Sub Advisory Agreement Template for Hong Kong

When you operate as an investment adviser in Hong Kong, you may need to delegate certain portfolio management functions to specialized sub-advisers who possess specific expertise, market access, or asset class knowledge that enhances your service offerings. A Sub Advisory Agreement creates the legal framework for this delegation while ensuring compliance with Hong Kong's regulatory requirements and protecting both your interests and those of your clients.

When do you need this document?

You need a Sub Advisory Agreement when your investment advisory firm wants to leverage external expertise for specific investment strategies, geographic markets, or asset classes. This commonly occurs when expanding into international markets where local expertise is valuable, accessing specialized investment strategies like private equity or hedge funds, or managing specific sectors requiring technical knowledge. The agreement is also essential when your firm lacks internal resources for certain investment mandates but wants to offer comprehensive services to clients. Fund management companies frequently use sub-advisory arrangements to provide diverse investment options while maintaining their primary client relationships and regulatory responsibilities.

Key legal considerations

The agreement must clearly define the scope of delegation, ensuring the sub-adviser operates within specific parameters while the primary adviser retains ultimate responsibility for client relationships and regulatory compliance. Investment mandates should be precisely detailed, including asset allocation limits, risk parameters, and performance benchmarks. Fee structures require careful consideration, addressing how sub-advisory fees affect overall client costs and ensuring transparency in fee disclosure. The agreement should establish robust reporting requirements, enabling the primary adviser to monitor sub-adviser performance and maintain proper oversight. Liability allocation is crucial, determining responsibility for investment losses, regulatory breaches, and operational failures. Termination clauses must address portfolio transition procedures, ensuring minimal client disruption when the arrangement ends.

Legal requirements in Hong Kong

Under the Securities and Futures Ordinance, both primary advisers and sub-advisers must hold appropriate SFC licenses for their respective activities, with the agreement clearly documenting each party's regulatory status. The primary adviser remains responsible for ensuring the sub-adviser meets all applicable regulatory requirements and maintains proper supervision throughout the arrangement. Client consent requirements must be addressed, as investors typically need to approve sub-advisory arrangements either explicitly or through initial advisory agreements. The Personal Data Privacy Ordinance governs how client information is shared between advisers, requiring appropriate data protection clauses and consent mechanisms. Anti-money laundering obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance must be clearly allocated, ensuring both parties understand their respective compliance responsibilities. The agreement should also address cross-border regulatory issues when sub-advisers operate from other jurisdictions, ensuring compliance with both Hong Kong requirements and applicable foreign regulations.