Investment authority: Overview, definition, and example
What is investment authority?
Investment authority refers to the power or right given to an individual or entity to make investment decisions on behalf of another party, such as a business or investor. This authority allows the person with investment authority to manage and make decisions about buying, selling, or holding investments, often without needing to get approval for each action.
For example, a business owner may give an investment advisor the authority to invest the company’s funds in stocks, bonds, or real estate, based on a set of guidelines or goals.
Why is investment authority important?
Investment authority is important because it provides clarity and control over investment decisions. When a trusted individual or entity has investment authority, it ensures that decisions can be made quickly and efficiently without waiting for approval at each step. For businesses, it helps in delegating investment tasks to professionals while ensuring alignment with business goals.
For individual investors, giving investment authority to a financial advisor can help manage their portfolio more effectively and make the best decisions based on market conditions.
Understanding investment authority through an example
Imagine a company that has set aside a portion of its capital for long-term investments. The board of directors grants the company’s chief financial officer (CFO) the authority to make investment decisions within certain limits. The CFO can buy stocks or bonds on behalf of the company without having to ask for approval each time, as long as they follow the company’s investment strategy.
In another case, a retiree hires a financial advisor and gives them investment authority over their retirement savings. The advisor is empowered to buy and sell investments based on the retiree’s goals and risk tolerance, without needing the retiree’s approval for each transaction.
An example of an investment authority clause
Here’s how a clause about investment authority might appear in a contract:
“The Investor hereby grants the Investment Manager the authority to make all decisions regarding the purchase, sale, and management of investments on behalf of the Investor, in accordance with the agreed-upon investment strategy.”
Conclusion
Investment authority allows a designated person or entity to make investment decisions on behalf of another party. It helps streamline the investment process by removing the need for constant approvals while ensuring the decisions align with the party’s goals. Whether for businesses or individuals, establishing investment authority can provide both flexibility and confidence in managing investments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.