What must an adviser disclose when receiving compensation related to a wrap fee program?

When an adviser is involved in a wrap fee program, they are obligated to disclose financial incentives associated with their recommendations. This is crucial because wrap fee programs can involve multiple layers of fees, and the adviser may receive compensation that could influence their recommendation. By disclosing financial incentives, the adviser ensures transparency, allowing clients to understand how these incentives might align with their interests or potentially create a conflict of interest.

This disclosure helps clients make informed decisions regarding their investments, as they can evaluate whether the adviser’s recommendations are truly in their best interest or influenced by the potential for higher compensation. It also adheres to regulatory standards intended to protect investors, ensuring they are fully aware of the advisory relationship and associated costs.

While knowing the exact dollar amount of compensation or the recommendation of alternative programs could be relevant, it's the financial incentives tied to those recommendations that are of primary concern in terms of ethical practice and compliance with regulations in a wrap fee context. Historical investment performance, while important, is more about past results and does not directly relate to the adviser's compensation structure or potential conflicts of interest in the present.