Item 5 – Fees and Compensation
INVESTMENT ADVISORY FEES
Pursuant to §408(b)(2) of ERISA, OneDigital and other vendors providing services to a
retirement plan or its participants must disclose all direct and indirect compensation they will
receive in exchange for the services they provide to a retirement plan. OneDigital’s agreements
with its plan sponsor clients disclose the services it will provide and the fee it will charge for
those services, which serves as its ERISA §408(b)(2) disclosure.
For investment advisory/management services, OneDigital charges its fees either based on a
percentage of assets in the retirement plan or as a flat annual fee. Those fees are negotiable and
vary greatly based upon the size of the plan and the services OneDigital will be providing. Many
plans select their investment adviser by soliciting competitive bids from multiple advisers and,
consequently, it is impossible to provide a fee schedule that would be relevant to all retirement
plan clients.
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For its Personalized Portfolios program, OneDigital enters into a separate agreement with each
participant that discloses its management fee, which is based upon a percentage of the value of
the participant’s plan account. A portion of that fee is used to pay the plan’s recordkeeper for
providing access to OneDigital so that it can process trades on its platform as well as to
compensate the recordkeeper for calculating and processing OneDigital’s management fee. If
OneDigital uses a sub-adviser to make investment allocation decisions and trades in the
participants’ accounts, it also pays a portion of the management fee to the sub-adviser.
OneDigital’s advisory fee does not include any applicable taxes; confirmation fees for trades;
custodial fees; brokerage commissions; transaction fees; charges imposed directly by a mutual
fund, index fund, or exchange traded fund (as disclosed on the fund’s prospectus), including
embedded investment advisory fees paid to unaffiliated third-party asset managers for
management of the fund; and other fees imposed by the plan’s recordkeeper/custodian for
securities transactions. The plan’s administrator is required to provide participants with a
disclosure of the costs associated with the investment options offered under the plan, pursuant
to §404a-(5) of ERISA.
Retirement plan clients can decide whether the fees will be paid directly by the plan sponsor or
deducted from plan assets and whether fees will be paid in advance or arrears. When
OneDigital’s advisory fees are paid from plan assets, it must rely upon the plan’s recordkeeper
to collect that fee and the recordkeeper’s policies will determine the amount of applicable assets
upon which OneDigital’s fee will be based on. This is also true for OneDigital’s Personalized
Portfolios program. However, if the plan sponsor pays OneDigital’s fee directly, OneDigital
will charge a flat fee and the parties can negotiate when those payments will be due.
Either party can terminate the agreement upon 30 days' prior written notice to the other. If the
advisory fee had been collected in advance and the agreement is terminated in the middle of a
calendar quarter, any unearned fees paid in advance will be refunded to the client on a pro-rata
basis.
Because it would likely be deemed a prohibited transaction under ERISA, OneDigital and its
investment adviser representatives (“IARs”) are not permitted to accept any compensation for
the sale of any securities or investment products when they are acting as a fiduciary investment
adviser or investment manager for a retirement plan or participant, except to the extent such
compensation is used to offset OneDigital’s fees. For that reason, while some IARs are also
registered representatives of broker-dealers that are unaffiliated with OneDigital, they rarely
offer securities or insurance brokerage services to retirement plan clients.
There are, however, some exceptions to this rule. For example, when IARs who had previously
serviced their retirement plan clients on a brokerage basis join OneDigital, it may take time for
them to transition those accounts to an investment advisory platform. In those cases, the IAR
can be paid on a commission basis through the broker-dealer with whom they are registered, but
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those commissions are typically used to offset OneDigital’s advisory fee.
In addition, some IARs assist sponsors of “frozen defined benefit plans” to offload some or all
of their liability for making future payments to beneficiaries through the purchase of an insurance
annuity. (A “frozen defined benefit plan” is one that is no longer enrolling new participants but
has a continuing duty to pay previously vested benefits.) As compensation for providing these
services, the employee and/or investment adviser representative may collect a consulting fee
from the client and/or a commission for the sale of the insurance annuity.
Finally, some employees and/or IARs of OneDigital assist employers in establishing non-
qualified, executive benefit plans. Because these activities involve the sale of insurance and/or
securities products, those employees and/or IARs will typically receive a commission on the sale
of the selected product. Those services, however, are not considered to be investment advice
given to a retirement plan.
When OneDigital’s employees or IARs recommend commissioned-based products in the above
situations, a conflict of interest arises because the recommendation to purchase the product may
have been influenced by the commission compensation to be received, rather than solely on the
needs and best interests of the client. OneDigital addresses this conflict of interest by disclosing
the conflict in this Disclosure Brochure and reminding clients that they are no obligation to use
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