Sub Advisory Agreement Template Template for the United States

What is a Sub Advisory Agreement Template?

The Sub Advisory Agreement Template is designed for situations where a primary investment adviser seeks to delegate certain investment management responsibilities to another registered investment adviser while maintaining regulatory compliance. This document is crucial in the United States investment management industry, where it must comply with SEC regulations, the Investment Advisers Act of 1940, and state securities laws. The agreement typically includes detailed provisions for investment guidelines, fee arrangements, compliance procedures, and reporting requirements, while establishing clear lines of responsibility and accountability between the primary adviser and sub-adviser. It's particularly relevant for investment advisers looking to expand their investment capabilities or access specialized expertise while maintaining their primary client relationships.

About the Sub Advisory Agreement Template

A Sub Advisory Agreement Template provides the legal structure for primary investment advisers to formally delegate specific investment management duties to qualified sub-advisers while maintaining compliance with United States federal securities regulations. This arrangement allows primary advisers to expand their investment capabilities, access specialized expertise, or manage capacity constraints without directly hiring additional staff or obtaining new registrations.

When do you need this document?

You need a sub advisory agreement when your registered investment advisory firm wants to outsource portfolio management responsibilities while retaining the primary client relationship. This commonly occurs when you lack expertise in specific asset classes, geographic markets, or investment strategies that your clients require. The document is also essential when you're experiencing rapid growth and need additional portfolio management capacity, or when you want to offer specialized services like quantitative strategies, alternative investments, or international equity management without building internal capabilities. Additionally, you'll need this agreement if you're consolidating multiple advisory relationships or if regulatory requirements mandate the use of a sub-adviser for certain investment activities.

Key legal considerations

The agreement must clearly define the scope of delegated authority and maintain your fiduciary responsibility to clients, as you remain fully liable for the sub-adviser's performance under federal law. Investment guidelines and restrictions must be explicitly detailed to ensure the sub-adviser operates within your clients' investment objectives and risk parameters. Fee arrangements require careful structuring to avoid prohibited fee-splitting while ensuring transparency to clients about all compensation flows. The document must include comprehensive compliance and monitoring provisions, allowing you to supervise the sub-adviser's activities and maintain adequate oversight. Termination clauses should address transition procedures, client notification requirements, and the handling of confidential information. Additionally, the agreement must specify reporting requirements, performance measurement standards, and procedures for handling client communications and regulatory inquiries.

Legal requirements in United States

Under the Investment Advisers Act of 1940, you must obtain client consent before entering into sub advisory arrangements, either through your advisory agreement or separate disclosure documents. The sub-adviser must be properly registered with the SEC or relevant state authorities and meet the same fiduciary standards that apply to your firm. SEC regulations require detailed disclosure of the sub advisory relationship in Form ADV and client agreements, including specific information about fees, conflicts of interest, and the sub-adviser's background. You must conduct adequate due diligence on the sub-adviser's registration status, compliance history, and investment processes before appointment. The agreement must comply with FINRA rules if either party is also a broker-dealer, and state securities laws may impose additional requirements depending on your jurisdiction. Regular monitoring and documentation of the sub-adviser's performance and compliance activities are mandatory to satisfy your ongoing supervisory obligations under federal law.