This document contains important information concerning the scope and terms of the brokerage services we offer and details the material conflicts of interest that arise through our delivery of brokerage services to you. We encourage you to review this information carefully, along with any applicable account agreement(s) and disclosure documentation you may receive from us. Our firm, Portfolio Resources Group, Inc. (PRG) is registered with the Securities and Exchange Commission as a broker-dealer and is a member of FINRA, SIPC, MSRB, and FSI. Accounts are introduced on a “fully- disclosed basis” to our clearing firm, Pershing, LLC., a Bank of New York Mellon company. Our Affiliate, Portfolio Resources Advisor Group, Inc. (PRAG), is an SEC Registered Investment Adviser. You may find additional information from our advisor at https://www.prginc.net/disclosures/pragcrs.html
Our brokerage services are the primary focus of this guide. For more information on our investment advisory services and how they differ from brokerage, please review the Customer Relationship Summary (or Form CRS) available at https://www.prginc.net/disclosures/prgcrs.html Our Form CRS contains important information about the types of services we offer, and general information related to compensation, conflicts of interest, disciplinary action and other reportable legal information.
Brokerage services
When you establish a brokerage account with us, you have the ability to buy, sell and hold investments within your account. The primary service we provide is our trading capability. We execute purchases and sales on your behalf, and as directed by you. In a brokerage services relationship, we can trade with you for our own account, for an affiliate or for another client, and we can earn a profit on those trades. The capacity in which we act is disclosed on your trade confirmation. However, we are not required to communicate it in advance, obtain your consent, or inform you of any profit earned on trades.
Cash Brokerage and Margin Brokerage Accounts
We provide brokerage services through either a cash brokerage account or margin brokerage account, based on your eligibility and selection. In a cash brokerage account, you must pay for your purchases in full at the time of purchase. In a margin brokerage account, you must eventually pay for your purchases in full, but you may borrow part of the purchase price from our clearing firm, Pershing LLC., a subsidiary of The Bank of New York Mellon Corp.. This is generally referred to as a “margin loan.” The portion of the purchase price that is loaned to you is secured by securities in your account, also referred to as “collateral.” You will incur interest costs as a result of your margin activity. While many securities are eligible to be used as collateral for a margin loan, some assets are not available for margin collateral purposes.
Given that a margin-enabled brokerage account has specific eligibility requirements, unique costs, and governing regulatory requirements, our default brokerage option is our cash brokerage account. You must execute a separate margin agreement before engaging in margin brokerage activity. Included with your margin agreement is a copy of the Margin Disclosure Statement. This statement contains important information you should understand and consider before establishing a margin brokerage relationship with us. Review the margin disclosures included in your Account Agreement carefully. For more information on our margin brokerage services, contact your registered representative.
Brokerage Account Types
We offer many different brokerage account types including individual and joint accounts, custodial accounts, Delivery Versus Payment (DVP) accounts, estate and trust accounts, partnership accounts, individual retirement accounts and other types of retirement accounts as outlined in our account agreement(s). You should refer to our account agreement(s) for more information concerning available account types or speak with a registered representative.
Incidental Brokerage Services, Recommendations and Account Monitoring
Within your brokerage account, we may also provide other incidental services such as research reports, and recommendations to buy, sell, or hold assets. When we make a securities recommendation, investment strategy recommendation or recommendation to rollover assets from your Qualified Retirement Plan (QRP) to an Individual Retirement Account (IRA), the recommendation is made in our capacity as a broker-dealer unless otherwise stated at the time of the recommendation. Any such statement will be made orally to you. Moreover, when we act in a brokerage capacity, we do not agree to enter into a fiduciary relationship with you.
It is important for you to understand that when our registered representatives make a brokerage recommendation to you, we are obligated to ensure the recommendation is in your best interest, considering reasonably available alternatives, and based on your stated investment objective, risk tolerance, liquidity needs, time horizon, financial needs, tax status, and other financial information you provide us. You may accept or reject any recommendation. It is also your responsibility to monitor the investments in your brokerage account, and we encourage you to do so regularly. We do not commit to provide on-going monitoring of your brokerage account. If you prefer on-going monitoring of your account or investments, you should speak with a registered representative about whether an advisory services relationship is more appropriate for you.
