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 Client Trades Stepped Out Average Additional Cost Incurred by Clients Participating in those Trades
         
  2019 2020 2019 2020
         
1919 Investment Counsel        
SRI Balanced  100% 100% 0 cps 0 cps
Abner, Herrman & Brock        
Abner, Herrman & Brock Custom Balanced 100% 100% 0 cps 0 cps
Abner, Herrman & Brock Lg-Cap Core Eq 100% 100% 0 cps 0 cps
Astor Investment Management        
Astor Dynamic Allocation 69% 92% 0-1 cps 0-1 cps
Astor Sector Allocation 94% 95% 0-1 cps 0-1 cps
Baird Investment Management        
Baird Mid-Cap Growth Equity 91% 91% 0 cps 0 cps
Brandes Investment Partners        
Brandes Global Balanced ADR 26% 0% 1.3 cps 1.2 cps
Brandes U.S. Value Equity HNW 7% 0% 2 cps 1 cps
Brandes Global Equity ADR 50% 0% 0.7 cps 1.3 cps
Brandes International Equity ADR 73% 0% 1.6 cps 1.4 cps
Capital Group        
Capital Group Global Equity SMA 4% 12% 1 cps 3 cps
Capital Group International Equity SMA 34% 54% 3 cps 3 cps
Capital Group World Dividend Growers SMA 17% 22% 2 cps 2 cps
Churchill Management Group        
Churchill Premier Wealth Tactical 12% 13% 1 cps 1 cps
Churchill Equity Growth and Value 12% 13% 1 cps 1 cps
Churchill ETF Sector Rotation 12% 13% 1 cps 1 cps
Cincinnati Asset Mgt        
Cincinnati Asset Mgt Broad Mkt 100% 100% 0 cps 0 cps
Delaware Capital Management        
Delaware Intl ADR Eq Mondrian SMA 3% 2% 0-6 cps 0-6 cps
Federated Investors        
Federated Hermes Clo 60/40 Val EqTrs SMA 32% 22% 0 cps 0 cps
Federated Intl Strategic Value Div 100% 100% 0 cps 0 cps
Good Harbor Financial        
Good Harbor Tactical Core US 99% 99% 1 cps 1 cps
GW&K         
GW&K Equity Dividend Plus Strategy -Wrap 100% 100% 0 cps 0 cps
Kayne Anderson        
Kayne Anderson Rd SC Quality Value Wrap 9% 17.84% 1.3 cps 2.8 cps
Kayne Anderson Rud SC Sustain Gr Wrap 9% 15.20% 1.3 cps 2 cps
Kayne Anderson Rudnick Inv. Mgt.        
Kayne Anderson Rud Small Cap Core Wrap 9% 0.00% 1.3 cps 0 cps
Kayne Anderson Rud SMID Core Wrap 9% 0.00% 1.3 cps 0 cps
Lazard Asset Management        
Lazard Intl Equity Select ADR SMA 90-100% 90-100% 4-8 cps 4-5 cps
Lazard Intl Equity Select w/ EM ADR SMA 90-100% 90-100% 4-8 cps 4-5 cps
Lazard Em Markets Equity Select ADR SMA 90-100% 90-100% 4-8 cps 4-5 cps
Lazard Global Balanced Select ADR-SMA 90-100% 90-100% 4-8 cps 4-5 cps
Lazard Global Equity Select ADR SMA 90-100% 90-100% 4-8 cps 4-5 cps
Lazard U.S. Equity Select SMA 90-100% 90-100% 4-8 cps 4-5 cps
Legg Mason Private Portfolio Group        
Legg Mason All Cap Blend (MDA0) SMA 20.25% 64.12% 1.5 cps 1 cps
Legg Mason Balanced Income 70/30 SMA 20.25% 64.12% 1.5 cps 1 cps
Legg Mason MDA 0 Bal Tax 60/40 SMA 20.25% 64.12% 1.5 cps 1 cps
Legg Mason MDA 0 Bal TF 70/30 SMA 20.25% 64.12% 1.5 cps 1 cps
Legg Mason Global All Cap (MDA7A) SMA 20.25% 64.12% 1.5 cps 1 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
Balanced All Cap Value 40-90% 40-90% 0 cps 0 cps
Nottingham Global All Asset        
Nottingham Global All Asset 75% 90% 1 cps 1 cps
Nottingham Global Balanced        
Nottingham Global Balanced 75% 90% 1 cps 1 cps
Nottingham Global Equity        
Nottingham Global Equity 75% 100% 1 cps 1 cps
Nottingham Global Income        
Nottingham Global Income 75% 85% 1 cps 1 cps
Nuveen Asset Management        
Nuveen Preferred Securities SMA 56% 24% 0 cps 0 cps
Schafer Cullen Capital Management        
Schafer Cullen High Dividend Value Eq 0.0% 2.5% 0 cps 0 cps
Schafer Cullen Intl Hi Div ADR 0.0% 5.1% 0 cps 0 cps
Schafer Cullen MultiCap Value Equity 0.0% 0.0% 0 cps 0 cps
Wells Fargo Asset Management        
WFAM CoreBuilderSM Municipal Inc SMA 34% 33% 0 cps 0 cps

  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.