WFS Fiduciary Disclosure
Wescom Financial Services, LLC (“WFS”) provides investment services through the investment program at your credit union. We are providing you this important notice in connection with new U.S. Department of Labor (“DOL”) regulations and for purposes of complying with the DOL’s Best Interest Contract Exemption (“BIC Exemption”). You are receiving this document because you may hold investments in a “Covered Account” as described below. This document includes information that is required to be provided to you by the DOL’s BIC Exemption. That exemption permits your financial advisors (“Advisor”), us, and any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with us or your Adviser (“Affiliates”) to receive compensation for services in connection with recommendations that we or your Advisor 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 the Employee Retirement Income Security Act of 1974 (“ERISA”) or the Internal Revenue Code of 1986 (the “Code”) that might otherwise apply. The terms of this disclosure will be effective as of April 10, 2017, or such later date as these DOL regulations may become effective (“Effective Date”).
It is important for you to understand that the information in this Disclosure will only apply to certain aspects of your relationship with us, only to certain account types and only to the extent we have relied on the BIC Exemption with respect to a particular transaction.
Fiduciary Acknowledgment and Statement of Impartial Conduct Standards
We and your Advisor act as “fiduciaries” under ERISA or Section 4975 of the Code (to the extent applicable) with respect to any “covered” investment advice we or your Advisor provide in connection with your Account and its holdings (“Covered Recommendations”). When providing any such fiduciary advice to you, we and your Advisor will adhere to the standards of care described below (the “Impartial Conduct Standards”).
When providing investment advice to you, we and your Advisor 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 Advisor or any Affiliate or other party
Transactions that we or your Advisor recommend will not cause us, your Advisor, or our Affiliates 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 the Code Section 4975(d)(2).
Statements by us and your Advisor 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.
We do not offer proprietary products, however we may recommend investments that generate third party payments. If you have concerns regarding fees and compensation, potential conflicts of interest, or disclosures, please contact your Advisor immediately.
Our Covered Recommendations will reflect the beliefs, experiences and analysis of your Advisor and WFS, and the information you provide us about your investment objectives, risk tolerance, financial circumstances, and investment needs, including assets held outside your Covered Account to the extent you have provided information to us about those assets. We will not be responsible for any information you omit or fail to provide, including any changes to the information you previously provided us. Our recommendations and advice also will be affected by any limitations you impose on us, including through applicable investment restrictions and guidelines. You are responsible for immediately updating us in writing if your investment objectives, risk tolerance and financial circumstances change.
This Best Interest standard does not mean that we guarantee the performance of any investment or provide any assurance that your investment objectives will be achieved. Investing in securities involves the risk of loss due to market action and otherwise, and you should be prepared to bear that risk of loss. In addition, WFS or your Advisor may provide recommendations and take actions in connection with accounts of other clients that may differ from the recommendations and services provided to you. WFS and your Advisor will not be responsible for decisions you make that do not involve a Covered Recommendation. In addition, we will not be responsible for your decision to invest or transfer your Covered Account assets in a manner that is different from, or inconsistent with, our Covered Recommendations or other advice and guidance, nor will WFS or your Advisor be responsible for your delay in implementing a Covered Recommendation. You assume the risk of such decisions.
WFS and your Advisor will not, and have no obligation to, monitor a Covered Recommendation on an on-going basis to determine whether the recommendation remains appropriate for you, including where you update your investment objectives, risk tolerance, financial circumstances, and investment needs, unless we otherwise agree to monitor Covered Recommendations in writing. We also have no obligation to update statements made, or information provided, with respect to a previous Covered Recommendation, unless we otherwise agree to update such statements or information in writing.
This disclosure applies only to the following accounts you hold through WFS:
- Employee benefit plans subject to ERISA
- Individual retirement accounts, including Roth
- Converdell Educational Savings Accounts
- Individual, Uni or Solo 401(k)s
WFS and your Advisor may from time to time provide recommendations to you for your Covered Account concerning one or more of the following:
- The purchase, sale, exchange or holding of investments for your Covered Account;
- Rollovers, distributions or transfers from your Covered Account;
- Investment policies, strategies or portfolio composition;
- Other persons to provide investment advisory or investment management services;
- The selection of investment account arrangements (e.g., brokerage or advisory
For the avoidance of doubt, only recommendations that constitute investment advice under regulations issued by the DOL at 29 C.F.R. §2510.3-21(a) shall be treated as “Covered Recommendations” subject to this disclosure.
This disclosure applies to the above investment recommendations made on or after the Effective Date.
