November 1, 1989
TO: INVESTMENT ADVISERS COMMITTEE NO. 43-89
BAILEY/WILSON SUBCOMMITTEE
RE: INSTITUTE TO HOLD MEETING CONCERNING WRAP FEE ARRANGEMENTS
AND ERISA BONDING
__________________________________________________________
As we have previously informed you, Kathryn McGrath, Director
of Investment Management at the SEC, has issued a no-action letter
concerning wrap fee arrangements ("Wilson letter") (see Institute
Memorandum to Investment Adviser Members No. 48-89 and Investment
Adviser Associate Members No. 50-89, dated September 27, 1989).
The Wilson letter generally stated that, although SEC inspections
of advisers have not uncovered any significant abuses, wrap-fee
arrangements have the potential for abuse. A copy of Ms. McGrath's
letter and the requesting letter are attached.
As stated at our October 10, 1989 Investment Advisers
Committee meeting, we are concerned that the Wilson no-action
letter may have expanded the premise upon which the Bailey
administrative proceeding was brought. The Bailey case, a copy of
which is also attached, was brought against the adviser for failure
to disclose that it was not seeking best execution (i.e. there was
no attempt to negotiate commissions for batched transactions). The
Wilson letter, however, states that the adviser in Bailey was
censured for not obtaining best execution for its clients.
An additional concern to the Committee is the statement in
the Wilson letter that "neither the Commission nor the staff has
taken a position regarding the legality or propriety of `wrap fees'
as they relate to investment advisers."
As was mentioned at the Investment Advisers Committee
meeting, the Institute recently met with the staff of the
Department of Labor concerning the Institute's request for relief
under the ERISA bonding requirements for investment advisers. The
DOL has expressed continuing concerns about the extent of SEC and
state supervision of investment advisers. We would like your input
concerning possible arrangements to address the Department's
concerns. Thereafter, we will submit a follow-up letter addressing
DOL's concerns.
There will be a meeting on Wednesday, December 6, 1989 at the
Institute beginning at 1:30 p.m. to discuss these and other issues.
Lunch will be available starting at 12:30 p.m. Please contact
Laura Thayer at 202/955-3518 by Friday, November 17 as to whether
or not you will be able to attend the meeting.
Robert L. Bunnen, Jr.
Assistant General Counsel
Attachment