An Introduction to Managed Accounts and the Role of the Investment Advisor Representative (IAR)

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1 0 An Introduction to Managed Accounts and the Role of the Investment Advisor Representative (IAR) What does Managed Account Mean? Managed accounts are investment accounts that are selected and managed by an institutional money manager and have a management fee charged instead of commissions or individual security sales charges. The fee charged is usually stated as an annual amount based on the assets under management (AUM). For example: If a member had $250,000 in an account with a 1.0% annual fee, the annual fee would be $2,500. Your credit union, along with the Financial Services program, has identified a growing need in the credit union's membership base for sophisticated investment tools and a higher level of interaction from the representative. Members want, and expect, help planning their financial future. To ensure that your credit union builds and maintains status as a member's primary financial institution, the financial services program now offers managed account options to members for their investments. For training purposes only. Not to be viewed by or distributed to the general public. FR E77A 1212

2 Brokerage Accounts vs. Managed Accounts This table identifies some of the basic differences between managed accounts and traditional brokerage investment accounts: Managed Accounts Traditional Brokerage Accounts $50,000 minimum account size Low minimum account value of $25 Advisor recommends a Model Portfolio, or group of investments, based upon member needs Investments selected by professional money manager Accounts monitored by advisor and managed by an Institutional Money Manager (with prior signed client approval) Ongoing management fees (typically quarterly) Advisor recommends individual investments based upon member needs Investments selected by advisor Accounts managed and monitored by the advisor (with client approval) Front-end/back-end commissions If investment objective changes, the Model Portfolio can be changed at any time with no additional charge If investment objective changes, there may be additional costs associated with selling existing assets and buying new ones May be able to use many fund families without incurring extra charges Usually advantageous to use a limited number of fund families in order to keep costs down (due to breakpoints)

3 What is an Investment Advisor Representative (IAR)? To become an IAR and be able to offer managed accounts through the Financial Services program, advisors need specialized training and have additional obligations. The Financial Services program requires IARs to have the following qualifications: FINRA Series 6 or 7 Registration, and FINRA Series 63/65 or 66 Registration or The IAR should be registered in the state his/her principle place of business is located In addition, all IAR must attempt to review each managed account at least annually; this is a requirement spelled out in the Investment Advisors Act of 1940, as well as the CBSI Investment Advisor Manual. Additional notes, paperwork, and disclosure documents are required for all managed accounts. Much of this documentation must be signed by the member and submitted to CBSI home office. CUNA Brokerage Services, Inc. (CBSI) in its capacity as a broker/dealer (BD) is registered with the SEC and is a member of FINRA and is also registered with the SEC as a Registered Investment Advisor (RIA). Financial Services Representatives are Registered Representatives of CBSI as a BD and the majority of them are also registered as IARs with CBSI in its capacity as a RIA.

4 Fiduciary Responsibilities of an IAR When an advisor recommends a managed account, he/she is acting as an IAR and has certain fiduciary obligations that coincide with or go beyond the general suitability requirements by which a Registered Representative is governed. Among these responsibilities are the following excerpted from the NASAA (North American Securities Administrators Association, Inc.) website, Place the client interests ahead of his/her own Make recommendations based on a reasonable inquiry into a client s investment objectives, financial situation and other factors Make reasonable investment recommendations independent of outside influences Avoid undisclosed conflicts of interest Avoid activity that acts as fraud or deceit on clients

5 What Managed Account Programs are Available? MEMBERS Managed Account Program Available through Madison Asset Management. MEMBERS Managed Account Program (MAP) provides a comprehensive solution which includes professional, institutional-level portfolio management, Active, ETF and Tax-Sensitive investment strategies, including portfolios focused on income, and best-in-class investments. The MEMBERS Managed Account Program strives to deliver consistent and predictable portfolio performance with a keen eye on risk management. FTJ FundChoice FTJ FundChoice is a fee-based mutual fund platform offering no-load and load-waived mutual funds. It is an asset management program that allows financial advisors the ability to develop their own model portfolios or outsource the asset allocation decision to institutional portfolio strategists.

6 What Managed Account Programs are Available? Lockwood Managed Products Lockwood Investment Strategies (LIS): A discretionary UMA investment solution that offers a spectrum of diversified portfolios, comprising multiple asset classes and investment vehicles each held in a single account. Based upon a client s risk profile, Lockwood seeks to deliver portfolio return and risk characteristics that are appropriate for that client. LIS portfolios may include open-end and closed-end mutual funds, ETFs, ETNs, alternative investments and individual securities.. Lockwood Asset Allocation Portfolios (LAAP): A discretionary mutual fund/etf wrap investment solution that offers a series of multiple-style portfolios each held in a single account and affords the features of diversification and professional management to smaller accounts. Client portfolios may include open-end mutual funds, ETFs, ETNs and closed-end funds. Genworth Financial Wealth Management Genworth Financial Wealth Management (Genworth) provides one of the most comprehensive feebased investment management platforms in the industry. Their platform includes Portfolio Strategists experienced in implementing investment strategies through rigorous asset allocation models, as well as a diversified selection of Investment Management Firms capable of implementing investment solutions through No-load Mutual Funds, Exchange Traded Funds, Unified Managed Accounts and Privately Managed Accounts.