A wrap fee program is a program under which any client is charged a specified fee or fees not based directly on transactions in a client’s account for investment advisory services. Any RIA compensated under a wrap fee program does not use the normal brochure or Part 2A of the ADV. Instead, that adviser furnishes clients and prospective clients Part 2A, Appendix 1. Appendix 1 consists of 9 items, 10 for advisers who are registered or are registering with one or more state securities authorities.
The first Item is the cover page, which must state your name, business address, contact information, web site address (if you have one), and the date of the wrap fee program brochure. Additionally, it must display the following, or other clear and concise language conveying the same information, and identify the document as a “wrap fee program brochure”:
This wrap fee program brochure provides information about the qualifications and business practices of [your name]. If you have any questions about the contents of this brochure, please contact us at [telephone number and/or email address]. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.
Additional information about [your name] also is available on the SEC’s website at www.adviserinfo.sec.gov.
If you refer to yourself as a “registered investment adviser” or describe yourself as being “registered,” include a statement that registration does not imply a certain level of skill or training.
If you are amending your wrap fee program brochure for your annual update and it contains material changes from your last annual update, identify and discuss those changes on the page immediately following the cover page of the wrap fee program brochure or as a separate document accompanying the brochure. You must clearly state that you are discussing only material changes since the last annual update of the wrap fee program brochure and must provide the date of the last annual update to the wrap fee program brochure.
Table of Contents
Adviser are required to include a table of contents to your wrap fee program brochure. Your table of contents must be detailed enough so that your clients can locate topics easily. Also, your wrap fee program brochure must follow the same order, and contain the same headings, as the items listed in this Appendix 1.
Services, Fees, and Compensation
Describe the services, including the types of portfolio management services, provided under each program. Indicate the wrap fee charged for each program or, if fees vary according to a schedule, provide your fee schedule. Indicate whether fees are negotiable and identify the portion of the total fee, or the range of fees, paid to portfolio managers.
Account Requirements and Types of Clients
If a wrap fee program imposes any requirements to open or maintain an account, such as a minimum account size, disclose these requirements. If there is a minimum amount for assets placed with each portfolio manager as well as a minimum account size for participation in the wrap fee program, disclose and explain these requirements. To the extent applicable to your wrap fee program clients, describe the types of clients to whom you generally provide investment advice, such as individuals, trusts, investment companies, or pension plans.
Portfolio Manager Selection and Evaluation
Describe how you select and review portfolio managers, your basis for recommending or selecting portfolio managers for particular clients, and your criteria for replacing or recommending the replacement of portfolio managers for the program and for particular clients.
Client Information Provided to Portfolio Managers
Describe the information about clients that you communicate to the clients’ portfolio managers, and how often or under what circumstances you provide updated information.
Client Contact with Portfolio Managers
Explain any restrictions placed on clients’ ability to contact and consult with their portfolio managers.
Respond to Item 9 (Disciplinary Information) and Item 10 (Other Financial Industry Activities and Affiliations) of Part 2A of Form ADV.
Also, respond to Items 11 (Code of Ethics, Participation or Interest in Client Transactions and Personal Trading), 13 (Review of Accounts), 14 (Client Referrals and Other Compensation), and 18 (Financial Information) of Part 2A of Form ADV, as applicable to your wrap fee clients.
Requirements for State-Registered Advisers
Item 10 requires state-registered advisers to describe any relationship or arrangement that they or any of their management persons have with any issuer of securities that is not listed in Item 10.C. of Part 2A.
This is just a summary of Form ADV Part 2A, Appendix 1, for the full instructions, check out the SEC’s General Instructions for Part 2 of Form ADV.
Also, for more information on Form ADV, check out our other blogs on the topic.
- Form ADV, Part 2A of Form ADV: Firm Brochure
- Part 2A Appendix 1 of Form ADV: Wrap Fee Program Brochure
- Part 2A of Form ADV: Firm Brochure
If you or your Firm needs assistance understanding or filing the Form ADV, please contact us. MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities.