Disclosure Concerning Investment Advice Provided to Retirement Investors

General Disclosure of Brokerage and Advisory Services.  Depending on your needs and your investment objectives, your Benjamin F. Edwards & Company, Inc. (BFE) Financial Advisor (“FA” or “Advisor”) may assist you with brokerage services, investment advisory services, or both.  BFE is registered as both a broker-dealer and as an investment advisor under federal and state securities laws, and we and our Advisors provide services in both capacities. There are important differences between brokerage and advisory accounts, including their costs, the services we provide, and the rules that govern them.  You should carefully consider these differences when deciding which type, or combination of types, of services and accounts are right for you.

Brokerage Services.   When we act as a broker-dealer in connection with your brokerage account, we will facilitate the execution of transactions based on your instructions.  In addition, when we act as a broker, we also offer investment education, research, financial tools, and information about financial products and services, including recommendations to buy, sell or hold securities.  We do not charge a separate fee for these services because these services are part of, and should be considered incidental to, our brokerage services.  When we act as broker-dealer, we will not have discretion to buy and sell securities for you (except in some very limited circumstances).  This means that you will provide approval for each trade before it is executed and that you, not we, will make individual buy, sell, hold or exchange decisions.  When we act as your broker, we are subject to the Securities and Exchange Act of 1934, the Securities Act of 1933, the rules of self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA), and applicable state laws.

Investment Advisory Services.  In addition to brokerage services, BFE offers a variety of investment advisory programs and services to our clients, including comprehensive financial planning, nondiscretionary and discretionary asset management, and advice on the selection of professional asset managers and investment strategies through our investment advisory programs.  We act as your investment adviser only when we have entered into a written agreement with you that describes our advisory relationship and our obligations to you.  You will also receive a disclosure document about our advisory services that describes, among other things, our business, the services we provide, our advisory fees, our personnel, and potential conflicts between our interests and yours. Investment Advisers are governed by the Investment Advisers Act of 1940 and applicable state securities laws.  When acting as your investment adviser, we are considered to have a fiduciary relationship with you.  In an advisory relationship, we are obligated to disclose or avoid material conflicts of interest, conduct proper due diligence and review investment objectives and risk tolerance (as provided by you) to make suitable and appropriate investment recommendations or decisions on behalf of clients, and act in your best interest by providing “Investment Advice” that is based on your stated overall financial situation and investment objectives.

How We are Compensated.  In a brokerage account relationship, you generally compensate BFE and your FA through account fees and commissions or transaction-based charges.  For example, you generally pay BFE a commission for each equity transaction, a mark-up/mark-down for bond transactions and a sales charge for mutual fund transactions.  Therefore, in a brokerage account, your total costs will generally increase or decrease as a result of the frequency of transactions in the account and the type of securities you purchase.  Other costs will also apply to your account.  In an investment advisory account, you generally do not pay fees for each transaction, but instead compensate BFE and your FA through an annual fee, payable quarterly in advance, based on the total value of the assets in your investment advisory account at the end of the previous quarter.  The fee typically covers both advisory and brokerage services provided by BFE that are described in the investment advisory agreement. In certain advisory programs that offer professional third-party money management, the fee also includes the professional money manager’s fee.  Generally the mutual fund shares classes that are offered to clients in our advisory programs do not charge a front-end sales charge.  In an investment advisory account, your total costs will generally not increase or decrease as a result of the frequency of the transactions in the account.  In both brokerage and investment advisory accounts that include mutual funds or exchange traded funds, you will incur additional expenses including investment management fees of the fund as well as operating expenses that are reflected in the funds’ share price.  These expenses are not included in BFE’s fees.  Other fees and expenses in addition to those outlined above, or different fee arrangements may apply in both brokerage and investment advisory accounts as described in our agreements with you.

Department of Labor Fiduciary Rule Background.  The U.S. Department of Labor (DOL) also has adopted rules and standards that govern whether advice that is given to retirement investors in connection with plan assets is subject to the DOL’s fiduciary Investment Advice standards.

