Item 5- Fees and Compensation
Overview
The fees and other charges that you pay for advisory programs or services that we offer will depend on several different factors. The fees
for advisory programs are generally based on the “Assets Under Management.” This means that the account is charged a fee based on the
account balance as of a certain date. The Planning/Consulting program allows for the charging of flat or hourly fees, or the percentage of
assets under management (dollar value of assets in the account). These fees are negotiable between you and the IAR offering the service.
Most of our programs that require an account charge an advisory fee, paid quarterly, based on the account’s balance on the last day of each
calendar quarter (March 31, June 30, September 30, and December 31). If the last day of the calendar quarter falls on a day that the New
York Stock Exchange is closed, we use the account balance on the last business day of the calendar quarter to calculate the advisory fee.
This fee is generally charged in advance (or pre-paid) for the management to be provided over the next calendar quarter. We will only
charge you an advisory fee for the portion of a quarter that the account is under management. For new accounts, we will bill the account
when it is opened for the remaining days in the quarter. For accounts that are terminating management during a quarter, we will
automatically credit you back for remaining pre-paid fees for the portion of the quarter remaining after management has terminated.
Advisory fees are generally deducted from the account. The account statements you receive from the custodian will reflect the deduction
655 W. Broadway, 12th Floor
San Diego, CA 92101 Page 9 of 32
Published on November 16, 2020
800-499-5489
of these fees. Fees are deducted from the client account in the month following quarter end. For some programs, fees may be paid to us by
check, as outlined in the advisory agreement. In this case, we will send an invoice to you for the fees owed. Some clients may choose to
pay their fees via credit card.
In the PAM program, a net deposit of $5,000 or more on a single day, or net withdrawal of $5,000 or more on a single day, will cause a re-
calculation and adjustment of the fee owed for the calendar quarter. This adjustment will be calculated at the end of the month following
the deposit or withdrawal.
In certain situations, we allow you to hold a product in an advisory account solely for convenience purposes, but it will be excluded from
the billing of the account assets, and regular billing will continue on all other eligible assets held in the account.
If your account is billed based on assets under management, the advisory fee is generally split between a program (or platform) fee and a
management fee.
Program Fees
The program fee varies depending on which program or service you select. The program fee is an annual percentage of assets under
management, billed quarterly. The program fee is paid either to FAAS entirely, or is split between us and a third-party manager. A portion
of the program fee is also paid to service providers that we hire to help us administer the advisory program selected, including First Allied.
This program fee is not negotiable. However, the program fee will be different based upon your IAR’s relationship with us. For example,
if the combined value of your IAR’s client accounts exceeds a certain amount of assets under management, we will allow your IAR to
have a lower program fee. If your IAR has a lower program fee, this will not change the total advisory fee you pay, but presents a conflict
of interest (we address this conflict of interest and others in this item). Program fees are subject to change without notice, but these
changes do not affect the fee that you pay to us.
Management Fee
The management fee is paid to the IAR servicing the account. You and your IAR will negotiate this fee for each program account and it
may not be the same for each account. It may also be different than the fees your IAR has negotiated with other clients, or the fees other
IARs have negotiated with other clients for similar services. We retain a portion of the management fee as compensation for various
services that we provide to your IAR and to you.
Once negotiated with you, your IAR’s management fee is fixed. However, your IAR’s costs associated with managing your account will
vary depending on the investment choices that he decides are appropriate for your account. This creates a conflict of interest because your
IAR has an incentive to manage the account in a manner that will maximize his compensation rather than manage the account without
regard to compensation payable to him. This difference in your IAR’s compensation will not affect the advisory fee that you pay to us. We
help mitigate this conflict of interest by requiring that your IAR adheres to his fiduciary obligation of managing accounts solely based on
the best interests of clients and by establishing a maximum advisory fee for each advisory program.
Total Advisory Fee
You and your IAR will agree on your total advisory fee for each account prior to establishing the account. The total advisory fee is the
sum of the program fee and the management fee. At any time, you and your IAR may agree to amend the original fee and submit a new
advisory agreement with a different fee schedule. There are maximum allowable advisory fees for each program and we will not allow you
to be charged more than this amount. The maximum allowable advisory fee will differ between programs, but is consistent for all IARs
and all clients in each program. This maximum advisory fee is noted on the investment advisory agreement and in this section.
Fee Schedules
...