Please also consider that from time to time we may provide you with additional information and resources to assist you with managing your brokerage account. This may include but is not limited to educational resources, sales and marketing materials, performance reports, asset allocation guidance, and/or periodic brokerage account reviews. When we offer these services and information, we do so as a courtesy to you. These activities are not designed to monitor specific investment holdings in your brokerage account, they do not contain specific investment recommendations about investment holdings, and you should not consider them a recommendation to trade or hold any particular securities in your brokerage account. Upon your request, we will review such information and reports with you and may provide you with investment recommendations, but we are not under a specific obligation to do so.
Clearing Services
We have entered into an agreement with Pershing (also referred to herein as “Clearing Agent”) to carry your account and provide certain back office functions. We and Pershing share responsibilities with respect to your account as set forth in the Designation of Responsibilities that was delivered to you upon opening of your account. Please refer to the Designation of Responsibilities for more information on how such responsibilities have been allocated between us.
Understanding Risk
It is important for you to understand that all investment recommendations and activities involve risk, including the risk that you may lose your entire principal. Further, some investments involve more risk than other investments. Higher-risk investments may have the potential for higher returns but also for greater losses. The higher your “risk tolerance,” meaning the amount of risk or loss you are willing and able to accept in order to achieve your investment goals, the more you may decide to invest in higher-risk investments offering the potential for greater returns. We align risk tolerances with investment needs to offer you different investment objectives from which to choose (see below). You should select the investment objective and risk tolerance best aligned with your brokerage account goals and needs.
Investment goals typically have different time horizons and different income and growth objectives. Generally, investment goals are on a spectrum, with “Income” investors typically holding the smallest percentage of higher- risk investments, followed by “Growth and Income” investors holding some higher-risk investments, and finally “Growth” investors holding a significant portion of their portfolio in higher-risk investments. Risk tolerance also varies and we measure it on a continuum that increases from “Conservative” to “Moderate” to “Aggressive,” and finally “Trading and Speculation.” See the chart below for details.
| Investment Objective |
Investment Objective
Description |
Risk Tolerance |
Risk Tolerance Definition |
| |
| Income |
Income portfolios emphasize current income with minimal consideration for capital appreciation and usually have less exposure to more volatile growth assets. |
Conservative |
Conservative Income investors generally assume lower risk but may still experience losses or have lower expected income returns |
| Moderate |
Moderate Income investors are willing to accept a modest level of risk that may result in increased losses in exchange for the potential to receive modest income returns. |
| Aggressive |
Aggressive Income investors seek a higher level of returns and are willing to accept a higher level of risk that may result in greater losses. |
| |
| Growth & Income |
Growth and Income portfolios emphasize a blend of current income and capital appreciation and usually have some exposure to more volatile growth assets. |
Conservative |
Conservative Growth and Income investors generally assume a lower amount of risk but may still experience losses or have lower expected returns. |
| Moderate |
| Moderate Growth and Income investors are willing to accept a modest level of risk that may result in increased losses in exchange for the potential to receive modest returns. |
|
| Aggressive |
Aggressive Income investors seek a higher level of returns and are willing to accept a higher level of risk that may result in greater losses. |
| |
| Growth |
Growth portfolios emphasize capital appreciation with minimal consideration for current income and usually have significant exposure to more volatile growth assets. |
Conservative |
Conservative Growth investors generally assume a lower amount of risk, but may still experience increased losses or have lower expected growth returns. |
| Moderate |
Moderate Growth investors are willing to accept a modest level of risk that may result in significant losses in exchange for the potential to receive higher returns.. |
| Aggressive |
Aggressive Growth investors seek a higher level of returns and are willing to accept a high level of risk that may result in more significant losses. |
| |
| Trading and Speculation |
Trading and Speculation investors seek out a maximum return through a broad range of investment strategies which generally involve a high level of risk, including the potential for unlimited loss of investment capital. |
Our recommendations are based in part on your risk tolerance and investment objective as outlined above. We encourage you to carefully consider your investment objective and risk tolerance before investing.
