Revenue Cetera Investment Services LLC Receives from Registered and Alternative Product Sponsors
As an investor, it is important to have a well-thought-out investment plan to meet your investment goals. It is also important to understand the various types of compensation and fees associated with your investments and the conflicts of interest that Cetera Investment Services LLC (“Cetera Investment Services”) and your financial professional have when offering and recommending investments to you. This document is intended to help you understand the various forms of revenue Cetera Investment Services and your financial professional receive when you purchase a mutual fund, exchange-traded product (ETP), registered insurance products (includes variable life insurance as well as variable and equity‑indexed annuities), alternative products, 529 college savings plan (529 plan), direct participation program, or a non-traded real estate investment trust (collectively, Products).
The various forms of revenue we receive in connection with your investment in a Product create conflicts of interest, and it is important for you to assess these conflicts before making an investment decision. Notwithstanding the information contained in this document, it is important that you read the written prospectus, if any, for any type of product discussed herein. The written prospectus will not only discuss costs and fees associated with an investment, and how the firm, Cetera Investment Services, is compensated, but it will detail how the costs/fees may affect your investment returns, as well as the risks and liquidity issues concerning the Product under consideration. The compensation described below is an additional source of revenue to Cetera Investment Services, and therefore, creates conflicts between your interest and ours. For a more comprehensive description of the fees and compensation we receive in connection with the different types of Products we offer, please review the Regulation Best Interest supplemental disclosure document (Reg. BI Disclosure).
Revenue We Receive from Product Sponsors and the Strategic Partners Program
Although Cetera Investment Services offers thousands of mutual funds from more than 250 mutual fund companies, and hundreds of variable life and annuity contracts from more than 100 insurance companies, we concentrate our marketing and training efforts on those investments offered by a much smaller number of select and well-known companies (Strategic Partners). Strategic Partners are selected, in part, based on the competitiveness of their products, their technology, their customer service and their training capabilities. Strategic Partners have more opportunities than other companies to market and educate our financial professionals on investments and the products they offer. For the most current list of our Strategic Partners, please see Strategic Partners.
Our Strategic Partners provide revenue sharing payments (i.e., additional compensation) to Cetera Investment Services and/or its affiliates in addition to the usual product compensation described in the prospectus. These additional revenue sharing amounts vary from one Strategic Partner to another and from year-to-year. Some Strategic Partners pay us: (1) a sales-based fee of up to 50 basis points (0.50%), of your total purchase amount of a mutual fund or registered insurance product. So, for example, if you invest $10,000 in a mutual fund, Cetera Investment Services could be paid up to $50 from a Strategic Partner that it would not receive from a non-strategic partner. Some Strategic Partners pay us: (2) an asset-based quarterly payment or additional quarterly payment based on the assets you hold in the fund or registered insurance product over a period of time of up to 15 basis points (0.15%) per year. For example, on a holding of $10,000, Cetera Investment Services could receive up to $15 per year. Some Strategic Partners pay us: (3) a flat fee regardless of the amount of new sales or assets held in client accounts. Additionally, we receive reimbursements for ticket charge payments as referenced below.
Strategic Partner payments are an additional source of revenue to Cetera Investment Services. You do not make these payments. Strategic Partners pay us out of their own assets, revenues, or earnings. To the extent that we receive additional payments from Strategic Partners of the types described above, we have an incentive to recommend that you purchase or maintain investment products sponsored by Strategic Partners instead of other product sponsors, and this incentive creates a conflict between your interest and ours. We retain these payments and do not share them with your financial professional. Whenever we absorb the ticket charge associated with a Strategic Partner that the financial professional would have otherwise had to pay, this is a conflict of interest between your financial professional and you because he or she has a financial incentive to recommend a Strategic Partner product over a product from a sponsor that is not a Strategic Partner.
