Disclosure Trading Practices
Important Information About the Trading Practices of Investment Managers Participating in the Raymond James Consulting Services Program
This document provides important trade-related information regarding the Raymond James Consulting Services (“RJCS”) separately managed account wrap fee “Program” sponsored by Raymond James & Associates, Inc. (“Raymond James”, “we” or “us”).
Current and prospective RJCS Program customers (hereafter “client(s)”, “you” or “your”) should fully understand the trading methods employed by Raymond James and investment managers available through the RJCS Program, as well as the various factors that influence and guide our individual and collective decisions when effecting securities transactions on behalf of participating accounts.
Raymond James Consulting Services Program
As sponsor of the RJCS Program, Raymond James enters into a subadvisory agreement with select investment managers (hereafter “Investment Manager(s)”, “they” or “them”).
Investment Managers have historically exercised investment discretion within the RJCS Program, which generally means that, in addition to developing the portfolio of securities to invest in, they establish the trade plan, direct orders to selected brokerage firms or securities dealers, and arrange for the allocation of shares/proceeds to client accounts upon the completion of all trading related to the order. However, most equity and balanced investment disciplines available in the RJCS Program are offered by Investment Managers under a model delivery arrangement, where the Investment Manager supplies their model portfolio of securities to Raymond James and Raymond James rather than the Investment Manager is then responsible for organizing and effecting portfolio trades. There are distinct differences between the two portfolio management methods, particularly with respect to the differing responsibilities for trade organization and implementation, commonly referred to as investment discretion. Investment Managers that retain investment discretion will hereafter be referred to as “SMA Managers”, while those that deliver a model portfolio to Raymond James and Raymond James maintains investment discretion will hereafter be referred to as “Model Managers”.
Best Execution Obligations
As investment advisers registered with the Securities and Exchange Commission (“SEC”), Raymond James and Investment Managers are legally required to take all reasonable steps to obtain the best possible trading result for clients, taking into account a number of factors, including the price, costs, speed, likelihood of trade execution and settlement, order size, nature of the order, confidentiality and any other relevant considerations when executing orders on your behalf. The obligation to obtain the best possible trading results for clients is commonly referred to as “best execution”.
To comply with best execution obligations, each of us must evaluate orders in the aggregate and periodically assess the execution quality of the various competing markets, trading venues, dealers and the market makers to which the orders are routed for execution. As mentioned above, a range of different factors may be considered when obtaining best execution, so it is important to note that best execution does not expressly mean the lowest cost or best price. Other factors may take an equal or greater prominence when determining best execution, such as the need for timely execution, the nature of the transaction and market in which the security trades or the need for confidentiality in working trades to fulfill the order, among others.
Since Model Managers deliver a model portfolio to Raymond James and Raymond James is responsible for order placement, Model Managers generally do not have a best execution obligation. Conversely, an SMA Manager that directs an order to Raymond James for execution is independently responsible for satisfying its best execution obligations, as is Raymond James when executing such orders (that is, we are each responsible for best execution on such trades). SMA Managers that elect to direct an order to a broker-dealer or trading venue rather than to Raymond James, or “trade away”, must make a determination that doing so satisfies their best execution obligation – that is, the SMA Manager and not Raymond James in such cases is solely responsible for satisfying their best execution obligation. SMA Manager trade away practices are discussed in further detail in the “SMA Managers that Trade Away from Raymond James” section of this document.
Raymond James Trade Execution
Securities transactions effected in RJCS Program client accounts are generally effected by Raymond James on a "net" basis (without commissions), and a portion of the RJCS Program wrap fee charged by Raymond James is generally considered as being in lieu of commissions; that is, there is generally no additional cost assessed by Raymond James when it executes these trades. Most equity securities recommended by Investment Managers are listed on a stock exchange or are accessible in the over-the-counter market. Given our execution capabilities as a self-clearing broker-dealer (where we handle all aspects of trade execution and settlement versus outsourcing certain functions to a third party), the majority of trades involving RJCS Program accounts can be executed competitively by Raymond James in relation to other broker-dealers, in conformance with our best execution obligations.
Certain securities, such as over-the-counter stocks and fixed income securities, are primarily traded in dealer markets. These securities are directly purchased from or sold to a financial services firm acting as a dealer (or principal). Dealers executing such trades may include a commission, a markup (on securities it sells), a markdown (on securities it buys) or a spread (the difference between the price it will buy or “bid” for the security and the price at which it will sell or “ask” for the security) in the net price at which transactions are executed.
