Alert June 25, 2013

SEC Staff Allows Advisers Selected for Wrap-Fee/Managed Account Program to Satisfy Brochure and Brochure Supplement Delivery Requirements by Providing Them to Unaffiliated Adviser Sponsoring the Program

The staff of the SEC’s Division of Investment Management (the “Staff”) granted no-action relief to advisers (the “Program Advisers”) selected by an unaffiliated adviser (the “Sponsor”) to participate in the Sponsor’s wrap-fee or managed account programs or arrangements (the “Programs”) that would allow a Program Adviser to satisfy Rule 204-3 under the Investment Advisers Act of 1940 regarding delivery of the Program Adviser’s Form ADV Part 2A and 2B (the “Brochure Documents”) to a Program client by delivering the Brochure Documents to the Sponsor acting as the client’s agent.  The relief is subject to a number of conditions, including the following:

  • The Sponsor has discretionary authority over each client account in the Programs including the authority to select Program Advisers to manage client assets.
  • A client would need to consent to the delivery of Brochure Documents to the Sponsor.  This consent would be revocable, and upon request, the Sponsor would deliver the Brochure Documents to a client at no cost.
  • The Sponsor would inform each client of the Program Advisers managing the client’s account.
  • The Sponsor’s compliance program would include procedures designed to ensure that (1) it appropriately reviews the Brochure Documents ; (2) it appropriately manages any material conflicts that might arise for the Sponsor with respect to a Program Adviser (e.g., because of a business relationship) by sending the Program Adviser’s Brochure Documents to a client for evaluation, suggesting that the client engage another party to evaluate the conflict, or using some other suitable means; and (3) its decisions on the hiring and firing of Program Advisers are exercised in accordance with its fiduciary obligations and on the basis of appropriate due diligence and ongoing oversight.

The Staff’s response notes that a Sponsor might send a Program client disclosures about a Program Adviser other than those relating to a conflict of interest, e.g., disclosures relating to extraordinary financial events such as insolvency or bankruptcy or relating to disciplinary matters that a Program Adviser would be required to disclose to clients through Form ADV Part 2 or otherwise.

Goldman Sachs & Co., SEC No-Action Letter (publ. avail. June 20, 2013).