Saxony Securities Inc.
Disclosure Concerning Investment Advice provided to Retirement Investors
Including IRAs and Assets Held in ERISA-Covered Plans
This disclosure is provided to you in connection with investment advice provided to you in connection with assets held in an IRA, Roth IRA, Archer Medical Savings Account, a Plan covered by Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or a plan described in Section 4975(e)(1)(A) of the Internal Revenue Code (“Code”). This disclosure may supplement other agreement(s) we have entered into with you in connection with your account(s) (“Account”) including, without limitation, any insurance or annuity contract or application, account opening agreement, investment program agreement or similar document.
References in this disclosure to “you” refer to the beneficial owner of an IRA, Roth IRA, Archer Medical Savings Account, or a participant in a Plan subject to ERISA, or a Retail Fiduciary of a Plan or IRA (or a Roth IRA). References to “us” or “we” refer to Saxony Securities, Inc. (“Financial Institution”) and references to your “Registered Representative” refer to the individual Registered Representative whose name appears on your account statement which is the Registered Representative who is assigned to your Account. Capitalized terms contained in this disclosure shall have the meanings assigned in Section 5 except where otherwise defined.
This disclosure includes information that is required to be provided to you by the U.S. Department of Labor’s Best Interest Contract Exemption, 81 Fed. Reg. 21002 (April 8, 2016) (“Best Interest Contract Exemption”). That exemption permits your Registered Representative, us, our Affiliates and Related Entities to receive compensation for services in connection with recommendations that we or your Registered Representative may from time to time make to you concerning the purchase, sale or holding of investments for your Account, including any related rollover or distribution recommendations, recommendations on investment policies or strategies, portfolio composition, the selection of other persons to provide investment advice or investment management services, or the selection of investment account arrangements (e.g., brokerage or advisory), without violating the prohibited transaction provisions under ERISA that might otherwise apply. This disclosure is effective only with respect to investment recommendations described in Section 2 that we or your Registered Representative may provide during the period of June 9, 2017 through December 31, 2017. In no event will this disclosure apply to investment recommendations we or your Registered Representative may provide prior to this period.
1. Fiduciary Acknowledgement and Statement of Impartial Conduct Standards
We and your Registered Representative act as “fiduciaries” under ERISA or Section 4975 of the Internal Revenue Code (the “Code”) (to the extent applicable) with respect to any investment advice we or your Registered Representative provide in connection with your Account and its holdings. When providing any such fiduciary advice to you, we and your Registered Representative will adhere to the standards of care described below (the “Impartial Conduct Standards”) –
- When providing investment advice to you, we and your Registered Representative provide investment advice that is, at the time of the recommendation, in your “Best Interest.” Advice meeting the “Best Interest” standard is advice that reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on your investment objectives, risk tolerance, financial circumstances, and needs, without regard to the financial or other interests of us or the Registered Representative or any Affiliate, Related Entity, or other party.
- Transactions that we or your Registered Representative recommend will not cause us, your Registered Representative, or our Affiliates or Related Entities to receive, directly or indirectly, compensation for their services that is in excess of reasonable compensation within the meaning of ERISA Section 408(b)(2) or Section 4975(d)(2).
- Statements by us and your Registered Representative to you about transactions subject to this disclosure, fees and compensation, Material Conflicts of Interest, as defined and described in this disclosure, and any other matters relevant to your investment decisions, will not be materially misleading at the time they are made.
2. Services Provided Subject to This Disclosure
We and your Registered Representative will from time to time provide recommendations to you for your Account concerning one or more of the following matters:
- The purchase, sale, exchange or holding of investments for your Account;
- Rollovers, distributions or transfers from your Account;
- Investment policies, strategies or portfolio composition;
- Other persons to provide investment advisory or investment management services (some states require additional licensing for this activity);
- The selection of investment account arrangements (e.g., brokerage or advisory account arrangements).
For the avoidance of doubt, only recommendations that constitute investment advice under regulations issued by the U.S. Department of Labor at 29 C.F.R. § 2510.3-21(a) shall be treated as services under this Section 2 and shall be subject to this disclosure.
3. Material Conflicts of Interest
We have Material Conflicts of Interest when we make investment recommendations to you. A description of these Material Conflicts of Interest is attached as Appendix A.
4. Proprietary Products and Third Party Payments
We do not offer Proprietary Products but we may receive Third Party Payments in connection with the investments we recommend.
