Any RIA compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of, other investment advisers in the 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.

What is a Wrap Fee Program?

A wrap fee program is an arrangement between financial institutions (typically broker-dealers and investment advisers) that enables customers to pay an all-inclusive fee (usually as a percentage of assets) for investment advisory services bundled with various other services, such as execution, clearing, and custodial services. These programs can be referred to by several different names such as asset allocation programs, asset management programs, investment management programs, mini-accounts, and separately managed accounts. The defining feature for all of these is that they offer bundled investment management and brokerage services for one fee. Wrap fee programs create a number of suitability issues for the financial institutions that sponsor the wrap fee program or participate in the program.

If the investment adviser sponsors a wrap fee program, it must deliver a wrap fee program brochure to their wrap fee client. The disclosure requirements for preparing a wrap fee program brochure appear in Part 2A, Appendix 1 of Form ADV. If the entire advisory business is sponsoring wrap fee programs, the firm does not need to prepare a firm brochure separate from the wrap fee programs brochure(s). In other words, if all the investment adviser doe is sponsor wrap fee programs, it must prepare and deliver a completed Part 2A, Appendix 1, but not a Part 2A.

Sponsoring More Than One Wrap Fee Program

If the investment adviser sponsors more than one wrap fee program, it may prepare a single wrap fee program brochure describing all the wrap fee programs sponsored, or it may prepare separate wrap fee program brochures that describe one or more of its wrap fee programs. If it prepares separate brochures, each brochure must state that it sponsors other wrap fee programs and must explain how the client can obtain brochures for the other programs.

Providing Services to Clients in Wrap Fee Programs the IA Does Not Sponsor

If the firm provides portfolio management services to clients in wrap fee programs that it does not sponsor, it must deliver the normal brochure prepared in accordance with Par 2A to its wrap fee clients. It also must deliver to these clients any brochure supplements required by Part 2B of Form ADV.

Multiple Sponsors

However, if a wrap fee program that you sponsor has multiple and another sponsor creates and delivers to your wrap fee program clients a wrap fee program brochure that includes all the information required in your wrap brochure, you do not have t create or deliver a separate wrap fee program brochure.

For the full instructions for Part 2A of the Form ADV, check out the SEC’s General Instructions for Part 2 of Form ADV

For more information on Form ADV, check out our other blogs on the topic:

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.