WFS and your Advisor may provide you with other suggestions, recommendations or services that are not Covered Recommendations and are not covered by this Disclosure, but are governed exclusively by the terms of your Account Agreement and other agreements with, and disclosures from, WFS, as may be applicable. These suggestions, recommendations and services include:
- Communications that are not reasonably intended to be viewed or construed as a suggestion for you to take a particular course of action with respect to an account, including a Covered Account;
- Information, education, or general descriptions of our services or the products that we make available to you as a retirement investor, or about the factors a retirement investor should generally consider when deciding whether to transfer assets from one Plan or IRA to another Plan or IRA or between accounts and strategies;
- Self-directed, or unsolicited, transactions or trades;
- Recommendations to hold or sell a security or other property that was acquired prior to the Effective Date;
- Recommendations to continue to adhere to a systematic purchase or withdrawal program established prior to the Effective Date;
- Recommendations to exchange investments within a mutual fund family or variableannuity contract pursuant to an exchange privilege or rebalancing program that was established prior to the Effective Date, so long as we do not receive more compensation than we were entitled to receive prior to the Effective Date;
- Recommendations or investment advice that we provide you with respect to a particular Covered Account that you choose, without our written consent, to implement in another account held at WFS or another financial institution; and
- Any communications that do not qualify as fiduciary investment advice (as contemplated in section 3(21) of ERISA or section 4975(e)(3) of the Code).
Material Conflicts of Interest
The BIC Exemption allows WFS and your Advisor to earn compensation that varies depending on investment recommendations that you implement. This variable compensation means that we receive more or less compensation depending on which
investment you make and that we may have an incentive to recommend one investment over another. In addition, you may be able to obtain the same investment products and services from other financial institutions at lower cost. We have identified these potential conflicts of interest below. There are other conflicts of interest that relate to types of services offered by WFS, other than those provided to Covered Accounts. Information about these other conflicts of interest may be found at www.wescomfinancial.com, under Product Provider Compensation Disclosure. Note that not all of these conflicts apply to your Advisor. Please ask your Advisor about whether he or she receives any of the forms of additional compensation outlined below.
WFS has adopted policies and procedures that are intended to address these conflicts of interest to avoid a misalignment of our interests with your interests in a Covered Account. WFS periodically reviews and updates its policies and procedures as needed to comply with changes to applicable rules and regulations. More specific information relating to our fees and compensation and related potential conflicts of interest is available at www.wescomfinancial.com, and if applicable in the prospectus or offering document for your investments that were provided at the time of investment.
Compensation Paid from Your Covered Account
- WFS and your Advisor may receive various types of compensation. Commission-based investments provide compensation in the form of a commission when they engage in a securities transaction (purchase or sale) in a Covered Account. In many instances, the more transactions you enter into, the more compensation WFS and your Advisor receive. This can create an incentive for your Advisor to recommend that you buy or sell, rather than hold, investments, or to recommend investments with higher commissions. Fee-based investments provide compensation in the form of advisory fees based upon assets under management in your Covered Account. This can create an incentive for your Advisor to recommend a greater amount invested than is prudent.
Brokerage accounts with WFS are held by our clearing firm, Pershing. If you hold an account at Pershing, from time to time you may be charged a fee for certain actions. Pershing fees are disclosed annually on the Pershing statement, and are also disclosed at WFSdisclosure.com.
- WFS and your Advisor may receive compensation from investment sponsors in connection with investments in your Covered Account. This compensation may result in higher investment expenses. These other expenses include the following:
- WFS and your Advisor receive ongoing compensation from mutual funds and annuities. This compensation (known as trails or 12b-1 fees) is typically paid from the assets of the investment product and is based upon an annual percentage of invested assets. The amount of trails we receive varies from product to product, and is disclosed in the prospectus or offering documents.
- WFS receives compensation from mutual fund distributors or other fund affiliates in connection with certain transactions for which sales charges are waived or under other circumstances described in a fund’s offering documents. This compensation is generally referred to as a finder’s fee or concession.
- Pershing offers a service to sweep cash held within Covered Accounts into an interest-bearing FDIC insured cash account or money market funds. The compensation WFS receives on some types of sweep accounts may be higher than the compensation available to WFS from alternative sweep investment options.
- WFS receives revenue sharing payments from sponsors of mutual funds, insurance companies, alternative investment sponsors and their affiliates (“Investment
Sponsors”) who participate in WFS’s Sponsorship Programs. These arrangements support WFS’s product marketing and sales force education and training efforts, and allow the Investment Sponsor to access WFS Financial advisors and employees, so that the Investment Sponsor can promote such funds or products. These payments are typically calculated as a fixed fee, or as an annual percentage of the amount of assets invested in mutual funds, annuities, and alternative investments of the Investment Sponsor, or as a percentage of annual new sales, or as a combination of both. Investment Sponsors pay WFS different amounts of revenue sharing, and receive different levels of benefits for such payments. This arrangement gives WFS a financial incentive for customers to invest with certain Investment Sponsors, and with those that pay greater amounts, instead of with Investment Sponsors that do not make such payments, or that pay lesser amounts.
