhausted with a single act, but a continuous relationship is established between the client and the manager.
  • Usually a state regulator determines what the contents of the agreement should be. These may be, for example, the payment obligations of the contracting party.
  • Most commonly, the pact is for an indefinite period and can be resolved or terminated unilaterally (usually by the investor). This, through a preliminary notice.
  • It is a contract of an onerous nature. That is, it is linked to a commercial activity with a lucrative purpose.

Modalities of the securities portfolio management contract

Among the securities portfolio management contracts, two modalities can be distinguished:

  • Management advised:The manager only proposes what actions to take with the investment portfolio, while the client has the final decision.
  • Discretionary or comprehensiveadministration : The administrator has total freedom and does not require the approval of the investor to carry out operations.

Participants of a securities portfolio management contract

The participants in a portfolio management contract are:

  • Manager:It is the institution that guards the portfolio on behalf of its owner. This work falls to credit institutions or investment services companies. The latter are characterized by having as main activity the administration of third-party financial assets.

The manager has the mandate to manage the portfolio based on the interests of its client. Therefore, it is not correct for you to carry out an operation solely for the purpose of receiving a commission for it, but it must be profitable for the investor.

It should also be noted that the manager is not obliged to offer a predetermined result, but to act responsibly and seeking the greatest benefit for the contracting party.

Another manager’s duty is to keep the investor regularly informed about the status of his funds. Even, as we mentioned earlier, in some cases you need your authorization before proceeding with any transaction.

  • Client:It is the holder of the securities portfolio. Its main obligation is to pay a remuneration to the manager. This can be set based on the total capital managed or the results obtained.

In turn, the customer will receive the profits from his portfolio. In some cases, in addition, you can receive advice from the manager, for example, to determine how to finance your activities.

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