Cash Sweep Option
Our brokerage services include a Cash Sweep Program feature. This program permits you to earn a return on uninvested cash balances in your brokerage account by allowing cash balances to be automatically “swept” into a “Cash Sweep Vehicle,” until such balances are otherwise required to satisfy obligations arising in your account. These Cash Sweep Vehicles include interest-bearing deposit accounts, and if permissible, money market mutual funds or such other sweep arrangements made available to you. You will receive additional information concerning the Cash Sweep Program in your account agreement(s). Please review the information pertaining to Cash Sweep options carefully.
Account Minimums and Activity Requirements
There is no minimum initial account balance required to open a brokerage account with us. However, if you either fail to fund your account or do not return account opening documents as required, your account will be closed.
You should also understand that our registered representatives may establish their own minimum account balance requirements for the brokerage accounts they service. For example, a dedicated registered representative may choose to service only those brokerage account clients who satisfy account-specific or total household asset conditions. Minimum asset requirements are disclosed to you orally by your registered representative.
Brokerage fees and our compensation
It is important to consider that while a brokerage relationship can be a cost-effective way of investing your assets, it is not for everyone given the fees and costs involved.
Transaction-Based Fees
You will pay transaction-based fees for trades you decide to enter into, such as buying and selling stocks, bonds, Exchange Traded Products (ETPs), mutual funds, annuity contracts, exercising options and other investment purchases and sales. These transaction-based fees are generally referred to as a “commission,” “mark up,” “sales load,” or a “sales charge.” Transaction-based fees are based multiple factors, including, but not limited to: underlying product selection, your brokerage service model and account type, size of your transaction and/or overall value of your account, frequency of your trade activity, and available discounts and/or fee waivers.
Account and Service Fees
You will pay fees for various operational services provided to you through your brokerage account. These fees are set at least annually and communicated to you through information included in your account statement and other notifications. These fees do not apply to all account types and may be waived under certain conditions.
You may be offered a kind of account with discounted commissions, and/or a specific fee based on the value of your account. Our fees vary and are negotiable. We charge you additional fees, such as custodian fees and account maintenance fees. The amount you pay will depend, for example, on how much you buy or sell, what type of investment you buy or sell, and what kind of account you have with us. You will pay fees and costs whether you make or lose money on your investments. Fees and costs will reduce any amount of money you make on your investments over time. Please make sure you understand what fees and costs you are paying
You should understand that based on the brokerage service model you choose, the same or similar products, accounts and services may vary in the fees and costs charged to you. For more information concerning our administrative and service fees, visit us at https://www.prginc.net/
How We Are Compensated
We receive direct and indirect compensation in connection with your accounts. Direct compensation is taken directly from the affected account. Indirect compensation is compensation paid in ways other than directly from the account and may impact the value of the associated investments in your account.
Stocks (and other exchange traded products)
You are charged commissions that vary depending on the price and size of the transaction, among other things. Commissions may be negotiated. You should always review the commissions shown on your trade confirmations.
Debt Securities
For debt securities, including preferred securities and CDs, we may apply a %charge (i.e., markup or markdown) of the amount of your secondary market transaction.
Mutual Funds
We currently offer thousands of mutual funds varying in share class structure and investment style. If you invest in mutual funds, we may receive direct and indirect compensation in connection with such mutual fund investments, as described below.
12b-1/Shareholder Service Fees
Annual 12b-1 fees, also known as trails, are paid by the fund and paid to us out of fund assets under a distribution and servicing arrangement to cover distribution expenses and sometimes shareholder service expenses that we may provide on the fund’s behalf. Shareholder servicing fees are paid to respond to investor inquiries and provide investors with information about their investments. These fees are asset-based fees charged by the fund family. These fees range from 0.00% to 1.00%, but the majority of these fees are below 0.85%. These fees may be passed on to us and may in turn be passed on to your registered representative as a commission.
