Item 5 – Fees and Compensation
McDonnell’s management fees are generally stated as an annual percentage of assets under management
paid quarterly. The annual rate is established in the client’s advisory agreement and typically applies to
the sum of all cash and fair market value (including accrued interest) of the securities in the account on
the last day of the preceding quarter.
The standard fee schedule for the various McDonnell products is set forth below. McDonnell has made,
and may make in the future, exceptions to its general fee schedule in its sole discretion based on various
circumstances, such as client’s relationship to McDonnell, expectations of significant capital additions in
the future, product line, or composition of portfolio, among other reasons. In such cases, different and
reduced fee arrangements have been and may be negotiated with individual clients.
In addition to McDonnell’s advisory fees, clients, depending upon the product, are subject to various
expenses, including but not limited to custodial, brokerage, audit, legal and third party administration.
Please see Item 12 – “Brokerage Practices” for more information on McDonnell’s brokerage practices.
Fees for Separate Account Clients
Market Value of Assets
$10 million 0.32%
Next $20 million 0.28%
Next $20 million 0.24%
Next $200 million 0.20%
Over $250 million 0.16%
Advisory fees may be invoiced to the client, the client’s financial consultant, or to the client’s custodian.
Clients can instruct McDonnell which method they prefer in their written agreement. Advisory fees are
exclusive of brokerage commissions, transaction fees, and other related costs when we purchase or sell
securities for your account.
The periods over which fees are calculated and their method of payment can vary based upon the
requirements of individual clients. In some cases, client custodial values are used. Otherwise, account
asset values are determined in accordance with McDonnell’s pricing procedures and are generally priced
by independent third party pricing agents who may employ methodologies that utilize actual market
transactions, broker supplied valuations, or other electronic data. In circumstances where an account
holds positions in its portfolio for which reliable independent third party pricing is not readily available or
is not reflective of fair value, McDonnell evaluates sufficient information to enable it to make a “good
faith” determination that the valuation method used results in fair value. McDonnell has designated a
Pricing Committee to make all necessary determinations of fair value. To the extent its fees are based on
the value or performance of client accounts, McDonnell would benefit by receiving a fee based on the
impact, if any, of the increased value of assets in an account.
A client agreement may be terminated at any time by the client, for any reason, typically upon thirty
(30) days’ prior written notice. Upon termination of any account, any prepaid unearned fees will be
refunded to the client. The client can contact McDonnell’s Client Accounting group at (630) 684-
8600 with any questions regarding refunds. The refunded fee amount is determined by computing the
earned fees from the beginning of the quarter to the date the account is terminated, and then deducting
that amount from the fee that was paid in advance.
Fees for SMA Program Clients
McDonnell is retained by certain clients under SMA programs (also known as wrap programs) offered by
a third party sponsor, where the sponsor may: (1) recommend retention of McDonnell as investment
adviser; (2) pay McDonnell’s investment advisory fee on behalf of the client; (3) monitor and evaluate
McDonnell’s performance; (4) execute the client's portfolio transactions without commission charge (in
the case of transactions with such broker/dealer sponsors); and (5) provide custodial services for the
client's assets, or provide any combination of these or other services, all for a single fee paid by the client
to the third party sponsor. McDonnell is compensated in one of two ways. In most programs, the client
pays a single fee payable to the sponsor, of which a percentage is payable to McDonnell for its asset
management services. The sponsor’s fee covers various charges, which can include investment
management, brokerage and custodial services, record-keeping and reporting. Fees, investment
minimums, and other features of these programs vary, and are described in each program sponsor’s
disclosure brochure. In other programs, McDonnell enters into separate agreements with clients. Clients
pay compensation separately to McDonnell as well as to the sponsor for its services, which may include
preparing an investment policy statement, considering an appropriate asset allocation, and providing
account statements, among others.
As a fiduciary McDonnell must place trades in a manner that is consistent with its obligation to seek
most favorable price and execution under the circumstances (“best execution”). Based on our trading
experience over time, best execution is typically provided by third party dealers for the municipal bond
and other fixed income strategies utilized by McDonnell. As a result, McDonnell executes virtually all
trades away from the SMA program sponsor or its broker-dealer affiliate. In such cases, clients generally
incur transaction costs that are in addition to the SMA program fee. These costs, which are in the form
of markups or markdowns that are embedded in the net purchase or sale price of the security, are
difficult to quantify because they are not separately disclosed by the executing dealer.
SMA program clients may want to evaluate whether the SMA program fee structure is appropriate for
them in light of the additional charges from the trades done away from the SMA program sponsor and are
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