subadvisors

Subadvisors are investment adviser firms hired by a fund sponsor or primary investment adviser to manage all or part of a client’s investment portfolio. They provide specialized expertise, such as sector-specific knowledge, geographic focus, or quantitative techniques, enabling the lead adviser to offer a broader range of strategies while scaling resources.

Usually arranged through a subadvisory agreement between the sponsor/lead adviser and the subadvisor, the arrangement specifies duties, investment authority, compensation, and termination terms. The primary adviser retains fiduciary responsibility to clients and supervises the subadvisor, monitors performance, compliance, and risk management, and handles client communications and regulatory reporting.

Subadvisors typically exercise day-to-day investment decisions within the scope delegated by the lead adviser. The lead adviser remains responsible for the overall portfolio construction, client disclosures, and ensuring compliance with investment guidelines, policies, and applicable law. Fees are generally paid by the sponsor or lead adviser from the client’s overall advisory fee; the subadvisor receives a fee for its services, often based on assets under management or performance metrics.

The use of subadvisors is common in mutual funds, defined-contribution plans, family of funds, and certain collective investment vehicles, as well as in hedge funds and separate accounts. This structure can improve access to specialized capabilities, diversify resources, and enhance risk management, but it can also raise potential conflicts of interest and increases in oversight requirements. Regulators require careful due diligence, disclosure in Form ADV or equivalent documents, and ongoing monitoring to ensure compliance and alignment with clients’ objectives.