Fixed Income Client Statement Pricing Disclosure
Through LPL's online Account View, clients are able to review investment valuations along with many other account related features. The investment valuations (a.k.a. prices) feature provides clients an approximate market value of individual investments or portfolio, as a whole.
Unlike equities where prices are usually evaluated based on their daily closing prices, bonds generally do not have a uniform closing price, as a majority trade in over-the-counter (OTC) markets or a negotiated market. Additionally, bond prices are affected by many different factors and, consequently, are often derived using pricing models and/or benchmark indices. These factors include but are not limited to; issuer's credit rating, order size and other features as well as by valuation methods used by independent pricing services.
Third-party resources may provide comparative prices for evaluation purposes. LPL Financial through a third-party pricing vendor supplies these independent daily bond valuations. Typically, pricing services use proprietary pricing models which may or may not be an accurate representation of actual prices. A continually changing market environment presents additional challenges, which may affect the price of bond valuations and, consequently, make statement prices less reliable indications of at what price certain bonds may be trading.
Actual bond prices are determined by what someone is willing to pay - a bid price reflects the price at which a customer can sell. Consequently, an offer or ask price reflects the price at which a customer can buy. The difference between the two prices is referred to as the price spread. When conditions of significant increases in price volatility, the spreads between bids and asks for bonds can increase to wide levels, making bond valuations even less precise. Bond prices reflected on statements are "best-effort estimates" which can be useful for evaluating a portfolio and establishing an allocation mix. However, they should not be interpreted as actual bid or ask prices.
Clients should carefully review their monthly statements and monitor changes in bond prices. However, investment decisions should not be based solely on statement pricing as it may not be indicative of current market prices. Any investor interested in selling bonds prior to maturity should seek assistance from their financial professional. Additionally, when purchasing a bond, clients can evaluate the pricing they received at http://emma.msrb.org/ and http://finra-markets.morningstar.com/BondCenter/Default.jsp or by contacting your LPL financial professional.