V. WHAT ADDITIONAL CONFLICTS DO JANNEY OR YOUR FINANCIAL ADVISOR HAVE?
Below is a description of additional conflicts of interest, in addition to those found above or at Janney.com/disclosures, which exist when Janney or your Financial Advisor has a financial interest or incentive that could affect our investment advice to you. These conflicts are typical to our industry as a whole and Janney has adopted policies and procedures and is required to comply with applicable laws and regulations which mitigate these conflicts of interest. Janney or your Financial Advisor may have conflicts of interest beyond those disclosed here. Your Financial Advisor will verbally disclose, where appropriate, any additional material conflicts of interest no later than at the time of a recommendation.
Recommendations Regarding Account Type: Your Janney Financial Advisor may recommend that your account be either a brokerage or an advisory account. Janney Financial Advisors have an incentive to recommend that you have a brokerage account if you place trades on a frequent basis. We have a conflict because when you trade frequently in a brokerage account your commissions may be comparable or higher than the advisory fee to conduct similar trades in an advisory account.
In an advisory account, you pay an ongoing investment advisory fee to Janney that is generally a percentage of the value of your account and your Financial Advisor will monitor your account on an ongoing basis, while that is not the case with a brokerage account. In an advisory account, mutual funds can be purchased without a sales load and without ongoing 12b-1 charges. Additionally, there are a variety of services from which to choose for an advisory account, including nondiscretionary investment advice, mutual fund asset allocation solutions, use of third-party investment managers, and giving your Financial Advisor discretion to manage your account. See Janney’s Form ADV Part 2A Brochure for more information.
Janney and your Financial Advisor have an incentive to recommend that you have an advisory account because of the ongoing fees we earn if you place trades on an infrequent basis. This is a conflict because your advisory account cost may be comparable or higher than the aggregate commissions and sales loads/charges you would pay to engage in infrequent trading activity in a brokerage account.
An advisory account may be appropriate for you if you would like to take advantage of the advisory services available or if you expect significant trading activity in your account during a period of time. However, due to Janney’s fiduciary obligation regarding investment choices and holdings in an advisory account, advisory accounts are generally not available if you frequently select your own investments and direct your own trade activity independent of your Financial Advisor’s advice, regardless of whether an advisory account would result in lower costs. If you are not interested in taking advantage of advisory services and you do not expect to engage in significant trading activity, a brokerage account may be more appropriate.
Rollovers and Transfer of Accounts to Janney:
There are generally four rollover options and you may choose one or a combination of these options:
- Leave money in the existing plan;
- Roll the funds into an IRA;
- Roll the funds into a new employer’s plan;
- Cash out your existing employer plan.
Rollovers from an Employer Plan
Financial Advisors will provide education only, not recommendations, to you regarding rolling investments out of your employer plan. In offering education related to rollovers, Financial Advisors may generally discuss each of the available options with you. They may also remind you that each choice offers advantages and disadvantages depending on the desired investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and your unique financial needs and retirement plans. You should weigh your options, and must ultimately make a decision without a recommendation from your Financial Advisor.
Providing Investment Advice to Retirement Investors, Concerning IRA Transfers
Financial Advisors may provide a recommendation to you regarding whether you should move retirement investments held at another financial institution to a retirement account at Janney. However, Financial Advisors may also provide education only whereby they may provide education concerning IRA transfers and the general types of services provided when establishing or maintaining a retirement account with Janney. In offering education related to IRA transfers, Financial Advisors may generally discuss the available options with you. They may also remind you that each choice offers advantages and disadvantages depending on the desired investment options and services, fees and expenses, and your unique financial needs and retirement goals. You should weigh the options, and may ultimately make your decision without a recommendation from your Financial Advisor, unless you request a more specific comparison of individual securities.
If you make the decision to roll over your retirement plan to Janney, your advisor will have an opportunity to increase their compensation through commissions or advisory fees. Leaving assets in your retirement plan or rolling the assets to a plan sponsored by your new employer likely is less expensive for you and results in little or no compensation to Janney and your Financial Advisor. You are under no obligation to roll over retirement plan assets to an IRA maintained by Janney. If we recommend that you transfer any of your investment accounts with another financial services firm to Janney or to add assets to your existing Janney accounts, we have a conflict because we and your Financial Advisor will earn more fees for services and recommendations provided to you. For additional information related to retirement account rollovers, please visit Janney.com/disclosures.
Cash Compensation: Janney Financial Advisors receive compensation from Janney. Your Janney Financial Advisor generally is compensated based upon their total annual commission level, which takes into account all of the advisory fees, commissions, 12b-1 charges and similar compensation paid to Janney by you and all third parties. The amount Janney pays to our Financial Advisors is a percentage of their annualized production. The percentage will vary based on their relevant annualized production tier. The percentage is lower for lower annualized production tiers and higher for higher tiers.
Accordingly, as the amount of a Financial Advisor’s production increases, their cash payout will increase. As a result, your Financial Advisor has an incentive to charge higher commissions and recommend more frequent trades for brokerage accounts. They also have an incentive to recommend that you establish accounts, add assets to existing accounts, and recommend additional transactions in brokerage accounts. Financial Advisors also have an incentive to recommend more transactions to increase their production so that they can rise to the next annualized production tier and increase their cash payout percentage.
