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 may 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, as reflected 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 an 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 arises out of an SMA Portfolio Manager’s individual fiduciary duty to clients and trading expertise.

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.  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**

  (2016) (2017) (2016) (2017)

1919 Investment Counsel

       

     SRI Balanced Portfolio

0% 20% 0 cps 0 cps

Ashfield Capital Partners

       

     Balanced

Data not available Data not available

     Core Growth Equity

Data not available Data not available

Astor Investment Management LLC

   

    Long/Short Balanced (Dynamic Allocation)

82% 72% 0 to 1 cps 0-1 cps

    S.T.A.R. (Sector Asset Tactical Rotation)

90% 81% 0-1 cps 0-1 cps

Baird Investment Management

   

    High Quality Midcap Growth

61% 86% 0 cps 0 cps

Boyd Watterson Asset Management

   

    Ultra Enhanced Core SMA

100% 100% 0 cps 0 cps

Brandes Investment Partners

   

    Brandes Global Balanced Portfolio

38% 37% 1.39 cps 1.23 cps

    Brandes U.S. Value Equity Portfolio

16% 35% 1.47 cps 1.58 cps

    Brandes Global Equity Portfolio

72% 76% 1.67 cps 1.69 cps

    Brandes International Equity Portfolio

75% 82% 1.41 cps 1.25 cps

Brinker Capital

   

    Crystal Strategy

37% n/a 1 cps n/a

Capital Group Companies, Inc.

   

    Global Equity

2% 4% 3 to 13 cps 0.013 cps

    World Dividend Growers

1% 5% 3 to 13 cps 0.037 cps

    International Equity

24% 3% 3 to 13 cps 0.042 cps

Churchill Management Group

   

    Premier Wealth Tactical

20% 17% 1 cps 1 cps

    Equity Growth and Value

15% 17% 1 cps 1 cps

    ETF Sector Rotation

15% 17% 1 cps 1 cps

Clark Capital Management Group Inc

   

    All Cap Core US Equity

Data not available Data not available

    Global Equity

Data not available Data not available

    Global Opportunity

Data not available Data not available

ClearBridge Investment LLC

   

    All Cap Growth Portfolios

56% 42% 1.6 cps 1.21 cps

    All Cap Value Portfolios

93% 42% 1.4 cps 1.21 cps

    Appreciation Portfolios

6% 42% 1.3 cps 1.21 cps

    Divident Strategy Portfolios

68% 42% 1.6 cps 1.21 cps

    International Growth ADR Portfolios

78% 42% 1.3 cps 1.21 cps

    Large Cap Growth Portfolios

29% 42% 1.5 cps 1.21 cps

    Large Cap Value Portfolios

20% 42% 0.6 cps 1.21 cps

    Mid Cap

50% 42% 1.48 cps 1.21 cps

    Multi Cap Growth Portfolios

33% 42% 1.6 cps 1.21 cps

    Legg Mason Balanced Income Portfolios

89% n/a 1.4 cps n/a

    Small Cap

50% 42% 1.48 cps 1.21 cps

Delaware Captial Management

   

    Large Cap Value

0% n/a 0 cps n/a

    International ADR

3% 12% 1 cps 6 bps

    Aggregate Duration

100% n/a 0 cps n/a

    Intermediate Duration

100% n/a 0 cps n/a

    Low Duration

100% n/a 0 cps n/a

Federated Investors

   

    Federated Clover Balanced

22% 2% 0 cps 0 cps

    All Cap Portfolio

1% 2% 0 cps 0 cps

    Federated Strategic Value Dividend Managed Account

2% 5% 0 cps 0 cps

Geneva Advisors

   

    All Cap Growth

Data not available Data not available

    Equity Income non K-1

Data not available Data not available

    Global Opportunity

Data not available Data not available

Good Harbor Financial

   

    Good Harbor Tactical Core US

99% 98% 1 cps 1 cps

    Good Harbor Tactical Equity Income

83% 9% 1 cps 1 cps

Horizon Investments

   