Please note that the bid and ask are prices quoted by the dealer, so the client should understand that a dealer’s bid price would be the price at which a client is selling their security, and the dealer’s ask price would be the price at which a client is buying the security. When Raymond James executes orders involving securities traded in dealer markets it will typically execute those orders as agent with an unaffiliated dealer. In addition to the wrap fee clients pay in the RJCS Program, clients will also bear the cost (including any commission, markup, markdown or spread, if any) of these unaffiliated dealer and/or trading venue charges.
Trade Aggregation and Rotation Practices
RJCS is a model-based program, therefore portfolios will generally be comprised of a specific list of individual securities that will be purchased in all accounts that have selected that discipline. As a result, Raymond James or the SMA Manager may determine that the purchase or sale of a particular security is appropriate for more than one client account. In such cases, Raymond James or the SMA Manager may decide to aggregate orders for multiple client accounts into one “block” order for execution purposes. Blocking orders generally seeks to obtain a more advantageous net price, potentially avoid an adverse effect on the price which could result from simultaneously placing a number of separate competing orders, and simplify the administration and efficiency of trading across a potentially large number of accounts. In the event a block order is effected by Raymond James or an SMA Manager, the client will receive the average price of all transactions effected to fill the order. As a result, the average price received by the client may be higher or lower than the price that an individual client may have received had the transaction been effected for the client independently from the block transaction.
SMA Managers participating in the RJCS Program may also participate in other wrap fee programs sponsored by broker-dealers not affiliated with Raymond James, may manage institutional accounts not referred through a directed brokerage or sponsor’s wrap fee program, as well as act as an adviser to an open-end mutual fund(s). In the event an SMA Manager recommends or otherwise effects the purchase or sale of a security for all accounts within a particular discipline available through the RJCS Program, the SMA Manager may have to potentially effect similar transactions through a large number of broker-dealers or market centers. Depending on the liquidity of the security and the size of the transaction, among other factors, SMA Managers may utilize a trade rotation process where one group of clients (for example, RJCS clients) may have a transaction effected before or after another group of the SMA Manager’s other non-Raymond James clients, so as to limit the market impact of the transaction. For example, an SMA Manager’s trade rotation process may result in RJCS clients being the first accounts in which a trade is aggregated and executed, and once completed, the SMA Manager will then rotate to the next set of clients or firm in their rotation schedule; over time it is expected that RJCS clients will eventually be last in the SMA Manager’s rotation. An SMA Manager’s trade rotation process is developed and administered at their sole discretion, typically utilize a random selection process and are intended to equitably allocate transactions across the SMA Manager’s entire client base so that each group of clients can expect over time to receive executions at the beginning, middle and the end of the rotation. As a result, clients should understand that an SMA Manager’s trade rotation process may result in a transaction being effected in their account that occurs near or at the end of the SMA Manager’s rotation and such transactions may significantly bear the market price impact, if any, of those trades executed earlier in the SMA Manager’s rotation.
Taking into account the size and scale of an SMA Manager’s distribution reach (that is, how many firms such as Raymond James that offer their investment disciplines, as well as whether the SMA Manager offers such disciplines directly to institutional investors and mutual fund companies), the development and implementation of a trade rotation process is directly linked with meeting their best execution obligation. While there is no uniform trade rotation standard or process employed within the investment management industry, certain SMA Managers may decide to employ a trade rotation process for all securities in their portfolio and trade only through Raymond James, while others may choose to employ a rotation process that includes making a determination to trade away from Raymond James frequently or on a majority basis.
Additional information regarding each SMA Manager’s trade rotation policies is available in the respective SMA Manager’s Form ADV Part 2A.
SMA Managers that Trade Away From Raymond James
The wrap fee assessed by Raymond James covers the cost of brokerage commissions on transactions effected through Raymond James within the RJCS Program. In the event an SMA Manager elects to utilize brokers or dealers other than Raymond James to effect a block order in a recommended security (“trade away” from Raymond James), brokerage commissions and other charges are generally assessed to the block order by the executing broker or dealer. In the event an SMA Manager elects to trade away from Raymond James, those transactions are generally traded from broker to broker and are frequently cleared without any commissions. However, you should be aware that, in many cases, the executing broker or dealer may assess a commission or other charges to the block order and such costs will be in addition to the wrap fee assessed by Raymond James. As a result, the net purchase or sale price reflected on trade confirmations and brokerage statements provided by Raymond James on these trades may embed brokerage commissions or dealer markups or markdowns charged by the executing broker, that are not separately itemized by Raymond James. For example, a block order of security XYZ purchased for $10 that is assessed a commission of $.01 (1 cent) per share by the executing broker would show a purchase price in the client’s account of $10.01. Clients should understand that investment disciplines of SMA Managers that elect to trade away from Raymond James will generally be more costly to clients than those disciplines of SMA Managers that elect to trade exclusively or primarily through Raymond James. Some SMA Managers have historically directed most, if not all, of their program trades to outside broker-dealers, and only maintenance trades are effected through Raymond James (where maintenance trades are those associated with individual new account openings, capital additions/disbursements, and account terminations). Raymond James will identify individual equity trades that have been traded away on the client’s trade confirmation and will report the aggregate cost to clients in their brokerage statement on a quarterly basis.