A description of these payments is attached as Appendix A.
The following capitalized terms shall have the meanings indicated when used in this Best Interest Contract (“BIC”).
- “Affiliate” of a Registered Representative or Financial Institution means:
- Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Registered Representative or Financial Institution. For this purpose, “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual;
- Any officer, director, partner, employee, or relative (as defined in ERISA Section 3(15)), member of family (as defined in Code Section 4975(e)(6)) of, or partner in, the Registered Representative or Financial Institution; and
- Any corporation or partnership of which the Registered Representative or Financial Institution is an officer, director or partner.
- A “Material Conflict of Interest” exists when a Registered Representative or Financial Institution has a financial interest that a reasonable person would conclude could affect the exercise of its best judgment as a fiduciary in rendering advice to you.
- A “Plan” means any employee benefit plan described in Section 3(3) of ERISA and any plan described in Section 4975(e)(1)(A) of the Internal Revenue Code.
- “Related Entity” means any entity other than an Affiliate in which the Registered Representative or Financial Institution has an interest which may affect the exercise of its best judgment as a fiduciary.
- “Retail Fiduciary” means a fiduciary of a Plan or individual retirement account (“IRA”) that is not described in Section (c)(1)(i) of the Regulation (29 CFR 2510.3-21(c)(1)(i)).
- “Retirement Investor” means—
- A participant or beneficiary of a Plan subject to Title I of ERISA or described in Section 4975(e)(1)(A) of the Code, with authority to direct the investment of assets in his or her Plan account or to take a distribution,
- The beneficial owner of an IRA acting on behalf of the IRA, or
- A Retail Fiduciary with respect to a Plan subject to Title I of ERISA or described in Section 4975(e)(1)(A) of the Code or IRA.
- “Proprietary Product” means a product that is managed, issued or sponsored by the Financial Institution or any of its Affiliates.
- “Third Party Payments” include sales charges when not paid directly by the Plan, participant or beneficiary account, or IRA; gross dealer concessions; revenue sharing payments; 12b-1 fees; distribution, solicitation or referral fees; volume-based fees; fees for seminars and educational programs; and any other compensation, consideration or financial benefit provided to the Financial Institution or an Affiliate or Related Entity by a third party as a result of a transaction involving a Plan, participant or beneficiary account, or IRA.
Description of Material Conflicts of Interest and Brokerage Compensation
Like all financial services companies, Saxony Securities, Inc. (“Saxony”) has conflicts of interest. Saxony’s affiliated firm Saxony Capital Management, LLC (“SCM”) provides advisory services. SCM discloses its conflicts of interest related to its advisory programs and services in various Form ADV disclosure brochures provided to you at the time you opened your account and available on SEC Public Disclosure website at the following location: https://adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=422449.
The information below describes conflicts of interest that relate to Saxony’s brokerage and referral services, in particular, conflicts related to the compensation Saxony and Saxony’s Registered Representatives receive.
Saxony and Saxony Registered Representatives can get paid from a customer directly, or, indirectly from the investment the customer makes. We can get paid a commission at the time of the transaction (upfront), and/or ongoing compensation (typically called a trail payment) depending on how long the customer holds the investment. If we get paid an upfront commission, it means that the more transactions the customer makes, the more we get paid. The amount we receive varies depending on the type of investment a customer makes.
If a customer holds an account at our clearing firm through Saxony, Saxony receives fees directly from the account to help offset the cost the clearing firm charges for services provided. These fees are set out in the Basic Fee Schedule found on your quarterly statement under the Messages section and sent at the time your account(s) were opened.
This brochure provides information about how Saxony and Saxony Registered Representatives are compensated, and some of the related conflicts of interest. Please note that not all of the conflicts described in this brochure apply to a particular Registered Representative or his or her services. Customers should ask their Registered Representative if they have any questions about compensation or conflicts of interest.
- Commissions and Other Types of Sales Compensation
- Commissions and Sales Charges. Saxony and Saxony Registered Representatives can receive commissions when they execute securities transactions (buys or sells). A commission, which also can be called a sales load, sales charge or placement fee, is typically paid upfront, can reduce the amount available to invest, can be charged directly against an investment and is often based on the amount of assets invested. Commissions vary from product to product. For more information about the commissions that apply to a particular transaction, please refer to the applicable prospectus or other offering document and/or transaction statement.
