Understanding Your Relationship With
Stephens Inc.
Brokerage and Investment Advisory
Relationships
Depending on your needs and your investment
objectives, you may have brokerage accounts, advisory accounts or
both. There are important differences between these types of
accounts,
and you should understand them so you choose
the services that are right for you.
Stephens Inc. is registered with the SEC as a
broker-dealer and as an investment adviser, offering both brokerage
and investment advisory services. Your relationship with your
Financial Consultant, and the obligations of Stephens Inc., will be
different in different types of accounts.
Brokerage Services
As a broker-dealer, we will work with you to
facilitate the execution of securities transactions on your behalf.
In addition to taking your orders, executing your trades and
providing custody services, we also provide investor education,
investment research, financial tools (including
financial calculators and financial analyses)
and professional, personalized information about financial products
and services, including, at times, recommendations to buy, sell or
hold securities. We do not charge a separate fee for these services
because these services are part of, or “incidental to,” our
brokerage services.
When we act as your broker-dealer, we will not
have discretion to buy and sell securities for you. This means that
you will direct each trade before it is executed and that you, not
we, will make individual buy, sell and hold decisions.
Additionally, we do not have an investment advisory relationship
with you, and our obligations to disclose information regarding our
business, conflicts between our interests and yours and other
matters are more limited than if we had investment advisory duties
to you.
For example, we may buy securities from you,
or sell securities to you, for our own accounts (acting as
principal), or we may buy or sell securities acting as agent. We
are not required to notify you or obtain your prior consent
regarding the capacity in which we act, which may affect
our profit on trades. Further, when we act as
a broker, we are paid by you and, sometimes, by people who
compensate us based on what you buy. Therefore, our profits, and
our Financial Consultants’ compensation, may vary by product and
over time.
Broker-Dealers are subject to the
Securities Act of 1933, the Securities Exchange Act of 1934, the
rules of self-regulatory organizations such as the Financial
Industry Regulatory Authority
(“FINRA”) and state securities laws, where
applicable. These rules and laws require broker-dealers
to:
• Conduct due diligence so that there is a
reasonable belief that
any recommendations to clients are
suitable, in light of their
stated investment objectives, financial
status, level of
understanding and risk tolerance.
• Seek to execute all client orders in the
best available market by
taking into account all the facts and
circumstances, such as
order price, order size and trading
characteristics of the security
involved.
• Treat all clients in a manner
characterized by high standards of
honesty and integrity.
Stephens Inc. offers brokerage accounts
to clients who desire to manage assets through brokerage
accounts.
Your Financial Consultant’s
Role
Your Stephens Inc. Financial Consultant can
assist you in identifying your investment needs and goals and
creating investment strategies to pursue your goals as part of a
brokerage account relationship. Some of the investment guidance we
offer through our brokerage relationships may involve suitability
assessments and targeted planning services; such investment
guidance should not be considered an advisory service unless it is
offered as an integrated component of comprehensive financial
planning services.
Investment Advisory
Services
In addition to brokerage services, Stephens
Inc. offers a variety of investment advisory programs and services
to our clients, including financial planning services,
nondiscretionary and discretionary asset management, and advice on
the selection of professional asset managers, exchange-traded funds
and mutual funds offered through our investment advisory
programs.
We act as your investment adviser only when we
have entered into a written agreement with you to do so. In such
agreements, we expressly acknowledge our advisory relationship and
obligations to you. When we act as your investment adviser, we
provide you with a disclosure
document about our advisory services that
describes, among other things, information about our business, the
services we provide, our advisory fees, our personnel, and
potential conflicts between our interests and yours.
When acting as your investment adviser, we
also have fiduciary duties to you under the Investment Advisers Act
of 1940 (“1940 Act”) and are required to obtain your consent prior
to purchasing securities from you, or selling securities to you,
for our own accounts (acting as principal). Please note that
the fact that we owe fiduciary duties to you under the 1940 Act
does not mean we are or have accepted responsibility as a fiduciary
under Employee Retirement Income Security Act (“ERISA”) or to abide
by the prohibited transaction provisions of the Internal Revenue
Code or duties as a fiduciary under any other legal regime, other
than the 1940 Act. We do not accept those duties unless we accept
them in writing in our agreements with you.
In connection with our investment advisory
services, you generally pay a fee based on the total value of the
assets in your account on a quarterly basis, which covers
investment consulting and certain brokerage services provided by
Stephens Inc. and, in programs that provide for outside
professional money management, the outside professional money
manager’s fee. In advisory programs that may include
exchange-traded funds, mutual funds or other pooled
investment products, you will pay additional expenses charged by
the funds that are not reflected in Stephens Inc.’s fees.
Investment Advisers are governed by the
Investment Advisers Act of 1940 and applicable state securities
laws, which govern conduct and disclosure requirements, creating a
high legal standard that is referred to as a “fiduciary” duty to
clients. These rules and laws require Investment Advisers
to:
• Disclose, and often avoid, material
conflicts of interest.
• Disclose additional compensation
provided to affiliates as a result
of the advisory relationship they have
with clients.
• Conduct proper due diligence and review
clients’ investment
restrictions and guidelines to make
suitable and appropriate
investment recommendations or decisions on
behalf of clients.
• Provide ongoing investment advice based
upon each client’s
stated overall financial situation and
monitor performance and
revise recommendations as each client’s
circumstances or
investments change.
• Always reasonably believe that actions
are in the client’s best
interests when providing services.
However, Investment Advisers
may not favor one client if that action
will disadvantage another.
Your Financial Consultant’s
Role
In our investment advisory programs, your
Financial Consultant remains involved as a consultant, helping you
to monitor performance and adjust your portfolio on an ongoing
basis.
When We Act as Both Broker-Dealer and
Investment Adviser
We may act as investment adviser and as
broker-dealer to you at the same time, and the fact that we do so
does not mean that our brokerage relationships are advisory ones.
For example, although we consider your brokerage account assets in
preparing guidelines or determining suitability for your investment
advisory services, your brokerage relationship continues on your
brokerage assets.
As another example, a client who has a
comprehensive financial plan prepared by his or her Financial
Consultant has an investment advisory relationship with Stephens
Inc. with respect to that financial plan. The investment advisory
relationship created by the financial plan terminates when the plan
is delivered and does not extend to any existing brokerage accounts
or to implementation of the financial plan. Further, the
implementation may be done through brokerage accounts, advisory
accounts, or a combination of both.
For More Information
We encourage you to ask questions so you
completely understand when we are acting as broker-dealer and when
we are acting as investment adviser, as well as the differences
between your brokerage and advisory accounts, including the extent
of our obligation to disclose conflicts of interest to you. The
disclosure documents for our investment advisory services, which
are available on request, provide information about our advisory
services, including conflicts.
If you have additional questions about the
nature of your accounts or the services you are receiving, please
consult with your Financial Consultant.