Advocacy Wealth Management LLC (“AWM”), has entered into an agreement with Liquid Strategies to commission a strategy within the existing construction of the LS Theta Fund.
Justin Boller, AWM’s Chief Investment Officer, will assume an additional role as co-portfolio manager on the Liquid Strategies’ team to ensure the consistent application of the laddered bond approach within the fund. Due to Mr. Boller’s increased responsibilities, he will be eligible to receive compensation from Liquid Strategies for his work.
AWM will not share with Liquid Strategies in any revenue generated by the allocation of AWM-advised accounts to the LS Theta Fund. AWM will share, however, in revenue on assets invested in the new strategy going forward by investors who do not have accounts managed by AWM. This form of revenue sharing recognizes AWM’s role in creating this investment strategy and for bringing sufficient assets to the Theta Fund through AWM’s discretionary investment powers to create a critical mass that should stimulate further growth in the Fund.
- Under the Revenue Share Agreement, AWM has committed to allocate at least $300 million of its clients’ assets to be managed by Liquid Strategies LLC (“LS”) under its LS Theta Strategy, and thereby will be entitled to receive a portion of certain fees earned by LS not related to the funds that AWM allocates. This arrangement creates a conflict of interest, as AWM is incentivized to allocate its clients’ assets to LS so that AWM is eligible to receive a portion of LS’s fees, even if other investment opportunities are more appropriate or suitable for AWM’s clients. AWM addresses this conflict of interest by allocating all of its clients’ assets in accordance with the investment objectives of each client and does not allocate any given client’s assets to LS if the LS Theta Strategy does not meet the client’s investment objectives.
- Under the Referral and Client Solicitation Agreement, AWM is entitled to receive a portion of the fees earned by LS from clients’ separately managed accounts referred to LS by AWM. This arrangement creates a conflict of interest, as AWM is incentivized to refer potential clients to LS, even if those potential clients would be better served by another investment manager. AWM addresses this conflict by solely referring potential clients to LS that AWM believes the investment management services provided by LS are in the best interests of the client. Further, the clients discussed in this section would qualify as sophisticated investors who have the resources to make their own judgments.
- Under the Referral and Client Solicitation Agreement, AWM personnel are incentivized to devote time and attention to identifying and referring potential clients to LS for separately managed accounts. This creates a conflict of interest, as AWM personnel will devote time and attention to soliciting potential clients for LS that otherwise could be spent providing investment advisory services to AWM’s existing clients. AWM addresses this conflict by devoting such time and attention to its existing clients as it deems necessary and appropriate to achieve each client’s investment objectives. AWM dedicates a service group of associated persons whose responsibility is to service existing clients solely. This service group is made up of Investment Adviser Representatives, some of whom are CERTIFIED FINANCIAL PLANNERS™ and/or Registered Settlement Planners, and experienced administrative personnel. This service group will not be soliciting potential clients for LS.
- Under the Secondment Agreement, AWM has agreed to allow its Chief Investment Officer (“CIO”) to be dually employed as a co-investment officer of a mutual fund (the “LS Mutual Fund”) that is managed by Liquid Strategies LLC (“LS”). The CIO will be compensated by LS in return for the performance of these services. This arrangement creates a conflict of interest for the CIO, and consequently AWM, as the CIO may be incentivized to devote time and attention to managing the LS Mutual Fund that could otherwise be spent advising existing AWM clients. Further, AWM is incentivized to permit the CIO to serve as co-investment officer of the Mutual Fund due to a revenue sharing arrangement and client referral arrangement between AWM and LS – under these arrangements, AWM will be compensated by LS based on fees earned by LS from clients referred to LS by AWM, as well as certain other LS revenues. This creates a conflict of interest for AWM. AWM addresses this conflict by limiting the responsibilities and activities of the CIO. The CIO creates and manages investment models. The CIO does not choose the model for the client. The client and/or the client’s Investment Adviser Representative choose the model. The CIO does not advise individual clients: that is the responsibility of the Investment Advisor Representative. AWM spent considerable time and due diligence searching for a solution that allows its clients of all account sizes greater than $1000 to own a broadly diversified investment grade bond fund of defined duration with a hold to maturity strategy for each individual issue. LS saves the CIO, in his AWM role, a great deal of time otherwise spent managing individual bond portfolios by collectivizing those holdings into one pool. Since AWM is already compensated by the client for money management, AWM will not be paid further by LS for those clients. However, because AWM has and will continue to invest intellectual and marketing capital in LS, LS is sharing revenue on clients for whom AWM does not already collect a fee. AWM further addresses this conflict by adhering to the fiduciary standard of acting in the client’s best interests with prudence and transparency.
- Under the LS Secondment Agreement which employs AWM’s CIO, the CIO will be compensated for serving as a co-investment officer of the Mutual Fund. This may incentivize the CIO to allocate AWM client assets to the Mutual Fund even if other investment opportunities are more appropriate or suitable for AWM’s clients. AWM and the CIO address this conflict of interest by allocating all of AWM’s clients’ assets in accordance with the investment objectives of each client, do not allocate any given client’s assets to the Mutual Fund if the Mutual Fund does not meet the client’s investment objectives, and adhere to the fiduciary standard to act in the client’s best interests. Any and all allocations within investment model portfolios must be approved by the members of the AWM Investment Committee, of which the CIO is one of five members, all of whom have equal voting power.