BFE is providing this disclosure document regarding Investment Advice that may be given to you in connection with assets held in the following types of Retirement Accounts:

  • IRA
  • Roth IRA
  • Education Savings Account,
  • A Plan covered by Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)
  • A plan described in Section 4975(e)(1)(A) of the Internal Revenue Code (“Code”)

Fiduciary Acknowledgement and Statement of Impartial Conduct Standards

BFE and your Financial Advisor may act as “fiduciaries” for Retirement Accounts under ERISA or Section 4975 of the Internal Revenue Code (the “Code”) (as applicable) in connection with your Account and its holdings. To the extent we are a fiduciary under the circumstances described in the Labor Department’s rule when providing any such  advice to you, we and your Advisor will adhere to the following standards of care (the “Impartial Conduct Standards”):

i. When providing individualized Investment Advice to you, we and your Advisor provide Investment Advice that is, at the time of the recommendation, in your “Best Interest.” Advice meeting the “Best Interest” standard is advice that reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on your investment objectives, risk tolerance, financial circumstances, and needs, without regard to the financial or other interests of us or the Advisor or any Affiliate, Related Entity, or other party.

ii. Transactions that we or your Advisor recommend will not cause us, your Advisor, or our Affiliates or Related Entities to receive, directly or indirectly, compensation for their services that is in excess of reasonable compensation within the meaning of ERISA Section 408(b)(2) or Section 4975(d)(2).

iii. Statements by us and your Advisor to you about transactions subject to this disclosure, fees and compensation, Material Conflicts of Interest, as defined and described in this disclosure, and any other matters relevant to your investment decisions, will not be materially misleading at the time they are made.

Transactions that you initiate or instruct us to make on your behalf are not subject to this Impartial Conduct Standard.

Services That Are Subject to This Disclosure

Depending on the nature and needs of your account, we and your Advisor will from time to time provide recommendations concerning one or more of the following matters:

i. The purchase, sale, exchange or holding of investments for your Account;

ii. Rollovers, distributions or transfers to or from your Account;

iii. Investment policies, strategies or portfolio composition;

iv. Other persons to provide investment advisory or investment management services;

v. The selection of investment account arrangements (e.g., brokerage or advisory account arrangements).

For the avoidance of doubt, only recommendations that constitute Investment Advice under regulations issued by the U.S. Department of Labor at 29 C.F.R. §2510.3-21(a) shall be treated as services.

 

Material Conflicts of Interest

BFE has determined that the following activities may be considered conflicts of interest and could potentially influence your Advisor’s decision to recommend one product or service over another.  BFE seeks to mitigate these potential conflicts of interest by monitoring and diligently enforcing its policies and procedures.

Third Party Payments- BFE and your Advisor may occasionally receive some form of a third-party payment from product or service vendors including but not limited to Insurance Companies and Mutual Fund Issuers (Investment Companies).  Examples of these payments may include, but are not limited to, an Advisor’s receipt of promotional items and gifts such as golf balls or t-shirts, or an occasional meal.  Advisors may also be invited to attend business entertainment events and education and training meetings that are sponsored by vendors.  BFE also receive payments from vendors for the firm’s marketing and educational efforts.

As a regulatory prerequisite to being able to offer certain products and services such as annuities, insurance products, and other managed products, BFE is required to maintain contractual selling and distribution relationships with the specific companies whose products or services we might recommend.   This includes an agreement with our clearing firm, Pershing LLC. The recommendations of BFE and your Advisor are thus limited to those companies with whom BFE has such contracts in place.  In addition, BFE does not permit the sale of so‑called no-load mutual funds in fiduciary retirement accounts.

Trading Revenue- BFE may receive higher compensation depending on the products traded, or advisory programs in which a client participates.  For example, certain types of investments such as annuities may have higher expenses and offer more compensation to the Advisor than other types of products due to the more complex nature of the product itself.  For clients seeking an investment advisory solution, the operating costs of some advisory programs differ which will result in either higher or lower payouts to Advisors than other advisory programs.  Depending on the level of a client’s investment activity, BFE may also benefit from the client choosing an advisory account over a brokerage account, or vice versa.

Relationship with Issuer- The firm has a relationship with certain publicly-traded companies.  Certain employees of BFE who are aware of and who value one or more of these relationships may be incentivized to purchase or recommend the purchase of the company’s publicly-traded securities.  In one of these relationships we act as an agent for the company’s stock repurchase program.  While the size and timing of the purchases are directed by the issuing company and are specifically limited by regulation, the issuing company is in effect supporting the price of its stock, and as agent we are participating in that process. Trades in these securities are monitored daily using the Watch List.

