Sub Advisor Agreement Template for the United States

A Sub Advisor Agreement is a critical legal contract that allows you, as a primary investment advisor, to delegate specific portfolio management duties to another qualified investment professional while maintaining your overall responsibility to clients. Under United States securities law, this arrangement requires careful documentation to ensure compliance with federal regulations and protect all parties' interests.

When do you need this document?

You need a Sub Advisor Agreement when your investment advisory firm wants to outsource portfolio management for specific strategies or asset classes while retaining client relationships. This commonly occurs when you lack in-house expertise for specialized investments like international markets, alternative strategies, or sector-specific portfolios. The agreement becomes essential if you're expanding your service offerings without hiring additional portfolio managers, managing capacity constraints during periods of rapid growth, or seeking to provide clients access to institutional-quality investment strategies. Investment companies and registered investment advisors frequently use these agreements to enhance their capabilities while maintaining regulatory compliance and client trust.

Key legal considerations

The agreement must clearly define the scope of the sub-advisor's authority, including specific investment mandates, risk parameters, and decision-making limitations. You remain legally responsible to clients as the primary advisor, creating a fiduciary duty to monitor the sub-advisor's performance and compliance. Fee arrangements require careful structuring to avoid conflicts of interest and ensure transparency in client disclosures. The contract should include detailed performance benchmarks, reporting requirements, and termination procedures to protect your firm's interests. Liability allocation between parties must be clearly specified, along with indemnification provisions for regulatory violations or client losses. Confidentiality clauses are crucial to protect proprietary investment strategies and client information shared between parties.

Legal requirements in United States

Under the Investment Advisers Act of 1940, you must maintain supervisory responsibility over sub-advisors and ensure they meet registration requirements if managing over $100 million in assets. The agreement must comply with SEC disclosure rules, requiring you to inform clients about the sub-advisory relationship in Form ADV and client agreements. If managing mutual fund assets, the Investment Company Act of 1940 requires board approval and specific contract provisions regarding fees and termination rights. The Dodd-Frank Act imposes additional reporting requirements for larger advisory firms using sub-advisors. You must conduct due diligence on the sub-advisor's regulatory history, investment process, and compliance procedures before executing the agreement. The contract should include provisions for regular compliance monitoring and the right to terminate for regulatory violations or performance failures.