Third-Party Portfolio Manager Trading Practices

This page provides information related to trading practices of third-party portfolio managers in the separately managed account platforms of both Manager Select and Manager Access Select (together, the “SMA Platforms”).  In the SMA Platforms, LPL Financial LLC (“LPL”), either through its investment advisor representatives or a third party investment advisor firm, makes available to clients the investment advisory services of third-party portfolio management firms (“SMA Portfolio Managers”).

In the SMA Platforms, clients direct SMA Portfolio Managers to execute transactions through LPL, subject to the SMA Portfolio Manager’s duty as an investment advisor to seek to achieve best execution.  Clients should understand that an SMA Portfolio Manager may choose to place some or all trades for accounts with broker-dealer firms other than LPL (“trade away” or “step out”).  Some SMA Portfolio Managers have historically placed nearly all client trades with broker-dealer firms other than LPL for execution, in particular, if the SMA Portfolio Manager follows a fixed-income, foreign or small cap investment strategy.  In addition, SMA Portfolio Managers may choose to trade away from LPL in order to aggregate all client transactions into one or more larger “block trades” that are executed through one broker-dealer.  This practice may enable an SMA Portfolio Manager to obtain more favorable execution, including a more advantageous net price, than would otherwise be available if orders were not aggregated into a single “block trade.” It may also assist the SMA Portfolio Manager in potentially avoiding an adverse effect on the price of a security which could result from simultaneously placing a number of separate, successive or competing client orders.

When securities transactions are effected through LPL, there are no brokerage commissions charged to the account.  If an SMA Portfolio Manager chooses to execute a transaction through a broker-dealer other than LPL, the execution price will usually include a commission or fee imposed by the executing broker-dealer. Clients should understand that the client will bear any such additional trading cost, in addition to the account fee paid to LPL.  The additional expenses charged by the broker-dealer executing the transaction may include commissions, mark-ups, mark-downs or “spreads” paid to executing broker-dealer firm.  Additionally, if a foreign currency transaction is required, there may be foreign exchange or similar fees, including but not limited to fees for foreign ordinary conversion and creation of American Depositary Receipts (“ADRs”) charged by third parties as well as foreign tax charges.  In many cases, the commission, mark-up, mark-down or other additional expenses charged by the executing broker-dealer or third party will be embedded in the purchase or sale price of such transactions, and not separately indicated on trade confirmations and custodial account statements provided by LPL.  In evaluating whether to execute a trade through a broker-dealer other than LPL, an SMA Portfolio Manager will consider the fact that an account will not be charged additional expenses (such as a commission) if  effected directly through LPL.

Clients should understand that LPL is not able to fully evaluate whether an SMA Portfolio Manager is meeting its best execution obligations when trading away, as it is not a party to such transactions and is not in a position to negotiate the price or transaction related charges with the executing broker.  The responsibility to determine whether to trade away lies with the SMA Portfolio Manager and arises out of an SMA Portfolio Manager’s individual fiduciary duty to clients.

The table below reflects the frequency of step out trades for equity securities placed by SMA Portfolio Managers and the average cost that clients incurred on a per trade/share basis.  If an SMA Portfolio Manager is not listed below, that manager did not report engaging in step out trades in the SMA Programs.  Please note that information for step out trades for fixed income securities is not included below.  The information presented below is based solely on information each SMA Portfolio Manager provided to LPL and has not been independently verified by LPL.  Please note that this information reflects historical data and may not be indicative of the current frequency with which SMA Portfolio Managers trade away or the related costs of such trades.  An SMA Portfolio Manager’s past trading away practice is not a guarantee that such manager will follow the same practice in the future.  The table below does not include those SMA Portfolio Managers joining the SMA Platforms after the indicated dates or those SMA Portfolio Managers that began to trade away from LPL only after the indicated dates.  It is possible that SMA Portfolio Managers not listed below will trade away from LPL in the future or that SMA Portfolio Managers listed below will trade away more frequently or at a higher cost to clients. Thus, a client’s trading costs relating to step out trades could be greater than shown below.

