Sub Advisor Agreement Template for England and Wales

When you're a primary investment advisor looking to delegate portfolio management responsibilities, you need a comprehensive Sub Advisor Agreement that complies with federal securities laws. This critical contract establishes the legal framework for outsourcing investment management services while maintaining your fiduciary obligations to clients and ensuring compliance with SEC regulations.

When do you need this document?

You'll need a Sub Advisor Agreement when your investment advisory firm wants to delegate specific portfolio management functions to another qualified investment manager. This commonly occurs when you require specialized expertise in particular asset classes, geographic markets, or investment strategies that your firm doesn't possess internally. The agreement is also essential when you need additional management capacity during periods of rapid growth but want to maintain oversight of client relationships and overall investment strategy. Many firms use sub-advisors for niche strategies like emerging markets, alternative investments, or sector-specific expertise while retaining responsibility for client servicing and overall portfolio allocation.

Key legal considerations

The agreement must clearly define the scope of authority granted to the sub-advisor, including specific investment mandates, risk parameters, and decision-making limitations. You need robust compliance provisions that ensure the sub-advisor maintains appropriate registration, follows your firm's compliance procedures, and adheres to client-specific investment restrictions. Fee arrangements must be transparent and clearly structured, with provisions for how compensation flows between parties and how expenses are allocated. The contract should include detailed reporting requirements, performance monitoring protocols, and termination procedures that protect client interests. Risk management provisions are crucial, including indemnification clauses, insurance requirements, and liability limitations that address potential conflicts of interest or regulatory violations.

Legal requirements in United States

Under the Investment Advisers Act of 1940, you must maintain ultimate responsibility for investment advice provided to clients, even when delegating functions to a sub-advisor. The SEC requires that sub-advisor arrangements be properly disclosed to clients, and you must conduct adequate due diligence on the sub-advisor's qualifications, compliance history, and operational capabilities. The agreement must ensure the sub-advisor is properly registered or exempt from registration requirements under federal and state securities laws. You're required to maintain oversight of the sub-advisor's performance and compliance with investment guidelines, client restrictions, and regulatory requirements. The Dodd-Frank Act imposes additional reporting obligations, and you must ensure that fee arrangements comply with fiduciary duty requirements and are fair and reasonable to clients. Documentation must support that the delegation serves client interests rather than merely reducing your operational costs.