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** |
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---|---|---|---|---|
(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 |
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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 |
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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 |
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Delaware Intl ADR Eq Mondrian SMA |
2% | 3% | 6 bps | 0-6 cps |
Federated Investors |
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Federated Clover Balanced MA |
30% | 32% | 0 cps | 0 cps |
Good Harbor Financial |
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Good Harbor Tactical Core US |
99% | 99% | 1 cps | 1 cps |
Good Harbor Tactical Equity Income |
44% | 0% | 0 cps | 0 cps |
Horizon Investments |
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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 |
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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. |
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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 |
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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 |
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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 |
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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 |
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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 |
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Nuveen Preferred Securities SMA |
41% | 56% | 0 cps | 0 cps |
Polen Capital Management |
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Polen Focus Growth |
39% | 0.0% |
0 cps | 0 cps |
SMH Capital Advisors |
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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.