Full Firm Name/Strategy Dollar-Weighted Percentage
of Step-Outs*
Average Trading Cost per Share
for Step-Outs**
         
          (2018)           (2019)         (2018)         (2019)
1919 Investment Counsel  

SRI Balanced 

100% 100% 0 cps 0 cps
Astor Investment Management  

Astor Dynamic Allocation

57% 69% 0-1 cps
0-1 cps

Astor Sector Allocation

98% 94% 0-1 cps 0-1 cps
Baird Investment Management  

Baird Mid-Cap Growth Equity

85% 91% 0 cps 0 cps
Brandes Investment Partners  

Brandes Global Balanced ADR

15% 26% 1.3 cps 1.3 cps

Brandes U.S. Value Equity HNW

3% 7% 2 cps 2 cps

Brandes Global Equity ADR

44% 50% 2 cps 0.7 cps

Brandes International Equity ADR

71% 73% 1.6 cps 1.6 cps
Capital Group        

Capital Group Global Equity SMA

4% 4% 2 cps 1 cps

Capital Group World Dividend Growers SMA

10% 17% 1 cps 2 cps

Capital Group International Equity SMA

7% 34% 4 cps 3 cps

Churchill Management Group

       

Churchill Premier Wealth Tactical

3% 12% 1 cps 1 cps

Churchill Equity Growth and Value

3% 12% 1 cps 1 cps

Churchill ETF Sector Rotation

3% 12% 1 cps 1 cps

ClearBridge Investment LLC

       

ClearBridge All Cap Growth SMA

42% 0% 1.4 cps 0 cps

ClearBridge All Cap Value SMA

42% 0% 1.4 cps 0 cps

ClearBridge Appreciation SMA

42% 0% 1.4 cps 0 cps

ClearBridge Dividend Strategy SMA

42% 0% 1.4 cps 0 cps

ClearBridge International Growth ADR SMA

42% 0% 1.4 cps 0 cps

ClearBridge Large Cap Growth SMA

42% 0% 1.4 cps 0 cps

ClearBridge Large Cap Value SMA

42% 0% 1.4 cps 0 cps

ClearBridge Mid Cap SMA

42% 0% 1.4 cps 0 cps

ClearBridge Multi Cap Growth SMA

42% 0% 1.4 cps 0 cps

ClearBridge Small Cap SMA

42% 0% 1.4 cps 0 cps

Delaware Capital Management

       

Delaware Intl ADR Eq Mondrian SMA

2% 3% 6 bps 0-6 cps

Federated Investors

       

Federated Clover Balanced MA

30% 32% 0 cps 0 cps

Good Harbor Financial

       

Good Harbor Tactical Core US

99% 99% 1 cps 1 cps

Good Harbor Tactical Equity Income

44% 0% 0 cps 0 cps

Horizon Investments

       

Horizon Conservation Plus Portfolio

100% 0% 1-2 cps 0 cps

Horizon Conservative Portfolio

100% 0% 1-2 cps 0 cps

Horizon Focused with Risk Assist

44% 0% 1-2 cps 0 cps

Horizon Growth with Risk Assist

56% 0% 1-2 cps 0 cps

Horizon Moderate with Risk Assist

61% 0% 1-2 cps 0 cps

Horizon Focused Portfolio

100% 0% 1-2 cps 0 cps

Horizon Growth Portfolio

100% 0% 1-2 cps 0 cps

Horizon Moderate Portfolio

100% 0% 1-2 cps 0 cps

Horizon Real Spend 3

12% 0% 1-2 cps 0 cps

Horizon Real Spend 4

12% 0% 1-2 cps 0 cps

Horizon Real Spend 5

11% 0% 1-2 cps 0  cps

Horizon Real Spend 6

11% 0% 1-2 cps 0 cps

Horizon Real Spend 7

15% 0% 1-2 cps 0 cps

Invesco Advisors

       

Invesco Global Core Equity ADR SMA/WRAP

4% 0% 0-1 cps 0 cps

Invesco International Core Equity ADR SMA/WRAP

6% 0% 0-1 cps 0 cps

Invesco International ADR Grth SMA/WRAP

17% 0% 0-1 cps 0 cps

Invesco Mid Cap Core SMA/WRAP

2% 0% 0 cps 0 cps

Invesco Diversified Dividend SMA/WRAP

3% 0% 0 cps 0 cps

Kayne Anderson Rudnick Inv. Mgt.

