On June 20, 2013, the Division of Investment Management of the SEC issued a no-action letter to Goldman, Sachs & Co. (“GS&Co.”) stating that it would not recommend enforcement action to the SEC under Rule 204-3 under the Investment Advisers Act of 1940 against unaffiliated subadvisers hired by GS&Co. to manage client assets if the subadvisers deliver their Form ADV Parts 2A and 2B (“Brochure Documents”) to GS&Co. instead of to the client.

Rule 204-3 under the Advisers Act generally requires registered advisers to deliver to prospective clients the information required by Form ADV and to deliver such information to existing clients on an annual basis. According to the no-action letter, GS&Co. has discretionary authority to manage its clients’ assets under various programs and in managing such assets, GS&Co. uses the services of more than 40 unaffiliated subadvisers. According to the no-action letter, because the subadvisers may have an investment advisory relationship with the clients, the Advisers Act could require the subadvisers to provide their Brochure Documents to the clients. According to the no-action letter, however, the Division would not recommend enforcement action against subadvisers who did not provide their Brochure Documents to a client if:

  • The client has appointed GS&Co. as adviser with discretionary authority to manage the client’s assets (including the authority to hire subadvisers); 
  • GS&Co. offers the client a choice between (1) receiving the Brochure Documents of unaffiliated subadvisers directly or (2) allowing GS&Co. (as the client’s agent) to receive such Brochure Documents, subject to GS&Co. providing the client with “sufficient information” to make an informed choice, including an explanation in “plain English of the information and disclosures in the Brochure Documents”;
  • GS&Co. identifies for the client any subadvisers hired by GS&Co.; 
  • GS&Co. retains copies of unaffiliated subadvisers’ Brochure Documents for at least the period required by Rule 204-2 under the Advisers Act; 
  • GS&Co. provides copies of subadvisers’ Brochure Documents if a client whose assets are being managed by the subadviser requests such documentation; 
  • GS&Co. maintains policies and procedures (including policies and procedures pursuant to Rule 206(4)-7 under the Advisers Act) designed to ensure, among other things, that subadvisers’ Brochure Documents are “appropriately reviewed,” that GS&Co. appropriately manages any material conflicts with a subadviser, and that GS&Co.'s engagement or termination of a subadviser’s services is exercised in accordance with GS&Co.’s fiduciary obligations; and 
  • GS&Co. allows clients to change their election regarding the direct receipt of subadvisers’ Brochure Documents without cost to the client.

According to the no-action letter, if GS&Co. determines that it has a material conflict of interest with a subadviser that it has hired to manage client assets (or in other circumstances that GS&Co. deems appropriate), GS&Co. “might seek to manage the conflict by sending that subadviser's Brochure Document to clients directly so they could evaluate the Brochure Document for themselves or suggest that clients engage another party to evaluate the conflict.”

According to the no-action letter, because GS&Co. would, as agent for the clients, be “stepping in the shoes” of the clients as it relates to the receipt of subadvisers’ Brochure Documents, GS&Co. would be “solely responsible for acting in the client’s best interests with respect to any disclosure by the subadviser.”