Front-end Sales Charge Fees/Contingent Deferred Sales Charges (CDSC)
Front-end sales charge fees may be charged and paid to us, including your registered representative, when you purchase a fund. The front-end sales charge is deducted from the initial investment on certain share classes. This charge normally ranges from 0.00% to 5.75%. Some purchases may qualify for a reduced front-end sales charge due to breakpoint discounts based on the amount of transaction and rights of accumulation. In addition, some purchases may qualify for a sales charge waiver based on the type of account, and/or certain qualifications within the account. You should contact your registered representative if you believe you are eligible for sales charge waivers.
CDSC is a charge you pay upon withdrawal of money from a fund prior to the end of the fund’s CDSC period. CDSC charges range from 0.00% to 5.50%. CDSC periods can range from zero to seven years. This charge typically exists only on share classes that do not have a front-end sales charge. It is sometimes referred to as the back-end load. CDSCs are not charged when you purchase a fund. The fee charged will depend on the share class purchased by the investor. A CDSC is not passed on to your registered representative. You can find a description of the amount and payment frequency of all fees and expenses charged and paid by the fund in the fund’s prospectus. Fees and expenses disclosed in the fund’s prospectus are charged against the investment values of the fund. Please note that 12b-1s and similar fees or compensation received in connection with our affiliated funds are not received, or are rebated, on ERISA assets held in Advisory Program accounts.
Revenue Sharing
Our financial professionals may receive a portion of the revenues on specific types of accounts like margin accounts. Also, some of our financial professionals are also registered as financial adviser representatives through our affiliate Portfolio Resources Advisor Group or other Registered Investment Advisers. Some of our financial professionals are also registered with our affiliate Portfolio Resources Group Inc. insurance agency. This may affect the type of account recommended to you.
Annuities
Our annuities consist of fixed, index, and variable annuities. Under arrangements with insurance companies, we, including your Registered Representative, receive commissions from the insurance companies for the sale of annuities, as well as trail commissions, and they are considered indirect compensation. Commissions and trails paid to us vary by product type and may vary by insurance carrier. For additional information regarding Annuities, please contact your registered representative.
Alternative Investments Information
PRG approves Alternative Investment transactions on a case by case basis. Before executing a transaction, your registered representative will provide all related disclosures and will discuss with you the risks involved.
Unit Investment Trusts (UITs)
Our UITs consist of Equity and Fixed-Income UITs. We, along with your registered representative, are compensated in ways that vary depending on the type and terms of the UIT portfolio selected. The types of fees received by us are described below and are disclosed via the prospectus issued by the UIT provider. Your registered representative can provide you a copy of the most recent prospectus. The UIT provider deducts fees as compensation from the proceeds available for investments for marketing and distribution expenses, which may include compensating us as described in each UIT prospectus.
Trade Corrections
Trade corrections must be resolved in good faith following the established procedures. PRG has an operational error account to resolve and segregate trading errors.
Compensation for Termination of Services
Other than any contingent deferred sales charge for a fund (as described under the Mutual Funds section above, if applicable), IRA termination fees (when applicable), and account transfer fees, the firm would not receive any additional compensation in connection with the termination of its services. If you have questions or need additional copies, contact your registered representative.
Conflicts of Interest
Conflicts of interest exist when we provide brokerage services to you. A conflict of interest is a situation in which we engage in a transaction or activity where our interest is materially adverse to your interest. The mere presence of a conflict of interest does not imply that harm to your interests will occur, but it is important that we acknowledge the presence of conflicts. Moreover, our regulatory obligations require that we establish, maintain, and enforce written policies and procedures reasonably designed to address conflicts of interest associated with our recommendations to you.
We are committed to taking appropriate steps to identify, mitigate and avoid conflicts of interest to ensure we act in your best interest when providing brokerage recommendations to you. Below you will find additional information related to our conflicts of interest. This information is not intended to be an all-inclusive list of our conflicts, but generally describes those conflicts that are material to your brokerage relationship. In addition to this disclosure, conflicts of interest are disclosed to you in your account agreement(s) and disclosure documents, our product guides and other information we make available to you.
| Compensation We Receive from Third Parties |
Third-party payments we receive may be based on new sales of investment products, creating an incentive for us to recommend you buy and sell, rather than hold, investments. In other cases, these payments are made on an ongoing basis as a percentage of invested assets, creating an incentive for us to recommend that you buy and hold investments (or continue to invest through a third-party manager or adviser).
