Discretionary Investment Management Agreements: An Overview

Investors who seek to grow their wealth through investment often hire professionals to help them make financial decisions. This is where discretionary investment management agreements come into play. Discretionary investment management agreements or DIMAs are agreements between an investor and an investment advisor, wherein the advisor has full discretion over the management of the investor’s portfolio.

Under a DIMA, the advisor is given carte blanche to make decisions regarding the allocation of the investor’s assets. The investor relinquishes the authority to make any decisions regarding their investments, allowing the advisor to act on their behalf. This means that the advisor’s decisions are binding and the investor has no say in the matter.

The advisor is responsible for determining the investment strategy of the portfolio. They must consider the investor`s financial objectives and risk tolerance and manage the portfolio accordingly. They may also have to comply with certain regulatory requirements and report to the investor periodically.

One of the advantages of a DIMA is the level of expertise that the investment advisor brings to the table. They have the knowledge and experience to make informed investment decisions that can lead to higher returns than an investor could have achieved on their own. Additionally, DIMAs offer convenience for busy investors who do not have the time or inclination to manage their portfolios.

However, there are also some disadvantages to DIMAs. One of the biggest concerns is that the investor may not fully understand the investments that are being made on their behalf. Without any involvement in the decision-making process, the investor may not have a clear understanding of their financial situation, which can lead to dissatisfaction or distrust.

Another issue to consider is the fees associated with DIMAs. Advisors typically charge a fee for their services, which can be a percentage of the total portfolio value or a flat fee. These fees can add up over time, which can eat into the investor’s returns.

In conclusion, discretionary investment management agreements can be a beneficial option for investors who seek professional guidance in managing their portfolios. However, it is important to understand the terms and conditions of the agreement, as well as the fees involved, before entering into a DIMA. As with any investment, it is crucial to do your due diligence and carefully consider all of your options before making a decision.