- Mark-up/Mark-down. If a customer holds an account at Saxony, when Saxony buys from or sells to the customer a security in a principal capacity, Saxony and the Saxony Registered Representative receive a mark-up or mark-down on the transaction. This means, for example, if we sell a security at a price higher than what we paid, we will earn a mark-up. Conversely, if we buy a security at a price lower than what we sell it for, Saxony will receive a mark-down. Mark-up/downs typically apply to transactions in bonds or other fixed-income securities.
- Direct Fees and Charges. If a customer holds an account at our clearing firm through Saxony, Saxony charges miscellaneous fees directly to the account such fees as transaction service charges, account transfers, and retirement account maintenance. For fees that apply “per event” are disclosed on the Basic Fee Schedule as “per event”, and the more per event transactions that result from a Saxony Registered Representative recommendation, the more fees that our clearing firm and Saxony receives. These miscellaneous fees are not typically shared with Saxony Registered Representatives.
- Third-Party Compensation. Saxony and Saxony Registered Representatives receive compensation from investment sponsors, in connection with investments the customers make in securities, such as mutual funds, annuities, and alternative investments. The types of third-party compensation are described below.
- Trail Compensation. Saxony and Saxony Registered Representatives receive ongoing compensation from mutual funds, annuities and alternative investments. This compensation (commonly known as trails or Rule 12b-1 fees) is typically paid from the assets of the mutual fund, annuity, or alternative investment under a distribution or servicing arrangement with the investment sponsor, is calculated as an annual percentage of invested assets, and is shared between Saxony and the Saxony Registered Representative. The amount of trail payments received varies from product to product. For more information about trail compensation received with respect to a particular investment, please refer to the prospectus or offering document for the investment.
- Concessions. In certain cases, Saxony and Saxony Registered Representatives receive compensation from a mutual fund sponsor in connection with transactions for which sales charges are waived or under other circumstances and as described in a fund’s offering documents. Saxony receives concessions from investment sponsors for other types of investments. These concessions vary from product to product, and are generally shared between Saxony and the Saxony Registered Representative.
- Cash Sweep. If a customer holds an account at our clearing firm through Saxony, a service is offered to sweep cash held within accounts into an interest-bearing FDIC insured cash account (“ICA”) or money market funds. Under the agreement with each ICA or money market fund in which customer cash is deposited, Saxony receives a portion of the fee equal to a percentage of the average daily deposit balance.For accounts held at Saxony that are not eligible for the ICA, uninvested cash balances are automatically invested in a money market fund. Saxony receives compensation for marketing support from these fund sponsors. These payments are in addition to recordkeeping and 12b-1 fees received by Saxony. This compensation is retained by Saxony and is not typically shared with Saxony Registered Representatives.
- Additional Compensation from Investment Sponsors. Saxony, its employees, and Saxony Registered Representatives are able to receive additional compensation, business entertainment and gifts from investment sponsors. On occasion, investment sponsors provide Saxony and Saxony Registered Representatives reimbursements in connection with educational meetings, customer appreciation events, marketing efforts or other similar initiatives. Investment sponsors may also pay, or reimburse, Saxony and Saxony Registered Representatives for the costs associated with education or training events that are attended by employees and representatives, and for Saxony-sponsored conferences and events. In addition, Saxony and Saxony Registered Representatives may receive reimbursement from investment sponsors for technology-related costs, such as those to build systems, tools, and new features to aid in servicing customers.
- Referral Payments. Saxony has entered into referral agreements with third party investment advisors (TPIAs), pursuant to which Saxony and Saxony Registered Representatives receive referral fees from the TPIA in return for referral of clients. These payments to Saxony and Saxony Registered Representatives are typically ongoing for the duration of engagement between a client and the TPIA, and may be for ongoing services to the TPIA in addition to the initial referral, for example, for acting as a liaison between the client and the TPIA. The TPIA, Saxony and the Saxony Registered Representative provide the client with a disclosure statement explaining the role of Saxony and the Registered Representative and the referral fee.
- Error Correction. If a customer holds an account at our clearing firm through Saxony, in the event a trade error occurs in the account, and such error is determined to be caused by Saxony, Saxony will cancel the trade and remove the resulting monetary loss to a customer from the account. If a trade correction is required as a result of a customer (e.g., if a customer does not make full payment for purchases or fails to deliver negotiable securities for liquidations before trade settlement), Saxony will cancel the trade and any resulting monetary loss will be borne by the customer. In the case of a trade that requires a correction as described above and that resulted in a monetary gain to the customer, such gain may be removed from the account and may result in a financial benefit to Saxony.
