Best Ex in the Wrap Context
Headís up to advisers that participate in a wrap fee program as a money manager: During his presentation at the ICIís Equity Markets Conference, SEC associate director Gene Gohlke suggested that money managers that see that their non-wrap clients receive better executions than their wrap clients have an obligation to information the wrap clients of that fact. Gohlke noted that typically, wrap fee client agreements are structured so that clients direct the money managers to execute through the wrap sponsor. But if an adviser sees that there is a "big difference" in the executions that its own wrap and non-wrap clients receive for the "same trades," said Gohlke, "I think the money manager in some way needs to inform the wrap client." The money manager, he said, is a fiduciary. "I think thereís some disclosure obligation."
He acknowledged that if the money manger does that, "the sponsor may not like them or want them in the program." More like: donít let the door hit you on the way out.
Advisers that have client direction in any context are well-advised to keep an eye on the arrangements. If the execution is poor, advisers should protect themselves by bringing that fact to the attention of their client (keeping in mind, of course, the client may have a commission recapture program or other arrangement in place). For more on this topic, see SECís May 2003 case against Jamison, Eaton & Wood.