In the selection of brokers or dealers to effect transactions, the SMA Manager may consider all relevant factors, including, among other things, the value of research services, execution capability, execution speed, execution efficiency, confidentiality, familiarity with potential purchasers or sellers, commission rates, financial responsibility, responsiveness or any other relevant matters. The SMA Manager may select brokers or dealers that provide the SMA Manager research or other transaction-related services and may cause the client to pay such brokers or dealers commissions or other transaction-related fees in excess of those that other brokers or dealers may have charged, including Raymond James. Such research and other services may be used for other of the SMA Manager’s accounts to the extent permitted by law. SMA Managers that specialize in fixed income, international, small-cap or exchange-traded product disciplines will be more likely to trade away from Raymond James due to market dynamics, liquidity, exchange availability, institution specialty or other factors they consider relevant in satisfying their best execution obligations to clients. Clients should understand that Raymond James does not evaluate whether an SMA Manager is meeting its best execution obligations to clients when trading away, as it is not a party to such transactions and is not in a position to negotiate the price or transaction related charge(s) with the executing broker. Raymond James does not discourage or restrict an SMA Manager’s ability to trade away, as the responsibility to determine the suitability of trading away from Raymond James falls under the SMA Manager’s individual fiduciary duty to clients and expertise in trading their portfolio securities.
The table below, using trade data from October 1, 2021 through September 30, 2022, reflects the frequency of step out equity orders placed by Investment Managers, the average cost that clients incurred during the period expressed in both dollar and percentage terms, and the average value of accounts in each listed discipline at the end of the period. The “market” for fixed income securities is largely comprised of dealers that trade over the counter amongst themselves and very few bonds trade on organized exchanges. Due to the structure of the fixed income market, the participating dealers do not currently, nor are they required to, disclose the markup, markdown or spread at which purchases and sales are effected. As a result, SMA Managers that trades fixed income securities away from Raymond James are unable to provide this information to Raymond James, and Raymond James is currently unable to present such information to clients. Please note that this information reflects historical data and may not be indicative of the current or future trade away frequency or average costs for these Investment Managers.
|EQUITY & BALANCED DISCIPLINES|
|Manager Name / Discipline (Italicized disciplines are closed to new accounts)||Dollar-Weighted % of Trades Stepped Out1||Average Annual Additional Cost Incurred per Client2||Average Cost - Cents Per Share3||Average Annual Performance Impact4||Average Account Value at End of Period|
|Advent Capital Management|
|- Phoenix Convertible Income Strategy||3%||None||None||None||Not applicable|
|Atlanta Capital Management|
|- Small Cap Blend||20%||None||None||None||Not applicable|
|- SMID Cap Blend||8%||None||None||None||Not applicable|
|ClearBridge Investments, LLC|
|- All Cap Growth||59%||$26.63||1.31||(0.006%)||$470,104|
|- Custom Appreciation||36%||$51.29||0.74||(0.002%)||$3,238,756|
|- Custom Balanced Allocation||51%||$23.13||0.84||(0.002%)||$1,230,206|
|- Custom Dividend Equity||53%||$55.40||1.65||(0.004%)||$1,255,178|
|- Custom Equity Allocation||24%||$208.62||1.40||(0.006%)||$3,290,024
|- Custom Large Cap Growth||25%||$39.97||1.16||(0.003%)||$1,339,985|
|- Custom Large Cap Value||84%||$50.74||0.78||(0.003%)||$1,573,364|
|- Large Cap Value||7%||$1.79||0.83||(0.002%)||$85,865|
|- Mid Cap Core||34%||$1.36||0.01||(0.000%)||$1,538,851|
|- Multi Cap Growth||51%||$53.00||1.57||(0.011%)||$494,897|
|- International Equity ADR5||25%||$96.77||1.23||(0.021%)||$471,946|
|Lazard Asset Management LLC5|
|- Emerging Markets||18%||$73.24||1.27||(0.021%)||$345,137|
|- International Equity Select ADR||51%||$838.08||1.70||(0.070%)||$1,202,415|
|- Appreciation Balanced (70/30)||19%||$2.20||0.71||(0.001%)||$239,999|
|- Appreciation Balanced (60/40)||17%||$5.56||0.72||(0.001%)||$563,978|
|- Balanced Income with Muni||46%||$19.24||0.39||(0.002%)||$951,397|
|- Balanced Income Taxable||37%||$8.42||0.37||(0.002%)||$462,954|
|- Dividend Balanced (70/30)||36%||$28.86||1.61||(0.004%)||$656,624|
|- Appreciation Balanced Tax-Favor (70/30||60%||$15.35||0.75||(0.001%)||$1,174,033|
|- Appreciation Balanced Tax-Favor (60/40)||50%||$4.86||0.72||(0.001%)||$424,293|
|- Dividend Balanced Tax-Favor (70/30)||54%||$39.32||1.60||(0.005%)||$810,274|
|- Dividend Balanced Tax-Favor (60/40)||36%||$24.12||1.59||(0.004%)||$651,099|
|Loomis, Sayles and Co.|
|- Small to Mid Cap Value Blend||52%||None
|Schafer Cullen Capital Management|
|- Enhanced Equity Income||1%||None
|Tandem Investment Advisors, Inc.