- Compensation for Other Services. Saxony and Saxony Registered Representatives can offer various types of advisory and brokerage programs, platforms and services. Saxony and Saxony Registered Representatives may earn more or less if a certain type of service, program or platform is recommended.
- Registered Representative Compensation. Saxony generally compensates Saxony Registered Representatives pursuant to an independent contractor agreement, and not as employees. Saxony Registered Representatives are entitled to receive compensation and other benefits from Saxony, as described below.
- Cash Compensation. Saxony typically pays a Saxony Registered Representative a percentage of the revenue he or she generates from sales of products and services. The percentage received can vary depending on his or her agreements with Saxony and the investment product or service recommended, and can be more or less than what he or she would receive at another brokerage firm. Although Saxony does not typically pay bonuses to its Registered Representatives, the payments may include a bonus or an increase in percentage payout that is based on the amount of revenue a Saxony Registered Representative generates through Saxony. In some cases, Saxony Registered Representatives pay a portion of their compensation to their branch manager or another advisor for supervision and/or administrative or sales support.
- Other Benefits. Saxony Registered Representatives are eligible to receive other benefits based on the revenue he or she generates from sales of products and services. These benefits include eligibility for practice management support and enhanced service support levels that confer a variety of benefits, conferences (e.g., for education, networking, training, and personal and professional development), and other non-cash compensation. Such benefits also may include equity awards from Saxony’s parent company, Saxony Financial Holdings Inc., free or reduced-cost marketing materials, reimbursement or credits of fees that Saxony Registered Representatives pay to Saxony for items such as administrative services or technology, and payments that can be in the form of repayable or forgivable loans (e.g., for retention purposes or to assist an advisor grow his or her securities practice).
- Recruitment Compensation. Saxony does not typically pay money upfront money to recruit registered representatives. If a Registered Representative recently became associated with Saxony, Saxony in connection with the transition from another investment firm may have covered some of the registration or other relevant costs. These payments are intended to assist a Registered Representative with costs associated with the transition, and can be subject to repayment if the Registered Representative leaves before a certain period of time or other conditions are not met.
- Arrangements with Banks and Credit Unions. At times, some Saxony Registered Representatives offer brokerage and advisory services on the premises of unaffiliated financial institutions, like banks and credit unions. Saxony typically shares compensation with the financial institution, including a portion of the brokerage commissions and fees the Registered Representative generates. In such case, the financial institution typically pays part of that amount to the Registered Representative. Such compensation can vary depending on the investment product or service recommended. The financial institution can limit the types of products that may be sold by a Saxony Registered Representative.
- Registered Representative’s Outside Business Activities. Saxony Registered Representatives are permitted to engage in certain Saxony approved business activities other than the provision of brokerage and advisory services through Saxony or through its affiliates. For example, a Saxony Registered Representative could also be an accountant, a real estate agent, a lawyer, or refer customers to other service providers and receive referral fees. As other examples, a Registered Representative could provide advisory services through an independent unaffiliated investment advisory firm or sell insurance through a separate business. In certain cases, a Registered Representative could receive greater compensation through the outside business than through Saxony.
- Rollovers. If a customer decides to roll assets out of a retirement plan, such as a 401(k) plan, into an individual retirement account (IRA) at Saxony, we have a financial incentive to recommend that a customer invests those assets with Saxony, because we will be paid on those assets, for example, through commissions, fees and/or third-party payments. A customer should be aware that such fees and commissions likely will be higher than those the customer pays through the plan, and there can be custodial and other maintenance fees. As securities held in a retirement plan are generally not transferred to an IRA, commissions and sales charges may be charged when liquidating such securities prior to the transfer, in addition to commissions and sales charges previously paid on transactions in the plan.
- Limitations on Our Investment Recommendations. Saxony and Saxony Registered Representatives may offer and recommend investment products only from investment sponsors with whom Saxony has entered into selling and distribution agreements. Customers may be able to obtain the same or similar investment products and services from another financial institution at a lower cost. In addition, Saxony Registered Representatives are required by applicable rules and policies to obtain licenses and complete certain training in order to recommend certain investment products and services. Customers should be aware that a Saxony Registered Representative, depending on the licenses or training obtained, may or may not be able to recommend certain investments or services. You may ask a Registered Representative about the securities or services he or she is licensed or qualified to sell.