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Service Provider Contracts

As noted, a fund’s board annually approves the fund’s investment advisory agreement. The 1940 Act also requires that the board annually approve the contract with the fund’s principal underwriter and select the fund’s independent public accountant. For the remainder of the fund’s service providers, though, there are no regulatory requirements for the contracts to be reviewed and/or approved by the fund’s board at any set interval, or at all. Directors oversee these service provider contracts as part of their overall fiduciary responsibilities. In the absence of prescribed regulatory requirements regarding the approval and/or renewal of these contracts, their terms may vary greatly. Some contracts are renewed each year or every few years, while others may run indefinitely until a contractual termination provision is invoked. Whatever the formal term of the contract, boards may seek to determine that the frequency with which they review the arrangement is sufficient to detect and correct any problems in a timely manner, and that the services performed and the fees charged under the contract continue to be reasonable in light of the fund’s possibly changing needs.

to learn more
Read the IDC task force paper Board Oversight of Certain Service Providers.