    Conservation Plus ETF

86% 100% 0.98 cps 1-2 cps

    Conservative ETF

97% 100% 0.98 cps 1-2 cps

    Focused with Risk Assist

97% 100% 0.98 cps 1-2 cps

    Growth with Risk Assist

91% 100% 0.88 cps 1-2 cps

    Moderate with Risk Assist

96% 100% 0.90 cps 1-2 cps

    Focused ETF

97% 100% 1.07 cps 1-2 cps

    Growth ETF

97% 100% 0.96 cps 1-2 cps

    Moderate ETF

98% 100% 1.00 cps 1-2 cps

    Real Spend 3

22% 100% 1.76 cps 1-2 cps

    Real Spend 4

100% 100% 1-2 cps 1-2 cps

    Real Spend 5

34% 100% 1.70 cps 1-2 cps

    Real Spend 6

100% 100% 1-2 cps 1-2 cps

    Real Spend 7

31% 100% 1.82 cps 1-2 cps

Invesco Advisors

   

    Invesco Global Core Equity

18% 8% Data not available 3 cps

    Invesco International Core Equity

42% 21% Data not available 9 cps

    Invesco International Growth ADR

18% 15% Data not available 3 cps

    Invesco Mid Cap Core

1% 3% Data not available 5 cps

Kayne Anderson Rudnick Inv. Mgt

   

    Large Cap Value

51% 25% 2.7 cps 2.5 cps

    Small Mid Cap Core

Over 80% 25% 3 cps 2.5 cps

    Small Cap Value

Over 80% 25% 3 cps 2.5 cps

    Small Cap Sustainable Growth

Over 80% 25% 3 cps 2.5 cps

Lazard Asset Management

   

    International Equity Select

90-100% 90-100% 7-8 cps 7-8 cps

    International Select w/Emerging Markets

90-100% 90-100% 7-8 cps 7-8 cps

    Emerging Markets ADR

90-100% 90-100% 7-8 cps 7-8 cps

    Global Balanced

90-100% 90-100% 7-8 cps 7-8 cps

    Global Equity Select

90-100% 90-100% 7-8 cps 7-8 cps

Legg Mason Private Portfolio Group

   

    All Cap Blend

50.25% 41.92% 1.48 cps 1.21 cps

    All Cap Core-Balanced Tax Favored

50.25% 41.92% 1.48 cps 1.21 cps

    All Cap Core-Balanced Taxable

50.25% 41.92% 1.48 cps 1.21 cps

    Balanced Income

50.25% 41.92% 1.48 cps 1.21 cps

Neuberger Berman

   

    International ADR

0% n/a 0 cps n/a

    Socially Responsive

4% n/a 0 cps n/a

    All Cap Core w/o MLPs

0% 4% 0 cps 0 cps

    All Cap Core w MLPs

0% 4% 0 cps 0 cps

Nuveen Asset Management

   

    Preferred Securities SMA

13% 52% Data not available 0 cps

NWQ Investment Management

   

    Balanced

2% <1% 1.7 cps 0.75 cps

    Large Cap Value

2% <1% 1.7 cps 0.75 cps

    Special Equity

2% <1% 1.7 cps 0.75 cps

Polen Capital Management

   

    Large Cap Growth

33% 40% 0-3 cps 0 cps

Schafer Cullen Capital Management

   

    High Dividend Value

0% 3.56% 0 cps 0.25 cps

    International High Dividend

0% 3.56% 0 cps 0.25 cps

    Value Equity

0% 3.56% 0 cps 0.25 cps

SMH Capital Advisors

   

    High Income

100% 100% 0 cps 0 cps

Salient

   

    International Dividend SMA

44% 0% 5 cps 0 cps

    International High Dividend

18% n/a 5 cps 7 cps

Templeton

   

    Templeton Global

62% 45% 0.8 to 4 cps 0-4 cps

    Templeton International

62% 45% 0.8 to 4 cps 0-4 cps

Thornburg

   

    International Core ADR

82% 83% 2.7 cps 3.1 cps

    US Equity

33% 24% 2.8 cps 2 cps

WBI Investments

   

    Tactical Balanced

99% 34% 0 cps 0 cps

    Tactical Balanced Plus

98% 63% 0 cps 0 cps

    Tactical Dividend Growth

99% 78% 0 cps 0 cps

    Tactical Dividend Income

89% 71% 0 cps 0 cps

    Tactical Balanced Enhanced

17% n/a 0 cps n/a

    Tactical Balanced Plus Enhanced

25% n/a 0 cps n/a

    Tactical Balanced Dividend Growth Enhanced

16% n/a 0 cps n/a

    Tactical Dividend Income Enhanced

28% n/a 0 cps n/a
       

 

Footnotes

  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.

       
Astor Investment Management LLC
       
Astor Investment Management LLC