- WFS, its employees, agents, representatives, including your Advisor, are able to receive additional compensation from Investment Sponsors, such as gifts valued below a de minimis amount, an occasional dinner or ticket to a sporting event, or reimbursement in connection with educational, training or development meetings or marketing, advertising or similar initiatives and other incentives.Investment Sponsors also pay, or reimburse, WFS for the costs associated with education or training events that are attended by WFS employees, agents, and representatives, and for WFS-sponsored conferences and events.
- WFS receives compensation in the form of earnings on its investment of uninvested cash in Covered Accounts. These earnings are generally known as "float." WFS also receives float on outstanding checks after they are issued by WFS to the client and before they are presented for payment. WFS retains float as additional compensation for its services. When interest is charged on debit brokerage balances, WFS may participate in interest charges.
- WFS is a broker-dealer and investment adviser, and offers various types of advisory and brokerage programs, platforms and services. This presents a conflict of interest because WFS can earn more or less revenue if a certain type of service, program or platform is recommended to you. For example, WFS can earn more revenue from one type of advisory program over another. This presents a material conflict of interest because we have a financial incentive to provide you with Covered Recommendations for which WFS earns additional compensation.
- Your Advisor receives compensation and other benefits from WFS based on the amount of revenue he or she generates from sales of products and services. This compensation structure creates an incentive for your Advisor to recommend transactions, investment products and services that generate greater amounts of revenue for WFS. In addition, WFS pays compensation to program managers based on sales of products and services generated by the investment program.
- If your Advisor offers brokerage and advisory services on the premises of unaffiliated financial institutions, like banks and credit unions, WFS typically shares compensation with the financial institution, including a portion of the brokerage commissions and fees your Advisor generates. While some advisors receive salary unrelated to investment sales, WFS or the financial institution typically pays part of that amount to your Advisor. Such compensation varies depending on the investment product or service. In such cases, the financial institution and your Advisor have an incentive to recommend investment products and services that generate greater revenue for them and WFS. However, WFS has adopted policies and procedure to address such incentives, and, after the Effective Date, your Advisor will be subject to a Best Interest standard for Covered Recommendations.
- Most WFS advisors receive a percentage of the revenue he or she generates for WFS from sales of products and services. The percentage of revenue your Advisor receives depends on his or her agreements with WFS and the financial institution, and can be more or less than what he or she would receive at another brokerage firm or financial institution. The amount of commissions or fees generated from your investments depends on the investment product or service recommended. Therefore, your Advisor can earn a greater percentage of revenue for recommending one investment product over another.
- Your Advisor is eligible to receive other benefits based on the revenue he or she generates for WFS from sales of products and services. These benefits
include eligibility for travel and accommodations to educational or professional development events such as our annual conference.
- If your Advisor or financial institution recently became associated with WFS, the individual or institution may have received payments from WFS, or had transition-related expenses offset in connection with the transition from another broker-dealer. These payments are intended to assist an Advisor or institution with the costs associated with the transition.
- Your Advisor is permitted to engage in certain approved business activities other than the provision of brokerage and advisory services through WFS. As an example, a WFS financial advisor may provide advisory services through an independent investment advisory firm or sell insurance as a separate business. In certain cases, these outside business activities can cause conflicts with the brokerage services your Advisor provides to your Covered Account. Your Advisor may receive greater compensation through the outside business than through WFS, and he or she could have an incentive that you engage or transact through the outside business in order to earn additional compensation.
- If, in the future, you decide to rollout of a retirement plan, such as a 401(k) plan, into an IRA Covered Account, we have a financial incentive to recommend that you invest those assets in the Covered Account, because we will be paid on those assets, for example, through commissions, fees and third party payments. You should be aware that such fees and commissions will likely be higher than those you pay through your plan, and there can be custodial and other maintenance fees. As securities held in the plan generally can’t be transferred to an IRA Covered Account, commissions charged on transactions in the IRA will be in addition to commissions and sales charges previously paid on transactions in the retirement plan.
Consistent with applicable DOL rules and regulations, we will not be deemed to have failed to satisfy any disclosure obligations solely because we, acting in good faith and with reasonable diligence, make an error or omission in disclosing the required information, provided we disclose the correct information as soon as practicable, but not later than 30 days after the date on which we discover or reasonably should have discovered the error or omission.
We may change the information contained in this Disclosure without prior notice. For current disclosures, please visit WFSdisclosure.com. You should also refer to the prospectus or other offering documents you receive for the investments in your Covered Account, which describe each investment, including potential risks and costs. You also are reminded of the terms, conditions and disclosures in the Master Account Agreement between you and WFS. The information in this Disclosure is effective so long as you hold your Covered Account at WFS and only to the extent you receive Covered Recommendations. The information in this Disclosure terminates in conjunction with the termination of the Master Account Agreement or our brokerage services to your Covered Account, regardless of whether an Investment Sponsor continues to reflect us as the broker of record on the investment. This Disclosure will no longer apply if the regulations regarding fiduciary investment advice with respect to assets held in retirement accounts, or the provision of the BIC Exemption that requires this Disclosure, are revoked or otherwise do not become effective.