Knowledge Base

Who must provide the Appendix 1 to clients?

Search Knowledge Base by Keyword

< Back

Because there may be several entities or intermediaries involved in a wrap-fee program, the responsibility to provide the brochure can be confusing. Ultimately, the sponsor must ensure all clients with an account in its program have received a copy of the brochure. However, the sponsor does not have to deliver the brochure. The sponsor registered investment adviser is not required to furnish the brochure if another registered investment adviser is required to furnish and does furnish the disclosure brochure to clients. Clients will typically acknowledge their receipt of the brochure in the program contract or in a separate Appendix 1 receipt.

Many wrap-fee programs are structured so that other registered investment advisers can serve as portfolio managers or solicitors of the wrap-fee program. It is these registered investment advisors that will have direct contact with clients of the program and are in the best position to fulfill the initial Appendix 1 delivery requirements. For wrap-fee programs with written client agreements, typically the Appendix 1 brochure is provided at the same time the written client agreement is signed by the client. In most situations the portfolio manager or solicitor is responsible for the execution of the agreement and therefore also responsible for delivering the brochure.

It is important to note the Appendix 1 is considered the disclosure brochure for the sponsor of the program only. It does not suffice as the disclosure brochure for the portfolio managers, solicitors, or other entities that may be involved in the program. Therefore, registered investment advisers that participate in a wrap-fee program sponsored by a separate registered investment adviser must still provide their own Form ADV Part 2.

Depending on the investments recommended within a wrap-fee program, clients may be required to receive other disclosure brochures. For example, if the wrap-fee program allows the portfolio manager to select from a pool of other money managers registered as investment advisers, clients must receive the selected money manager’s Form ADV Part 2.

At least annually, the Appendix 1 must be offered to all participants in the wrap-fee program. This rule is identical to the requirement that all registered investment advisers offer their Form ADV Part 2 annually. The sponsor of the wrap-fee program is generally in charge of delivering the annual offer.

Unless otherwise indicated, all materials on these pages are copyrighted by RIA Compliance Consultants, Inc. All rights reserved. No part of this Sample Form, slides, webinar, either text, image, or audio may be used for any purpose other than personal use. Reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.