Conflicts of Interest in Receiving Revenue Sharing from Strategic Partners
A conflict of interest exists in that Cetera Investment Services is paid more revenue sharing fees if you purchase one Product instead of another and/or you purchase a Product from one particular sponsor instead of another. This creates an incentive for us to recommend that you purchase or maintain investments sponsored by Strategic Partners or other product sponsors that make revenue-sharing payments to us. Your financial professional does not receive any portion of revenue sharing payments from Strategic Partner payments noted above or other Product sponsors described below, however your financial professional benefits indirectly when such payments support costs relating to product review, marketing or training, or for waiver of ticket charges, as described below. As a result, both we and your financial professional have an incentive to recommend that you purchase or hold investments sponsored by companies that make revenue-sharing payments to us instead of those that do not. This creates a conflict between your interest and ours.
When you purchase a mutual fund of a Strategic Partner, you will usually pay a sales charge. This sales charge may be paid at the time of purchase or the sales charge may be built into the expense of the product and/or charged to you when you sell your investment. Cetera Investment Services is paid by the product issuer or its affiliates shortly after the transaction. Part of that payment goes to your financial professional, based on a compensation formula agreed to between the financial professional and Cetera Investment Services. This compensation formula is the same for all similar products, regardless of the product issuer. Your sales charges and expenses and the sales commissions paid to Cetera Investment Services differ from investment to investment, and may depend on the amount of money you invest.
In addition, after your initial transaction, Cetera Investment Services is eligible to receive ongoing or continuing compensation, which is sometimes called a 12b-1 fee, service fee, trailing commission or trail and is designed to compensate Cetera Investment Services for the marketing and services we provide for our financial professionals and investors. We retain a portion of these fees and pay the remainder to your financial professional, or, in some instances, may pass all of the fees on to your financial professional. You do not pay these fees directly. They are deducted from the total assets in the fund and therefore reduce investment returns. The amount of trail commissions is set by the mutual fund company and is typically set forth in the mutual fund prospectus and/or SAI.
Additionally, some of Cetera Investment Services’ financial professionals work from locations in financial institutions. In that setting, part of the transaction-based compensation, including ongoing compensation, is paid to the financial institution at which your financial professional is located (Financial Institution) based on a compensation formula agreed to between the Financial Institution and Cetera Investment Services. The Financial Institution in turn may pass some of this compensation to your financial professional, or we may pay a portion of the compensation received from product issuers directly to your financial professional.
Conflicts of Interest in Transaction-Based Compensation
It is important for you to understand that transaction-based compensation may vary from one product to another, and that Cetera Investment Services receives and pays a portion of transaction-based compensation to your financial professional. Accordingly, a potential conflict of interest exists where Cetera Investment Services and your financial professional are paid more if you purchase one type of product as opposed to another, or you purchase from one product sponsor instead of another product sponsor.
If you have any questions about the amount of transaction-based compensation Cetera Investment Services or your financial professional will earn from your investment alternatives, you should discuss them with your financial professional.
More information about these investment products and transaction-based compensation is available on our website.
Conflicts of Interest in Cash Sweep Program
Cetera Investment Services maintains two bank deposit sweep programs (FDIC-Insured Program) that create financial benefits for Cetera Investment Services: the FlexInsured Account Program and the Insured Deposit Sweep Account Disclosure Statement. Cetera Investment Services also receives additional compensation for non-retirement account assets that are swept into a money market fund sweep option. All such additional compensation received by Cetera Investment Services creates a conflict of interest with its clients. Please note that your financial professional does not receive any of this additional compensation. Generally, each account will be eligible for a single cash sweep option, such as an FDIC-Insured Program or a money market mutual fund, based on account type. We may change the products available for your selection.
For detailed information regarding the terms and conditions of the cash sweep options, see the Form ADV for Cetera Investment Services, the FlexInsured Account Program Disclosure Statement, the Insured Deposit Sweep Account Disclosure Statement, or the applicable money market mutual fund prospectus. You can also obtain copies of such product disclosures from your financial professional. Your financial professional can provide a current list of available options.
Exchange-Traded Products Partner Program
Cetera Investment Services' ETP partner program (ETP Partner Program) has similar features to the Firm’s Strategic Partner Program. For the most current list of our ETP Partners, which is updated from time to time, please see Exchange-Traded Partners or call your financial professional.
