SEC Allows Wrap Sponsors to Receive Sub-Advisers’ Brochures
The SEC Division of Investment Management has issued a no-action letter allowing sub-advisers in a wrap fee or managed accounts program to deliver Form ADV Parts 2A and 2B (aka brochures) to the program sponsor rather than to the underlying clients. To rely on the relief, the parties must observe the following conditions: (1) the sponsor must have discretionary authority to select sub-advisers; (2) the client must affirmatively consent to the sponsor acting as its agent following receipt of sufficient information; (3) the sponsor must retain copies of the brochures; (4) the sponsor must identify to the clients each sub-adviser retained; and (5) the sponsor must implement policies and procedures to review the brochures, manage any conflicts of interest, and follow due diligence policies around hiring sub-advisers consistent with its fiduciary obligations.
OUR TAKE: This letter is very helpful for wrap fee and managed account program sponsors, sub-advisers and their clients. The program sponsors don’t really want to manage the delivery of brochure delivery by dozens of underlying subadvisers. The underlying subadvisers don’t really want to have to interact with hundreds of underlying clients. And, the clients really have no interest in receiving all this paperwork.