ITEM 5: FEES AND COMPENSATION
Watts Gwilliam & Co., and its division Optic Asset Management, offer its services for a fee based
on a percentage of assets under management. Fees are determined on a case-by-case basis,
considering such things as account value, complexity, and other factors. While fees vary based on
many factors, our maximum fee is 1.25% per year. The value of accounts used for billing is based
on the market value of investments held in the account (see Billing Process). At times, we may
instead propose a fixed fee for portfolio management.
Fixed fees for financial planning services are based on the complexity of the planning and agreed
to by the client in advance. We project our fixed fees to range from $500 to $3,500 for the initial
plan development. Update sessions and follow up work may require separate arrangements. At
times, the advisor may decide to waive these fees, or apply fees paid for financial planning
services toward the client’s annual assets under management fees.
Fees paid by the client are disclosed on the signed client agreement and reported on custodial
statements for the month in which they are assessed.
Minimum Annual Fee
We have established a minimum annual household fee of $2,500. This account minimum may
have the effect of making our services impractical for accounts with fewer assets. Watts Gwilliam
& Co. may decide to waive this minimum based upon certain criteria such as anticipated future
earning capacity, anticipated future additional assets, related accounts, account composition, pro
bono activity, etc.
Billing Process
Watts Gwilliam & Co. bills client accounts for a given quarter on or around the first business day
of that quarter by applying one-fourth of the applicable annual fee to the closing market value on
the just-concluded quarter’s last trading day. An account billed on the first business day of
January, for example, applies one-fourth of the appropriate household rate to the account’s
market value on the last trading day of December. Accounts are normally billed on the first
business day of January, April, July and October. On occasion, various factors may cause a delay
in the actual billing of an account. However, when this occurs, the billing is still calculated as if it
had been done on the first day of the quarter. Market value is determined by the account
custodian and is reported on client statements. In certain situations, such as illiquid private
placement investments, the custodian may not report a value. In this case, the amount will be
determined as the value on the books and records of the issuer of the investment. This amount
may be higher or lower than the market value if that investment were to be sold. Clients
authorize us in our client agreement and custodial paperwork to deduct fees directly from their
account.
When an account is first placed under Watts Gwilliam & Co.’s management, billing begins on the
first business day of the account being managed. In this case, fees are calculated on a daily, pro-
rata basis, based on the number of days remaining in the quarter. The fee is applied to the initial
value of the account on the first day of Watts Gwilliam & Co.’s management.
FORM ADV PART 2A~~WATTS GWILLIAM & CO., LLC-VERSION DATE: MAY 2026 7
If an account is fully removed from Watts Gwilliam & Co.’s management during a billing
quarter, the already-billed quarterly fee is pro-rated as specified in the client agreement and the
difference between the assessed fee and the pro-rated fee is refunded promptly to the client.
Clients may close accounts without penalty on the last day of any month, upon written
notification of Watts Gwilliam & Co.
Investors who use margin, securities-based lending, box spreads, or other financing
arrangements to purchase or maintain investments will generally be billed based on the total
gross market value of investments managed in the account, including assets financed through
borrowed funds or synthetic financing arrangements.
Certain financing strategies, including box spread transactions, may reduce the account equity or
net liquidation value reflected on custodial statements because the financing obligation is
reflected as a liability or adjustment within the account. In such situations, Watts Gwilliam & Co.
may adjust the billable account value by adding back the amount of the financing obligation or
related adjustment in order to determine the gross market value of assets being managed for
advisory fee billing purposes.
For example, if an account with $5 million in investments enters into a $1 million box spread
financing transaction and the custodian reflects the account net value as $4 million, advisory fees
may nevertheless be calculated based on the $5 million gross market value of assets managed in
the account.
Because advisory fees are based on gross assets under management, the use of leverage, margin,
box spreads, or other financing strategies generally increases the advisory fees paid to the Firm.
This creates a conflict of interest because the Firm has a financial incentive to recommend
strategies that increase assets under management. However, the Firm evaluates the
appropriateness of these strategies based on each client’s financial circumstances, investment
objectives, liquidity needs, and risk tolerance, independent of fee considerations.
Similarly, clients who utilize our Optic Equity Access (“OEA”) strategy (see Item 8 below) and
choose to reinvest the loan proceeds will increase the total assets in the account on which
advisory fees are calculated. Because advisory fees are based on assets under management,
reinvestment of loan proceeds will generally increase the advisory fees paid to the Firm.
This creates a conflict of interest, as the Firm has a financial incentive to recommend strategies
that increase assets under management. However, we evaluate the appropriateness of margin or
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