Although we offer thousands of ETPs, we concentrate our marketing and training efforts on those investments offered by ETP Partners. An ETP Partner is selected, in part, based on the competitiveness of its products, its technology, its customer service and its training capabilities. An ETP Partner has greater exposure to our financial professionals (e.g., at conferences), and more opportunities to market and educate our financial professionals on investments and the products they offer.
ETP Partners provide revenue sharing payments (i.e., additional extra compensation) to us and/or our affiliates in addition to any compensation described in the ETP prospectus. These additional amounts may vary from one ETP Partner to another and from year-to-year. ETP Partners pay us as follows: (1) the greater of an annual flat fee (e.g. $500,000) regardless of the amount of new sales or assets held in client account(s) or up to 0.25% of the ETP’s net expense ratio (as set forth in the prospectus or supplement) of your investment’s average daily balance during the quarter (for example, if 0.25% of the ETP’s net expense ratio does not exceed $500,000 we would still be paid $500,000); or (2) up to 7 basis points on all assets under management (for example, for each $10,000 average quarterly daily balance of an ETP Partner’s total assets under management held by our clients, we would be paid up to $7 on an annual basis.
These payments constitute additional revenue to us. The payments are paid by the ETP Partner and/or their affiliates out of the assets or earnings of the ETP Partner or their affiliates.
Conflicts of Interest in Receiving Revenue Sharing from ETP Partners
A conflict of interest exists because Cetera Investment Services is paid more revenue sharing fees if you purchase one type of ETP Partner Product instead of another and/or you purchase a product from one particular sponsor instead of another. Your financial professional does not receive any portion of revenue sharing payments from ETP Partner payments noted above or other Product sponsors described below, however your financial professional benefits indirectly when such payments support costs relating to product review, marketing or training, or for waiver of ticket charges, as described below.
When you purchase an ETP Partner product, we absorb the nominal “ticket charge” (sometimes referred to as a transaction charge) for each transaction, which would normally be paid by you or your financial professional. In general, the ticket charge will be waived for the purchase of certain ETPs in an amount of $2,500 or more. Whenever we absorb the ticket charge associated with an ETP Partner that the financial professional would have otherwise had to pay, this is a conflict of interest between your financial professional and you because he or she has a financial incentive to recommend an ETP Partner Product over a product from a sponsor that is not an ETP Partner.
Direct Participation Programs and Alternative Investment Products
Cetera Investment Services, through its financial professionals, offers its clients a wide variety of direct participation programs and alternative investment products including: interval funds; non-listed real estate investment trusts; limited partnerships; 1031 exchange programs; business development companies; and oil and gas programs (collectively Alternative Investment Products). In addition to commissions Cetera Investment Services receives from the sale of Alternative Investment Products, we receive marketing allowance payments from sponsors of Alternative Investment Products. While the additional compensation we receive as well as the arrangements we have varies with each sponsor of an Alternative Investment Product, some sponsors may pay a marketing allowance fee of (i) up to 25 basis points (0.25%) annually on assets held in the Alternative Product or (ii) up to 150 basis points (1.50%) on the gross amount of each sale, depending on the product. These payments are an additional source of revenue to Cetera Investment Services. You do not make these payments. They are paid by the product sponsor out of the assets or earnings of the product sponsor.
It is important to note that you do not pay more to purchase Alternative Investment Products through us than you would pay to purchase those products through another broker-dealer, and your financial professional does not receive additional compensation for selling Alternative Investment Products from sponsors that pay us such additional compensation.
A conflict of interest exists in that Cetera Investment Services is paid more revenue-sharing fees if you purchase one type of product instead of another and/or you purchase a product from one particular sponsor instead of another. Your financial professional also indirectly benefits from these sponsor payments when the money is used to support costs relating to product review, marketing or training. This creates an incentive for us to recommend that you purchase or maintain an Alternative Investment Product instead of one that does not pay us similar compensation, which creates a conflict between your interests and ours.
For a current list of the Alternative Product sponsors that pay us additional compensation, please see Alternative Investment Companies.