Deferred Compensation Award: Financial Advisors who achieve certain total annual production thresholds are eligible to receive an award from Janney through a deferred compensation program. This gives Financial Advisors an incentive to increase their production so that they qualify for a higher deferred compensation award.
Recruitment Bonuses: A Financial Advisor recruited to join Janney generally receives an upfront bonus in the form of a forgivable promissory note over a period of years. Similarly, a Financial Advisor who joins Janney is generally eligible to receive “back end” bonuses, which are based on both revenue generated and assets brought to Janney. Both types of bonus give your Financial Advisor an incentive to recommend you transfer to or deposit assets with Janney and to recommend transactions that generate revenue.
Incentive Programs: From time to time, Janney has incentive programs for Janney Financial Advisors, to the extent permitted under applicable law. These programs pay advisors for attracting new assets and for promoting increased investment services. Janney also has programs that reward Financial Advisors who meet total production criteria, prepare financial plans, participate in advanced training and improve your experience. Janney does not offer sales contests, sale quotas, bonuses or non-cash compensation based on sales of specific securities within a limited period of time. Financial Advisors who participate in these incentive programs are rewarded with cash and/or non-cash compensation, such as deferred compensation, bonuses, training symposiums, and recognition trips.
Janney’s incentive program incentivizes its Financial Advisors to base their recommendations on their own financial interest rather than your best interest. Portions of these programs are subsidized by external vendors or affiliates which creates an incentive for your Financial Advisor to promote the investments of these vendors.
Non-Cash Compensation: Janney and its Financial Advisors also receive non-cash compensation and other benefits from companies that provide investments for Janney Financial Advisors to recommend to clients on our platform. Such non-cash compensation includes promotional gifts (e.g., coffee mugs, logoed shirts or gift baskets), invitations to attend conferences or educational seminars sponsored by product sponsors and providers, which include payment of related entertainment, travel, lodging and meal expenses.
Trade Flow: Janney does not receive any payment for order flow, including any monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration in return for the routing of customer orders. Janney trades securities in more than one marketplace. Unless you request that an order be executed in a specified marketplace (and Janney has agreed to your request), Janney, in its sole discretion and subject to applicable regulatory requirements, may route your order to any market center or exchange, including a foreign exchange where such security is traded, on the over-the-counter market in any location, or through any electronic communication network, alternative trading system, or similar execution system or trading venue that Janney may select.
Under SEC Rule 606, Janney is required to disclose, on a quarterly basis, the identity of the market centers to which it routes a significant percentage of its orders. However, as stated above, Janney does not receive any payment for order flow, including any monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration in return for the routing of customer orders. Janney is also required to disclose the nature of its relationships with such market centers, including any internalization or payment for order flow and reciprocal business arrangements. Additional information on Janney’s order routing decisions is available at Janney.com/disclosures.
Revenue Sharing: Certain asset managers and sponsors (or their affiliates) share the revenue they earn with Janney when you invest in certain investments (primarily mutual funds and annuities). As such, Janney has an incentive to make available and recommend (or to invest your assets in) investments of asset managers and sponsors that share their revenue with us, over investments of asset managers or sponsors that either share less or do not share their revenue. Your Financial Advisor does not share in this revenue.
Data Package Sharing: Some mutual fund companies and ETP asset managers have a data package arrangement that allows the company or issuer to (i) distribute information to Janney’s Financial Advisors; (ii) review Janney sales data relating to certain Financial Advisors and investments; and (iii) access Financial Advisors in Janney’s branches. Janney is paid to provide this data by the issuer. Data package pricing is consistent across all firms and tiered based on the mutual fund or management company’s assets under management at Janney, the type of data they are interested in, and the number of investments for which they want to purchase data. Your Financial Advisor is not paid in these arrangements.
Underwriting: When Janney acts as an underwriter and recommends the security that it underwrites, it has a conflict because its compensation is typically a percentage of the offering price. At the same time, the underwriters are responsible for selling the Initial Public Offering (“IPO”) and will want a price that is attractive to the investors who may be interested in the security. Underpricing an IPO creates a discount for the initial investors, increases the demand for the IPO and helps the underwriters sell all of the available shares. Underpricing may also affect how much, if at all, the stock’s price rises on its first trading day. If there is a large increase, or “bump,” from the offering price during the initial trading, the underwriter’s investors may be satisfied because the value of their investment will have increased. An IPO offering price may bear little relationship to the trading price of the securities, and it is not uncommon for the closing price of the shares shortly after the IPO to be well above or below the offering price.
Underwriters have discretion in allocating IPO and other public offering shares and will tend to favor allocation to institutional clients. Underwriters believe that institutional investors are better able to buy large blocks of IPO and public offering shares, assume the financial risk, and hold the investment for the long term. This disadvantages smaller investors, particularly in “hot” IPOs where the demand for shares far exceeds supply. Janney also has a conflict because the Firm receives commissions or sales credit when our Financial Advisors recommend the securities we underwrite.