The SEC’s Division of Investment Management issued a new no-action letter regarding when advisers must deliver Form ADV Part 2 to clients. The letter is specific to advisers that manage assets via sub-advisory relationships. The letter, issued to Goldman, Sachs & Co. (“GS&Co.”), allows the primary adviser, in this case GS&Co., to receive the subadviser’s Form ADV Part 2 in lieu of the client. This is for instances where the accounts are managed on a discretionary basis by the primary adviser and there is no affiliation between the primary adviser and the subadvisers. This is especially significant for advisory firms that specialize in managed account and wrap-fee programs.
The SEC granted the relief since the primary adviser is acting as agent for the client in its discretionary client relationship. The client may rely upon its primary adviser to receive subadviser brochures on its behalf. Advisers may rely on this new staff position when the following circumstances exist:
- Primary adviser has been granted discretionary authority to manage client assets or select subadvisers.
- Primary adviser must give the client a choice between receiving the subadviser brochure directly or having the primary adviser receive the subadviser brochure on the client’s behalf. Primary adviser must explain to client the information contained in the subadviser brochure so that the client may make an informed decision.
- Client may appoint primary adviser to receive subadvisory brochures in the future.
- Client must be informed of the identity of any subadvisers engaged by the primary adviser in managing the client’s account.
- All subadviser brochures must be maintained by the primary adviser for five years, the first two years in an office of the primary adviser.
- Subadviser brochures must be provided to clients upon request in hardcopy form or electronically.
- Clients may switch to direct delivery of all subadviser brochures at any time, upon request, at no additional charge.
- The primary adviser agrees to adhere to Rule 206(4)-7 regarding how it supervises its subadvisory relationships with a special focus on managing any material conflicts of interest and exercising proper due diligence in the hiring and firing process for subadvisers under its fiduciary obligations.
Although this letter was directed to GS&Co.(as primary adviser), the relief is being granted to the subadvisers under Rule 204-3.