|- Large Cap Core||31%||$10.89||1.5||(0.004%)||$253,358|
- The Dollar-Weighted Percentage of Trades Stepped Out includes “program” trades (changes to the model portfolio affecting all or a significant number of the accounts) as well as “maintenance” trades such as those associated with the investment of new accounts, deposits/withdrawals and account terminations, which are primarily effected by Raymond James. To calculate this figure, Raymond James used the total dollar amount of trades that were stepped out to another broker-dealer (step outs) divided by the total dollar amount of trades effected in Raymond James accounts for a specific discipline regardless of where the trade was executed. For example, an Investment Manager that traded a total of $10 million in program and maintenance trades and stepped out $5 million would have a Dollar-Weighted Percentage of Client Trades Stepped Out of 50% ($5 million divided by $10 million).
- The Average Additional Cost Incurred per Client is derived by dividing the total commission incurred by the total number of accounts where trades were stepped out during the period. For example, an Investment Manager that stepped out trades in 50 accounts and incurred an aggregate cost of $4,000 in commissions for those trades would result in an additional average cost of $80 per account. However, because account sizes vary, the average cost is dependent on the value of each of these accounts. The actual cost per account for clients will differ based on the: (i) number and size of accounts employing the discipline during the trailing twelve month period, and (ii) the average account value as of the period end date. The average account value has also been provided as a means to determine the cost at varying account values. That is, assuming the average account value was $400,000 in the above example, a client with $250,000 to invest could estimate their annual cost by dividing $250,000 by $400,000 and multiplying the 0.625 ratio by the $80 average per account cost, or $50.
- The Average Cost – Cents Per Share is derived by dividing the total commission incurred by the total number of shares stepped out for a specific discipline during the period. For example, an Investment Manager that stepped out the purchase and sale of 200,000 shares and incurred an aggregate cost of $4,000 in commissions for those trades would result in an additional average cost of 2 cents per share ($4,000 divided by 200,000 shares = $0.02). This cents per share number is being provided to allow for a uniform comparison amongst various Investment Managers and disciplines.
- The Average Annual Performance Impact illustrates the average cost in percentage terms incurred by clients by dividing the total commissions assessed on step out trades by the average value of accounts as of the end of the period. For example, an Investment Manager that incurred $1,000 in commissions on step out trades during the period and the average value of accounts that participated in these trades was $400,000 would equal a 0.25% performance impact (that is, performance was reduced by 0.25% during the period when taking into effect the additional step out commissions). Please note that while the performance impact is always negative, Raymond James believes that it is important that clients not use this information as the sole determining factor when reviewing these figures since we cannot quantify price improvements the Investment Manager may be achieving when aggregating all shares being traded. Although we cannot provide a specific example, all else being equal we would expect an Investment Manager that trades away from Raymond James is achieving an overall better execution than they otherwise would have had they directed the orders to be executed by Raymond James, thereby positively impacting the performance of accounts participating in these disciplines.
- Investment Disciplines that invest in international securities may also have additional costs assessed by the exchange where the trades were executed such as exchange fees and taxes, and may also have costs such as conversion fees and currency translation costs that are not reflected in the Average Additional Costs Incurred per Client. For example, an Investment Manager may purchase a security via “ordinary shares” on a foreign exchange (which may charge a fee or tax on that trade), and then the bank may charge a fee to convert the ordinary shares to American Depository Receipts “(ADR(s)”), and in so doing there may be currency translation costs associated with ordinary-to-ADR conversions that is in addition to the commission cost of the trade, if applicable.