February 25, 1994
TO: INVESTMENT ADVISERS COMMITTEE NO. 16-94
SEC RULES COMMITTEE NO. 21-94
RE: CHANGE TO DRAFT COMMENT LETTER ON SEC WRAP FEE PROPOSAL
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The Institute recently sent out for comment a draft letter on the SEC's
wrap fee proposal. (See Memorandum to SEC Rules Committee No. 13-94 and
Investment Advisers Committee No. 17-94, dated February 23, 1994.) Pages 17-20
of the draft letter included a discussion of the SEC's proposal to require
disclosure of the portion of the total wrap fee that is paid to the portfolio
manager. The Institute's draft letter recommended that such disclosure not be
required in a wrap fee brochure.
Upon further review and consideration of this issue, the Institute believes
it would be better to support the SEC's proposal that the portion of the wrap fee
paid to the portfolio manager be disclosed. The Institute believes this is the
preferred position because: (1) it is essential that investors be provided full
and fair disclosure of all material information and this information would be
material to an investor inasmuch as the advice rendered by the portfolio manager
is a highly significant service provided under a wrap fee program, if not the
most important one; and (2) similar disclosure (i.e., disclosure of management
fees) is required to be disclosed in mutual fund prospectuses.
The Institute would appreciate comments on instances where it may not be
practicable to disclose the specific amount paid to the portfolio manager so that
we may recommend to the SEC that these instances be adequately addressed by
Schedule H. Please contact me by phone at 202/326-5825 or by fax at 202/326-5828
with any comments on this issue or on the Institute's draft comment letter.
Tamara K. Cain
Assistant Counsel