A trustee and beneficiary enter into an investment-direction agreement, in which the trustee agrees not to diversify the trust’s investments despite having the legal authority to do so. In return, the beneficiary agrees not to hold the trustee liable for any resulting losses. This agreement is commonly referred to as an IDA.
An investment-direction agreement is a legal contract that allows a beneficiary of a trust to instruct the trustee on how to invest the trust’s assets. Despite the trustee’s legal obligation to diversify the assets, the agreement obliges the trustee to follow the beneficiary’s investment instructions. In return, the beneficiary agrees to hold the trustee harmless for any losses resulting from not diversifying. For instance, John, a beneficiary of a trust with $1 million in assets, believes that investing all the money in a single stock will generate the highest return. To achieve this, John enters into an investment-direction agreement with the trustee, allowing him to direct the trustee to invest all the trust’s assets in a single stock. Similarly, another example could involve a beneficiary who wants to invest in a specific industry or sector, such as technology or healthcare. The investment-direction agreement permits the beneficiary to instruct the trustee to invest in companies within that industry or sector, even if it contradicts the trustee’s legal obligation to diversify. These examples demonstrate how an investment-direction agreement empowers beneficiaries to have more control over the investment of their trust’s assets, even if it deviates from traditional investment strategies.
An Investment-Direction Agreement is a legal document that allows an investor to provide specific instructions to their investment advisor regarding the management and direction of their investment portfolio.
This agreement is important as it ensures that the investor’s preferences and objectives are communicated clearly to the investment advisor, minimizing any potential misunderstandings or conflicts of interest.
Yes, an Investment-Direction Agreement can be modified or revoked at any time by the investor, as long as proper notice is given to the investment advisor.
If the investment advisor fails to follow the instructions provided in the agreement, the investor may have grounds for legal action, such as breach of contract or negligence.
Yes, an Investment-Direction Agreement can be used for various types of investments, including stocks, bonds, mutual funds, and other securities.
While it is not legally required, it is advisable to have a lawyer review the agreement to ensure that it adequately protects the investor’s interests and complies with applicable laws and regulations.
Yes, an Investment-Direction Agreement can be used by both individual and institutional investors, such as corporations, pension funds, or charitable organisations.
In most cases, an investment advisor cannot unilaterally terminate an Investment-Direction Agreement unless there is a provision allowing for termination under specific circumstances, such as non-payment of fees or violation of the agreement’s terms.
While investors have the freedom to provide specific instructions, there may be certain limitations imposed by regulatory authorities or investment policies that the investment advisor must adhere to.
The duration of an Investment-Direction Agreement can vary and is typically specified within the agreement itself. It can be for a fixed term or continue until either party decides to terminate the agreement.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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