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.
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). Additionally, for IRA accounts and accounts subject to the Employee Retirement Income Security Act (“ERISA”) for which we act as your investment adviser, we act as a fiduciary under ERISA.
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 orinvestments 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.