Retention of sub-adviser: Overview, definition, and example
What is retention of sub-adviser?
Retention of a sub-adviser refers to the process by which a primary adviser or firm hires or retains another adviser (the sub-adviser) to handle specific tasks or provide specialized expertise within an agreement. In financial services, for example, a mutual fund manager (the primary adviser) might retain a sub-adviser to manage a particular segment of the fund's assets, such as international stocks. The sub-adviser typically works under the supervision and direction of the primary adviser, ensuring that the specific area of expertise is effectively managed.
Why is retention of sub-adviser important?
Retention of a sub-adviser is important because it allows the primary adviser or firm to leverage specialized skills and expertise that they may not have in-house. By engaging a sub-adviser, businesses or investment managers can ensure that a particular aspect of their operations is handled by an expert, which can improve performance, efficiency, and overall decision-making. In financial services, sub-advisers are often used to manage complex or niche investments that require a high level of expertise.
For businesses, retaining sub-advisers can also help reduce risks by delegating certain tasks to experienced professionals, and it can enhance the overall value of services offered to clients.
Understanding retention of sub-adviser through an example
Imagine a large investment firm that manages a diversified portfolio of assets. The firm might retain a sub-adviser with expertise in emerging markets to manage a portion of the portfolio that focuses on stocks from developing countries. The primary investment manager retains control over the overall strategy and direction of the portfolio, while the sub-adviser is responsible for the day-to-day management of the emerging markets assets, using their expertise to make informed investment decisions.
In another example, a wealth management firm might hire a sub-adviser to handle tax planning for high-net-worth clients. While the primary adviser manages the client’s overall financial plan, the sub-adviser ensures that tax strategies are optimized to minimize liabilities.
An example of a retention of sub-adviser clause
Here’s how a retention of sub-adviser clause might look in a contract:
"The Adviser may retain one or more sub-advisers to manage specific portions of the Client’s portfolio, provided that the Adviser remains responsible for the overall performance and monitoring of the portfolio. Any sub-adviser retained under this Agreement shall act in accordance with the Adviser’s instructions and the terms of this Agreement."
Conclusion
Retention of a sub-adviser is a key strategy for businesses that require specialized expertise to manage specific areas of their operations or services. By retaining sub-advisers, businesses can ensure high-quality service and performance while maintaining overall control of the broader strategy. For clients, this approach often leads to more tailored, informed, and effective solutions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.