Additionally, BFE has a relationship with two public issuers and participates in a stock repurchase program.

Insurance- BFE may receive different compensation depending on which insurance vendor is selected.  An Advisor may receive higher compensation based on how the insurance product sale was structured.  In addition, an Advisor typically receives compensation when a client switches out of an old contract into a new contract.

Financial Advisors (FA)- BFE and its Advisors may receive variable compensation.  FAs may receive different compensation for trading different product types.  Branch managers’ compensation is directly tied to the production of the FAs in their office. Regional manager compensation is also based in small part on the production of the FAs in the region.

 

Important Terms

The capitalized terms have the following meanings.

i. “Affiliate” of an Advisor or Financial Institution means:

1)  Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Advisor or Financial Institution. For this purpose, “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual;

2) Any officer, director, partner, employee, or relative (as defined in ERISA Section 3(15)), member of family (as defined in Code Section 4975(e)(6)) of, or partner in, the Advisor or Financial Institution; and

3) Any corporation or partnership of which the Advisor or Financial Institution is an officer, director or partner.

ii. A “Material Conflict of Interest” exists when an Advisor or Financial Institution has a financial interest that a reasonable person would conclude could affect the exercise of its best judgment as a fiduciary in rendering advice to you.

iii. “Investment Advice” that gives rise to fiduciary status when provided to a plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner for a fee or other compensation (direct and indirect) includes the following:

a. a recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property

b. a recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA;

c. a recommendation as to the management of securities or other investment property including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements (for example, brokerage versus advisory); or

d. recommendations with respect to rollovers, transfers, or distributions from a plan or IRA.

iv. A “Plan” means any employee benefit plan described in Section 3(3) of ERISA and any plan described in Section 4975(e)(1)(A) of the Internal Revenue Code.

v. “Related Entity” means any entity other than an Affiliate in which the Advisor or Financial Institution has an interest which may affect the exercise of its best judgment as a fiduciary.

vi. “Retail Fiduciary” means a fiduciary of a Plan or individual retirement account (“IRA”) that is not described in Section (c)(1)(i) of the Regulation (29 CFR 2510.3-21(c)(1)(i)).

vii. “Retirement Investor” means—

1)    A participant or beneficiary of a Plan subject to Title I of ERISA or described in Section 4975(e) (1)(A) of the Code, with authority to direct the investment of assets in his or her Plan account or to take a distribution,

2)    The beneficial owner of an IRA acting on behalf of the IRA, or

3)    A Retail Fiduciary with respect to a Plan subject to Title I of ERISA or described in Section 4975(e)(1)(A) of the Code or IRA.

viii. “Third Party Payments” include sales charges when not paid directly by the Plan, participant or beneficiary account, or IRA; gross dealer concessions; revenue sharing payments; 12b-1 fees; distribution, solicitation or referral fees; volume-based fees; fees for seminars and educational programs; and any other compensation, consideration or financial benefit provided to the Financial Institution or an Affiliate or Related Entity by a third party as a result of a transaction involving a Plan, participant or beneficiary account, or IRA.

Important Notice for “Grandfathered” Accounts

If your account was first opened on or before June 9, 2017 then your account is considered “grandfathered” under existing rules until the anticipated Final Implementation Date, which is currently identified as January 1, 2018.  As such, these disclosures will not apply to you unless any of the following triggering events occur at any time after June 9, 2017 through the Final Implementation Date:

  • Your current account agreement becomes subject to renewal during the transition period;
  • The purchase, exchange, holding or sale of the securities or investment property in your account would otherwise become prohibited under ERISA section 406, or IRC section 4975; or
  • BFE receives compensation in connection with the investment of additional amounts in the grandfathered account, except with respect to a recommendation to exchange investments in a mutual fund family or a variable annuity contract pursuant to an exchange privilege or rebalancing program associated with those previously‑acquired investment products (as long as BFE does not receive more compensation (either as a fixed dollar amount or percentage of assets) than we would have been entitled to receive prior to the Applicability Date.

During the Transition Period, BFE may receive only reasonable compensation within the meaning of ERISA section 408(b)(2) and IRC section 4975(d)(2); and investment recommendations must be made pursuant to the standards of care required of a fiduciary.

If you have any questions please contact your Benjamin F. Edwards Financial Advisor, or a member of Benjamin F. Edwards’ DOL Team at (314) 726-1600.