       

Kayne Anderson Rud Small Cap Core Wrap

0% 8.51% 0 cps 1.3 cps

Kayne Anderson Rud SMID Core Wrap

2% 8.51% 1.5 cps 1.3 cps

Kayne Anderson Rud SC Quality Value Wrap

2% 8.51% 1.5 cps 1.3 cps

Kayne Anderson Rud SC Sustain Gr Wrap

2% 8.51% 1.5 cps 1.3 cps

Kayne Anderson Rud MC Core Wrap

0% 0% 0 cps 0 cps

Lazard Asset Management

       

Lazard Intl Equity Select ADR SMA

90-100% 90-100% 8-9 cps 4-8 cps

Lazard Intl Equity Select w/ EM ADR SMA

90-100% 90-100% 8-9 cps 4-8 cps

Lazard Em Markets Equity Select ADR SMA

90-100% 90-100% 8-9 cps 4-8 cps

Lazard Global Balanced Select ADR SMA

90-100% 90-100% 8-9 cps 4-8 cps

Lazard Global Equity Select ADR SMA

90-100% 90-100% 8-9 cps 4-8 cps

Lazard U.S. Equity Select SMA

90-100% 90-100% 8-9 cps 4-8 cps

Legg Mason Private Portfolio Group

       

Legg Mason All Cap Blend (MDA0) SMA

42.20% 20.25% 1.4 cps 1.5 cps

Legg Mason Balanced Income 70/30 SMA

42.20% 20.25% 1.4 cps 1.5 cps

Legg Mason MDA 0 Bal Tax 60/40 SMA

42.20% 20.25% 1.4 cps 1.5 cps

Legg Mason MDA 0 Bal TF 70/30 SMA

42.20% 20.25% 1.4 cps 1.5 cps

Legg Mason Global All Cap (MDA7A) SMA

N/A 20.25% N/A 1.5 cps
Natixis Advisors, L.P.        

Natixis/MSDP Growth

40-90% 40-90% 0 cps 0 cps

Natixis/MSDP Growth and Income

40-90% 40-90% 0 cps 0 cps

Natixis/MSDP Income

40-90% 40-90% 0 cps 0 cps

Natixis/MSDP Income and Moderate Growth

40-90% 40-90% 0 cps 0 cps

Neuberger Berman

       

Neuberger Berman All Cap Core TE (SMA)

3% 0% 0 cps 0 cps

Neuberger Berman Core Bond SMA

3% 0% 0 cps 0 cps

Nottingham Advisors

       

Nottingham Global All Asset

100% 75% 3 cps 1 cps

Nottingham Global Balanced

100% 75% 3 cps 1 cps

Nottingham Global Equity

100% 75% 3 cps 1 cps

Nottingham Global Income

100% 75% 3 cps 1 cps

Nuveen Asset Management

       

Nuveen Preferred Securities SMA

41% 56% 0 cps 0 cps

Polen Capital Management

       

Polen Focus Growth

39% 0.0%
0 cps 0 cps

SMH Capital Advisors

       

High Income

100% Not available on SMA platforms 0 cps Not available on SMA platforms

  All percentages are approximate.  The Dollar-Weighted Percentage of Step-Outs is generally calculated by dividing the total dollar amount of step-outs placed with broker-dealers other than LPL by the total dollar amount of client step-out trades placed with all broker-dealers, including LPL.  For example, an SMA Portfolio Manager that traded a total of $10 million in the strategy and stepped out $5 million would have a Dollar-Weighted Percentage of Step-Outs of 50% ($5 million divided by $10 million).  The number of accounts, timing of inceptions and terminations, client-directed cash flows and time period under review can all be variables that affect the dollar-weighted percentage of step-outs.

**   The Average Trading Cost per Share for Step-Outs is expressed in terms of an average cents-per-share (“cps”).  To calculate this figure, generally the total number of shares stepped out for a specific strategy is divided by the total additional costs incurred by the client for the trades that were stepped out.  For example, an SMA Portfolio Manager that stepped out the purchase and sale of 200,000 shares and incurred an aggregate cost of $4,000 in commissions for those trades would result in an additional average cost of 2 cents per share.  The average cost of 2 cents per share would be what the client paid in addition to their standard account fee for the stepped out trades.

Strategies that invest in international securities may also have additional costs assessed by the exchange where the trades were executed such as exchange fees and taxes, and may also have costs such as conversion fees and currency translation costs reflected in the Average Trading Cost per Share for Step-Outs.  For example, an SMA Portfolio Manager may purchase a security via “ordinary shares” on a foreign exchange (which may charge a fee or tax on that trade), and then the bank may charge a fee to convert the ordinary shares to American Depository Receipts “(ADR(s)”), and in so doing there may be currency translation costs associated with ordinary-to-ADR conversions that is in addition to the commission cost of the trade, if applicable. 

Please note that information for step out trades for fixed income securities is not included above.