Commonwealth Equity Services LLC

Item 5: Fees and Compensation
How You’re Charged and How We’re Compensated
Clients who elect to receive asset management services through one or more of PPS programs or TPAM
programs will generally pay Commonwealth and their advisor percentage-based fees calculated as a

percentage of account AUM, including cash and money market positions. The maximum allowable fee
schedules for Commonwealth’s various PPS programs are provided below. The fee schedules for TPAM
programs are provided in the respective TPAM sponsor’s Form ADV Part 2A and advisory client
agreements. Certain managed account programs have lower maximum annual fee amounts, and fee
schedules will vary among programs. Clients are urged to carefully review and discuss the contents of
this Brochure with their advisor, including descriptions of the various programs and services offered, the
fees and charges clients will pay, the means by which Commonwealth and your advisor are
compensated, and the conflicts of interest that exist between the client and Commonwealth and their
advisor with respect to each program or service offered, to determine the most appropriate programs or
services for their specific needs.

In most cases, the annual account management fees are payable quarterly in advance and are computed
as one-quarter of the annual fee based on the account’s AUM on the last business day of the previous
calendar quarter. In some cases, the annual account management fee will be payable monthly in advance,
computed as one-twelfth of the annual fee based on the AUM on the last business day of the previous
month-end, and in other cases, clients will pay an annual flat dollar fee, payable quarterly in advance.

Commonwealth receives quarter-end values, which are used when calculating billable AUM, from
alternative investment issuers or other service providers. Commonwealth does not engage in an
independent valuation of your account assets and relies on valuations provided by the investment issuers
or other service providers. Commonwealth will provide (through NFS) periodic account statements which
include the market value of the alternative investment based on information received from the investment
issuer or other service provider. In providing these account statements, or any other valuation information
to you, (i) Commonwealth relies on the valuation information provided by the manager of the alternative
investment or other service provider, (ii) the valuation information used to determine the management fee
is based on estimates that may be outdated as of the dates of the account statements, (iii) the product’s
final valuations may be higher or lower than the values reflected in the periodic account statements and
(iv) while Commonwealth will adjust material estimated fee billings, Commonwealth is under no obligation
to provide notice or compensation to you for differences in estimated alternative investment valuations.

Certain managed account programs charge fees in arrears and will have differing methods of
computation. Please refer to the respective program description in this Brochure, the respective client
agreement, and the respective TPAM Program Brochure (if applicable) for specific information about the
fees that will be paid, the varying fee schedules of each program, and the methods of fee billing for the
program(s) you select.

Clients who elect to open a margin account acknowledge and agree that margin may be exercised
against their account for purposes including, but not limited to, covering debits, management fees, and/or
other billing and administrative costs. Management fees on margin accounts will be assessed on the
equity (e.g., ownership) portion of the account and not on the account’s total market value. NFS will credit
to Commonwealth a substantial portion of the margin interest income NFS receives from client margin
debits. Commonwealth’s receipt of a substantial portion of the margin interest creates a conflict of interest
because Commonwealth has a greater incentive to make margin available in your account because it
provides additional compensation to Commonwealth. Commonwealth may charge differing margin
interest rates to clients. Commonwealth does not share any portion of the margin interest it receives with
your advisor.

All Commonwealth advisory program management fees are negotiable between the advisor and client.
This means that advisors can negotiate lower fees with certain clients when similar services are provided
to other clients at a higher fee rate. Platform fees, transaction charges, and other account-related fees
assessed by NFS or Commonwealth are not negotiable, however. In the event a client terminates an
advisory agreement with Commonwealth and the advisor, any unearned fees resulting from payments
made by clients in advance will be refunded to the client. Likewise, in the event Commonwealth bills
clients in arrears for services that have already been rendered, Commonwealth will prorate such fees up
to the termination date of the advisory agreement.

Commonwealth generally offers two types of fee schedules for use in PPS Program accounts, which are
generally referred to as “blended” schedules and “breakpoint” schedules. Unless a billing group is
created, the blended or breakpoint schedule is applied at the account level. Billing groups are maintained
by the advisor.

Blended Schedule
A blended schedule looks at the account value and compares it to a set fee schedule. Based upon the
value of the account at the end of the billing period, the fee schedule identifies specific portions of the
account value to be charged at different fee rates. The total value of the account is compared against this
schedule and, based on the account size, the different fee rates are blended to determine the total
account fee for that period.

For example, assume the advisor and client negotiate the following blended fee schedule:

 Account Value                                                 Fee
...

Item 7: Types of Clients
Commonwealth generally provides advisory services to the following types of clients:

    •   Individuals (other than high-net-worth individuals)
    •   High-net-worth individuals
    •   Corporations or other businesses
    •   Pension and profit-sharing plans
    •   State or municipal government entities
    •   Charitable organizations

Most Commonwealth clients are retail clients who fall under the “Individuals (other than high-net-worth
individuals)” category. This category includes, but is not limited to, individual, joint, trust, IRA, 401(k)
participant, and custodial accounts.

Charitable organizations sponsor donor-advised-funds (“DAFs”). DAFs are planned giving vehicles where
clients make an irrevocable gift into an account owned by a charitable organization and can recommend
distributions to charities of their choice thereafter. Clients have the option to request Commonwealth
serve as the investment adviser on the account and pay Commonwealth and the advisor an investment
advisory fee based on assets in the DAF. In such case, the advisor has an incentive to advise a client to
make a distribution directly to a DAF in lieu of a charity and advise against distributions from the DAF to
eligible charities because doing so would dilute the amount of assets managed when Commonwealth and
the advisor are paid on a percentage of such assets. However, advisors are obligated to act in the best
interests of the client when providing investment advice to a DAF.

Our various managed account programs generally require clients to meet certain program account
minimums. In some cases, account balances may be combined at the household level to satisfy the
account minimum. Commonwealth and the respective Program Sponsors may waive account minimum
requirements for their respective programs at their sole discretion. The following is a description of the
account minimums in the various managed accounts available through Commonwealth:

    • The PPS Custom Program generally involves a $25,000 account minimum.
    • The account minimums for the PPS Select programs generally start at $1,000 for Passive model
      portfolios and $10,000 for Active model portfolios.
    • The PPS Select DFA Program minimum is generally $50,000. The PPS Select Equity SMA
      Program and PPS Select Personalized Indexing Program minimum is generally $100,000. The PPS
      Select Fixed Income SMA Program minimum is generally $500,000.
    • The account minimums for PPS Direct programs vary and are typically determined by third-party
      portfolio managers. In general, the PPS Direct Mutual Fund/ETF account minimums are $25,000.
      The PPS Direct SMA account minimums are typically $100,000–$250,000. The PPS Direct UMA
      Program minimum is generally $250,000.
    • Commonwealth also offers clients access to certain TPAM programs. Account minimums for
      TPAM Program accounts vary but are generally $25,000–$50,000.