Who must provide the Appendix 1 to clients?
November 02, 2018
Because there may be several entities or intermediaries involved in a wrap-fee program, the responsibility to provide the brochure can be confusing. Ultimately, the sponsor must ensure all clients with an account in its program have received a copy of the brochure. However, the sponsor does not have to deliver the brochure. The sponsor registered investment adviser is not required to furnish the brochure if another registered investment adviser is required to furnish and does furnish the disclosure brochure to clients. Clients will typically acknowledge their receipt of the brochure in the program contract or in a separate Appendix 1 receipt.
Who must prepare the Appendix 1?
November 02, 2018
The registered investment adviser responsible for sponsoring and administering the program must prepare Appendix 1. Usually the sponsor of a wrap-fee program will also be registered as a broker/dealer or affiliated with a registered broker/dealer. However, independent registered investment advisors also sponsor wrap-fee programs through unaffiliated broker/dealers such as discount broker/dealers.
What information must be included in Appendix 1?
November 02, 2018
While considered separate documents, Part 2A of Form ADV and Appendix 1 will contain similar language and details. Appendix 1 must contain specific information about the wrap-fee program. It does not need to contain information regarding other programs offered by the registered investment adviser, such as information which must be contained in Part 2A of Form ADV. A registered investment adviser must provide enough information to meet the minimum requirements listed in the instructions to Appendix 1.
What is Appendix 1 of Form ADV Part 2A?
November 02, 2018
Appendix 1 is the disclosure brochure for wrap-fee programs. Under Rule 204-3(f)(1), a registered investment adviser that is compensated under a wrap-fee program for sponsoring, organizing, or administering a wrap-fee program, or for providing advice to clients under the wrap-fee program, must provide clients Appendix 1 of Form ADV Part 2A. Appendix 1 must be provided to clients in lieu of providing the registered investment adviser’s Form ADV Part 2A. Therefore, Appendix 1 is a completely separate document from Part 2A of Form ADV.
What is the definition of a wrap-fee program?
November 02, 2018
Rule 204-3(g)(4) defines wrap fee program to be 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 (which may include portfolio management or advice concerning the selection of other advisers) and execution of client transactions.” (Italics have been added for emphasis.)