Training and Education Compensation
Cetera Investment Services and its financial professionals also receive additional compensation from mutual fund and insurance companies, including Strategic Partners, and issuers of Alternative Investment Products, that is not related to individual transactions or assets held in accounts. This money is paid, in accordance with regulatory rules, to offset up to 100% of the costs of training and education of our financial professionals and employees. In some instances, mutual fund and insurance companies and issuers of Alternative Investment Products may pay a flat fee in order to participate in a Cetera Investment Services training and educational meeting. These meetings or events provide our financial professionals with comprehensive information on products, sales materials, customer support services, industry trends, practice management education, and sales ideas.
It is important to note that due to the number of mutual funds, ETPs, registered insurance products, and Alternative Investment Products that Cetera Investment Services offers, not all product sponsors have the opportunity to participate in these training and educational events. In general, our Strategic Partners and Alternative Investment Product sponsors have greater access to participation in these events and therefore greater access to, and opportunity to build relationships with, our financial professionals.
Some of the training and educational meetings for which we or our financial professionals receive reimbursement of costs may include client attendance. If you attend a training or educational meeting with your financial professional and a product sponsor is present, you should assume that the product sponsor has paid for all or a portion of the costs of the meeting or event.
Other Cash and Non-Cash Compensation
In addition to reimbursement of training and educational meeting costs, Cetera Investment Services and its financial professionals may receive promotional items, meals or entertainment or other non-cash compensation from representatives of mutual fund companies, insurance companies, and Alternative Investment Products, as permitted by regulatory rules. Additionally, sales of any mutual funds, registered insurance products, ETP Partner Products, and Alternative Investment Products, whether or not they are those of Strategic Partners, may qualify our financial professionals for additional business support and for attendance at seminars, conferences and entertainment events. Further, some of our home-office management and certain other employees may receive a portion of their employment compensation based on sales of products of Strategic Partners, ETP Partners and/or certain sponsors of Alternative Investment Products. Our receipt of cash and non-cash compensation creates a conflict between your interests and ours.
Retirement Strategic Partners Program
Cetera Investment Services also receives certain revenue sharing payments from third-party firms, including plan record keeping platforms as well as investment managers of mutual funds and the issuers of annuities that offer products to certain tax-qualified retirement plans such as Section 401(k), 403(b), and other employer-sponsored retirement plans (each a “Retirement Partner”). Retirement Partners participate in activities that are designed to help facilitate the distribution of their products and services, such as marketing activities and educational programs, including attendance at conferences and presentations to Cetera Investment Services' financial professionals. These revenue-sharing payments are in the form of a fixed dollar amount that does not depend on the amount of the Plan’s investment in any product or utilization of any Retirement Partner’s services. Retirement Partners may also pay Cetera Investment Services' expenses, or provide non-cash items and services, to facilitate training and educational meetings for the Cetera Investment Services’ financial professionals, which similarly do not depend on the amount of the Plan’s investment in any product or utilization of any Retirement Partners’ services. Your financial professional does indirectly benefit from these sponsor payments when they are used to support costs relating to product review, marketing or training. However, the fact that we receive compensation from Retirement Partners creates an incentive for us to recommend that you purchase products or services from them instead of other providers who do not make similar payments to us, which creates a conflict between your interests and ours. For a list of our current Retirement Partners, please see Retirement Partners.
A Section 529 plan is a college savings plan that allows individuals to save for college or other qualified education expenses on a tax-advantaged basis. Every state offers at least one Section 529 plan.
If you purchase a 529 plan through us, we receive compensation from the program sponsor in much the same manner as when you purchase mutual funds. In addition to commission-based compensation for sales of 529 plans, 529 plan assets are included in the amount of total mutual fund or variable annuity assets for which revenue sharing is paid as described above. Cetera Investment Services does not separately account for these payments and does not have any 529 Plan Strategic Partners.
For additional information on revenue sharing, brokerage fees, and transaction charges, please refer to Reg. BI Disclosure.
For additional information on the investment advisory services we or our related entities perform and the compensation we or our related entities receive when performing these services for your accounts, as well as any related conflicts of interest, please refer to our Reg. BI Disclosure and Form ADV Part 2A Brochure. If you have any questions about any portion of this document, please feel free to discuss them with your financial professional or call 800.245.0467.
Revised July 2020