Sub Advisory Agreement Template for Canada

A Sub Advisory Agreement is a specialized contract that allows a primary investment adviser to delegate specific portfolio management duties to a qualified sub-adviser while maintaining the direct client relationship. Under Canadian securities regulations, this arrangement enables investment firms to leverage external expertise or capacity without compromising their regulatory obligations or client service standards.

When do you need this document?

You'll need a Sub Advisory Agreement when your investment advisory firm requires specialized expertise that you don't possess internally, such as emerging markets knowledge, alternative investment strategies, or specific sector expertise. This document is also essential when you're managing large portfolios that exceed your firm's capacity or when clients request exposure to investment strategies outside your core competencies. Investment fund managers commonly use sub-advisory arrangements to access specialized portfolio management services for specific asset classes or geographic regions. Additionally, you'll need this agreement when establishing relationships with international investment managers who can provide local market expertise for cross-border investments while ensuring compliance with Canadian regulatory requirements.

Key legal considerations

The agreement must clearly define the scope of delegated authority, ensuring that the sub-adviser operates within specific investment mandates and risk parameters. You need to establish robust oversight mechanisms that allow you to monitor the sub-adviser's performance and ensure compliance with your fiduciary duties to clients. Fee arrangements require careful structuring to ensure transparency and alignment with regulatory requirements, including clear disclosure of how sub-advisory fees impact overall client costs. The document should address liability allocation, indemnification provisions, and termination procedures to protect both parties' interests. Data sharing and confidentiality clauses are crucial, particularly given the sensitive nature of client information and investment strategies. You must also include provisions for regulatory compliance, ensuring both parties meet their obligations under applicable securities laws and maintain required registrations.

Legal requirements in Canada

Under National Instrument 31-103, both the primary adviser and sub-adviser must maintain appropriate registrations with provincial securities regulators, typically as portfolio managers or investment fund managers. The agreement must comply with IIROC rules if either party is an investment dealer, including requirements for supervision and compliance oversight. Provincial Securities Acts impose specific obligations regarding client disclosure, requiring that clients be informed of the sub-advisory arrangement and any potential conflicts of interest. PIPEDA compliance is mandatory when personal information is shared between parties, requiring appropriate privacy safeguards and consent mechanisms. The Independent Review Committee must approve sub-advisory arrangements for investment funds, ensuring they serve the best interests of unitholders. Documentation must demonstrate that the arrangement enhances the investment management process and provides value to clients while maintaining appropriate cost structures and risk management protocols.