Service Provider Recommendations
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1 Recommendations of Service Providers
The firm may recommend to clients various service providers which would include custodians, broker/dealers, other investment advisers (institutional money managers), etc. The firm will perform sufficient due diligence to establish a reasonable basis for making such recommendation, as well as disclose throughout the period of the client engagement of any perceived or known conflict of interest that may arise from these relationships.
1.1 Custodians and Broker/Dealers
In recommending a custodian or broker/dealer, the firm will take into account the range and quality of services provided to the client. As a result of its due diligence efforts, the firm will create a summary document for having selected or recommended a broker/dealer (custodian). This record will be updated as necessary and maintained by the CCO. The CCO will ensure that the firm retains these review documents for the tenure such firms are recommended, and for a five-year time period thereafter. This record will note the following information:
- Firm name;
- Firm address
- Firm contact person and information;
- Brief services description; and
- Description of conflicts of interest (if any and whether they require disclosure in Form ADV Part 2A).
1.2 External Investment Advisers
If the firm recommends an external investment adviser for the management of client accounts, the result of the firm’s due diligence efforts will be created in a summary document. This record will be updated as necessary and maintained by the CCO. The CCO will ensure that the firm retains these review documents for the tenure such firms are recommended, and for a five-year time period thereafter. This record will note the following information:
- Firm name;
- Firm address
- Firm contact person and information;
- Brief services description; and
- Description of conflicts of interest (if any and whether they require disclosure in Form ADV Part 2A).
1.3 Internal Investment Managers
When the selected portfolio manager is an associate of the firm a conflict of interest exists since employing such a portfolio may result in the portfolio manager and/or IAR possibly receiving a greater percentage of the asset-based fee or indirect benefit from employer performance-based salaries or bonuses. In light of this potential conflict of interest, the firm will ensure it utilizes the same due diligence and selection/termination criteria for each portfolio manager, including firm personnel, in addition to further scrutiny by compliance and supervisory staff to ensure that appropriate portfolio selection, fees and other compensation meet within the account investment policy statement, firm procedures, and regulatory guidelines.
1.4 Outsourced Service Providers/Vendors
The firm may choose to outsource certain functions: data network services, administrative support, compliance functions, insurance services, among others, where reasonable and practical. The CCO or designee will ensure adequate due diligence has been completed before engaging these services or allowing firm or client data to be accessed. This record will be maintained by the firm and retained for the tenure such firms are recommended, and for a five-year time period thereafter. This record will note the following information:
- Firm name;
- Firm address
- Firm contact person and information;
- Brief services description; and
- Description of conflicts of interest (if any and whether they require disclosure in Form ADV Part 2A).
1.5 “Soft Dollar” Arrangements
The types of services the firm may obtain from brokers or custodians in which client transactions are recommended or directed by the firm may include research, analyses, and other information on issues affecting portfolio companies or investment strategies; pricing services; performance measurements; or corporate governance issues. Software or web-enabled services used for investment research or brokerage transactions may also be obtained.
These services may be deemed by certain jurisdictions as “soft dollar” arrangements and consideration will be made that they be disclosed; typically through the firm’s Form ADV Part 2. Records evidencing review may be incorporated into the firm’s ongoing due diligence of the service provider. A record will be maintained for the life of the arrangement/agreement and for a period of five years thereafter.