The total amount of payments we receive varies from product to product and varies with respect to the third-party investment management products we recommend. It also varies from the compensation we receive in connection with other products and services we may make available to you, including advisory services. We have an incentive to recommend investment products and services that generate greater payments to us. This compensation generally represents an expense embedded in the investment products and services that is borne by investors, even where it is not paid by the Product Sponsor and not directly from the investment product or other fees you pay. The types of third-party compensation we receive include:
Revenue Sharing.
PRG does not receive any income from revenue sharing other than the amounts paid by our custodian from some non-transactional fee (margin interest, maintenance fees, i.e.)
Trail Compensation.
Ongoing compensation from Product Sponsors may be received by us and shared with our registered representatives. This compensation (commonly known as trails, service fees or Rule 12b-1 fees in the case of mutual funds) is typically paid from the assets of the investment product under a distribution or servicing arrangement and is calculated as an annual percentage of invested assets. The amount of this compensation varies from product to product. We have an incentive to recommend that you purchase and hold interests in products that pay us higher trails.
Additional Compensation from Product Sponsors and Other Third Parties
Currently, neither PRG nor our registered representatives receive additional compensation from Product Sponsors. [Gifts, awards, occasional dinner or ticket to an event, or reimbursement in connection with educational meetings or marketing or advertising initiatives, including services for identifying prospective clients. Payment or reimbursement for the costs associated with education or training events that are attended by our employees, agents, and registered representatives, and for conferences and events that we sponsor. Reimbursement from Product Sponsors for research and technology-related costs, such as those to build systems, tools, and new features to aid in servicing clients. Additionally, we and our affiliates receive compensation from Product Sponsors to provide aggregate sales data.] However, in the future we may receive such compensation, in which case it will be disclosed.
Product Share Classes
Some Product Sponsors offer multiple structures of the same product (e.g., mutual fund share classes) with each option having a unique expense structure, and some having lower costs to you as compared to others. We are incentivized to make available those share classes or other product structures that will generate the highest compensation to us.
| Compensation Related to Our Affiliates |
Some of our financial professionals are also registered as Investment Adviser Representatives through our affiliate Portfolio Resources Advisor Group or other Registered Investment Advisers. Some of our financial professionals are also registered with our affiliate Portfolio Resources Group Inc. insurance agency. This may affect the type of account recommended to you.
Registered representatives have an incentive to provide brokerage recommendations that result in selling more investment products and services, as well as investment products and services that carry higher fees. Registered representatives also have an incentive to provide brokerage recommendations to gather more assets under management and to increase brokerage trading activity, and to reduce the amount of discounts available to you.
Registered representatives have an incentive to recommend you rollover assets from a Qualified Retirement Plan (QRP) to a brokerage Individual Retirement Account (IRA) because of the compensation they will receive. We maintain policies and procedures designed to ensure that rollover recommendations are in your best interest.
Brokerage accounts, unlike advisory accounts, do not typically feature an on-going fee based on the net worth of the account, although such programs are available. Registered representatives are incentivized to recommend you transition your brokerage services account to an advisory account to generate on-going revenue where your brokerage account has minimal activity. Further, registered representatives are incentivized to recommend you transition your brokerage account to an advisory account after you have already placed purchases resulting in commissions and/or other transaction-based brokerage fees. We have controls established to identify and mitigate this risk. Registered representatives also have an incentive to provide higher levels of service to those clients who generate the most fees.
Other Registered Representatives Activities
Registered representatives may be motivated to place trades ahead of clients in order to receive more favorable prices than their clients. We have controls established to identify and mitigate for this risk.
Registered representatives who are transitioning through a succession plan may be incentivized to make brokerage recommendations designed to increase the value of their “book of business” through asset accumulation or brokerage trades that are not in your best interest. Registered representatives who receive clients from a retiring registered representative are incentivized to meet growth goals and may make recommendations not in your best interest. |