Item 5: Fees and Compensation
WAM receives compensation through its investment advisory services and management services
provided to the Private Equity Fund, sub-advisory services to WS and RIA fee-based accounts,
and other services provided to WS and RIA fee-based accounts, each of which are described
further, and separately, below.
Private Equity Fund:
Wedbush Asset Management, LLC Brochure
WAM’s and its affiliates’ compensation is negotiable and varies, but typically, it charges (a)
during the “Commitment Period” (typically five years from final closing), 2.0% per year of the
total capital commitments and (b) after the Commitment Period, 2.0% of the “Fee Base”
(capital contributions attributable to unrealized investments less any write downs with respect
to those investments). Fees are payable in at least semi-annual installments at the beginning
of each period based on the Fee Base. WAM or one of its affiliates also typically receives a
“Carried Interest” with respect to the Private Equity Fund. The Carried Interest is structured
to grant WAM or its affiliates 20% of distributions from the Private Equity Fund that exceed the
sum of (a) the limited partners' capital contributions and pro rata share of any net unrealized
losses on write-downs of the fund's investments and (b) if necessary, a "preferred return" such
that the cumulative distributions to limited partners represent an 8% annual rate of return on
the cumulative distributions pursuant to clause (a). WAM complies with Rule 205-3 under the
Investment Advisers Act of 1940, to the extent required by applicable law. The Carried Interest
may create an incentive for WAM to make more risky and speculative investments than it would
otherwise make.
WAM and its affiliates typically deduct management fees and the Carried Interest directly from
the Private Equity Fund.
Relationships with WAM’s Private Equity Fund are terminable on expiration of the Private Equity
Fund’s term or dissolution of the partnership. The Private Equity Fund is considered a closed
end limited partnership and does not provide for withdrawal prior to the termination of the
partnership. Those limited partners who do not meet their capital contribution requirements
can be placed in default, which provides the Private Equity Fund with numerous available
remedies, some of which would be highly punitive to the limited partner.
In all cases, the Carried Interest, expenses and the pro rata portion of the management fee
through the date of termination are charged to the limited partners.
WAM may receive origination, placement, commitment, closing or investment banking,
retainer, financial advisory or other fees (“Transaction Fees”) from the Private Equity Fund’s
investments. WAM could be perceived to have a conflict of interest in receiving these fees. To
address this conflict, 50% of all Transaction Fees will be applied to reduce the management fee
paid by the Private Equity Fund, net of any un-recouped expenses which WAM has elected to
pay on behalf of the Private Equity Fund.
The Private Equity Fund is responsible for its own costs and expenses, including (1) those
associated with the organization of the Partnership and General Partner such as legal and
accounting fees, printing costs, travel and out-of-pocket expenses; (2) those incurred in the
offering of partnership interests, up to a maximum amount specified in the partnership
agreement; and (3) all expenses relating to its own operations, including fees, costs and
expenses directly related to the purchase and sale of securities, expenses of custodians, counsel
and accountants, and administrative costs. The Private Equity Fund’s partnership agreement
details these expenses. WAM bears its own operating, general, administrative and overhead
costs and expenses, other than the expenses described above.
Wedbush Asset Management, LLC Brochure
Sub-Advisory Services to Wedbush Securities, Inc. and RIAs
In exchange for the advisory services provided, WAM receives a portion of the fee charged by
the wrap fee program sponsor or RIA. This asset-based fee ranges from 0.15% to 0.70% on an
annual basis, depending on the particular program or product. Management fees are deducted
from client accounts quarterly, in advance. In addition, there is a minimum account size and
minimum account fee which varies depending on the specific program or services. Exceptions
to the annual management fee may be made at Wedbush Asset Management’s discretion.
The sub-advisory agreement may be terminated upon 90 days written notice by either party.
Any fees collected in advance, but not earned, will be refunded to the client.
Services Agreement with Wedbush Securities and RIAs
In exchange for the general investment and operations services provided by WAM, WS and RIAs
pay WAM a base fee for such services each month. WS and RIAs also have agreed to pay WAM a
monthly “Platform Fee” in return for accessing the investment management software used by
WAM. This fee includes implementing, licensing and usage, and operating costs incurred by
WAM to service clients on the platform.
General Disclosures
To the extent that client accounts invest in mutual funds (including ETFs), those accounts also
pay, indirectly, investment advisory fees to the managers of those funds.
WAM believes that its fees are competitive with fees charged by other investment advisers for
comparable services. Comparable services may be available, however, from other sources for
lower fees.
The disclosure in this Item 5, together with the disclosure in Item 12, allow a plan that is subject
to the Employee Retirement Income Security Act of 1974 and that invests in an investment
limited partnership of which WAM or any of its affiliates is general partner, to use the
“alternative reporting option” to report WAM’s and its affiliates’ compensation as “eligible
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