Regulation Best Interest Disclosure
This guide summarizes 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.
As you review this information, we would like to remind you that we are registered with the U.S. Securities and Exchange Commission (SEC) as a broker dealer. Our Customer Relationship Summary, also known as “Form CRS” contains a summary of important information about the types of services we offer along with general information related to compensation, conflicts of interest, disciplinary action and other reportable legal information.
Please carefully review and consider the information in each section below.
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. Currently, our broker-dealer does not offer proprietary products or participate in initial public offerings.
Cash Brokerage and Margin Brokerage Accounts
We provide brokerage services through either a cash brokerage account or a 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, Hilltop Securities, Inc., CRD 6229/ SEC # 801-55529. 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. When markets change, your account may be subject to a “margin call” or multiple “margin calls”. This means you will be subject to making immediate payments on your account to bring your ownership principal up to certain percentages. Hilltop Securities, Inc. has the right to sell your securities (or to buy-in securities) to meet margin and option calls without your consent and you may still be responsible for remitting additional capital.
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 and a consent to loan of your securities before engaging in margin brokerage activity. Included with your margin agreement is a copy of the Margin Disclosure Statement provided by Hilltop Securities, Inc.. This statement contains important information you should understand and consider before establishing a margin brokerage relationship with us. For more information on our margin brokerage services, contact a Registered Representative or refer to our clearing firm’s Margin Disclosure Statement available at Disclosures Overview - HilltopSecurities.
Brokerage Account Types
We offer many different brokerage account types including individual and joint accounts, custodial accounts, estate and trust accounts, partnership accounts, individual retirement accounts and other types of retirement accounts as outlined in your new account agreement(s). You should refer to your new 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(s), 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 financial advisor about whether an advisory services relationship is more appropriate for you. Our broker-dealer also has an affiliated investment adviser, J.K. Financial Advisers, Incorporated. You will pay separate fees to the adviser when you utilize this service. Our firm has a financial incentive to recommend our affiliated adviser over other advisers.
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 Hilltop Securities, Inc., (also referred to herein as “Clearing Agent”) to carry your account and provide certain back-office functions. We and the Clearing Agent share responsibilities with respect to your account as set forth in the new account agreements you received upon opening your account. Please refer to these documents for more information on how such responsibilities have been allocated between us.
The clearing agent also directly issues monthly or quarterly statements and confirmations of all trades and the holdings in your account(s). Review these carefully and please notify our home office if you do not receive these important documents.
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. Higher risk investments may offer the potential for greater returns, but also mean the more chance you stand to lose the money you invested or also require further injection of your capital. We align risk tolerances with investment needs to offer you different investment objectives from which to choose (see below). You should select the investment objectives 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.”
Our recommendations are based in part on your risk tolerance and investment objectives as outlined above. We encourage you to carefully consider your investment objectives and risk tolerance before investin.
Cash Sweep Program Feature
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). The Sweep Program is described more fully in the Cash Sweep Program Disclosure Statement, which you will receive with your General or Basic Brokerage Account Agreement and Disclosure. More information about the Cash Sweep Program can be found in the Hilltop Securities, Inc. Disclosure Statement at Sweep Account Disclosure - HilltopSecurities.
Please review that Disclosure Statement 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. In addition, some types of brokerage accounts have minimum account activity requirements and/or minimum on-going balance requirements that must be maintained, or your brokerage account will be closed. These requirements are detailed in the account agreement(s) you receive when you open your brokerage account.
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 service models and products
Our Registered Representatives are independent contractors and have general business discretion to operate and service their book of business. Most of the accounts serviced by our Registered Representatives are “Full Service”, meaning that you will receive communications from your Registered Representative, including securities recommendations and other advice, and servicing of your account(s) such as deposits and distributions. Your Registered Representative is also available to you to discuss your account(s).
Currently, our firm does not offer “Self-Directed Accounts”. Such accounts may or may not have a Registered Representative assigned to the account. You will not receive communications, service, or advice concerning such account(s) but you may contact the branch or the home office in order to place trades, make distributions or deposits, or to otherwise service the account. Because there is no Registered Representative responsible for self-directed accounts, such accounts are not permitted to trade in securities obtained through direct, “check and application” type securities, such as directly held mutual funds, variable annuities, and other alternative investments not available on the Clearing Agent’s platform.
Finally, our firm primarily offers exchange traded securities, mutual funds, ETFs, variable annuities and insurance products considered securities. Our firm does not engage in IPO’s, REITs, private placements and bond issuance.
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. This section outlines the most common fees you can expect.
Transaction-Based Fees
You will pay transaction-based fees for trades you decide to enter into, such as buying and selling stocks, 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 on a host of 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
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 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, or our firm’s current fee schedule email us at info@jkfinancial.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. The sections below describe the compensation that we receive in connection with various investments that may be available to you. In many cases, the descriptions that follow refer to a prospectus or offering documents.
Registered Representative Schedules
Commission Schedule for Stocks, Rights, Warrants, Secondary Market Closed End Funds (CEFs) and Exchange Traded Products (ETPs)
This schedule details the commission charged to you and received by us and your Registered Representative for trades of stocks, rights, and warrants. It is located in your new account paperwork or can be provided upon request. Option Rates Equity and Index Options compensation is received as direct compensation, as described in our clearing firm, Hilltop Securities, Inc.’s Brochure. Our firm generally dos does not offer Options to our clients. Debt Securities Our firm and its Registered Representatives typically do not offer bonds or debt securities to clients. We generally offer ETFs and Mutual Funds with embedded fixed income products. For debt securities, including preferred securities and CDs, we may apply a charge (i.e., markup) of up to 3% of the amount of your secondary market transaction. You will receive a confirmation after every trade which will disclose the markup/markdown charged to the trade. Mutual Funds We currently offer various 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