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Broker Check


On June 5, 2019, the Securities and Exchange Commission (SEC) adopted a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with Financial Professional and Broker-Dealers (or Firms), bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest (Reg BI), the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940.

Individually and collectively, these actions are designed to enhance and clarify the standards of conduct applicable to Firms and Financial Professionals, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made.

Below, we have included information about these regulations, the products and services offered, fees, and any conflicts of interest between Vanderbilt Financial Group and its affiliates. Click on a topic below to navigate:


Introductions

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What is Reg BI & Form CRS?

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VFG and Financial Professional Compensation

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Third Party Compensation

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Communications

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Product and Services Descriptions, Risk Disclosures and Additional Resources

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Introductions

This webpage and the accompanying documents provide information on conflicts of interests, costs and fees, and other investment-related information. Statements in this document provide additional information on topics discussed in our Form CRS, which is summary in nature and limited in substance and size by the U.S Securities and Exchange Commission (“SEC”). Information in this document is also subject to, and intended to supplement, the separate disclosures, prospectuses, account forms, account agreements and other materials that we provide to you when making recommendations over the course of our relationship with you.

Vanderbilt Financial Group (“VFG”) is the marketing name for Vanderbilt Securities, LLC, PFG Investments, LLC (dba Vanderbilt Advisory Services), and other affiliated entities.

Vanderbilt Securities, LLC (“VS”) and ImpactU.Investments, LLC (“IUI”) are both broker-dealers. They are each a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).

Vanderbilt Advisory Services (“VAS”) and Consolidated Portfolio Review Corp. (“CPR”) are investment adviser firms registered with the Securities and Exchange Commission (SEC).

Brokerage and investment advisory services and fees differ and it is important for you to understand these differences. Free and simple tools are available to research firms and financial professionals at Investor.gov/CRS, which also provides educational materials about broker-dealers, investment advisers, and investing

VFG maintains a network of individuals, referred to as "Financial Professionals"("FP"), who offer brokerage services. VFG's Financial Professionals are independent contractors. VFG Financial Professionals are located throughout the U.S. and may offer investment services under their own business name.

Throughout the disclosures, we provide you with information that is designed to assist you in making sound investment decisions, and to help you consider reasonably available investment alternatives offered by VFG, its Affiliates and Financial Professionals.

VFG and its affiliates and Financial Professionals face conflicts of interest in the normal course of business.  While we recognize that certain conflicts of interests exist, we have taken a variety of steps through policies, procedures and/or oversight that are reasonably designed to manage them effectively.  In addition, we expect all of our Financial Professionals and employees to maintain the highest standard of ethical behavior in dealing with clients.  Throughout this document, we point out when and how these conflicts arise.  This high-level summary is intended to be inclusive of all conflicts of interest that might existing with respect to a particular transaction.  Additional information may be provided in product prospectuses, trade confirmations, and offering or marketing materials. Please see the product specific sections of this document or contact your Financial Professional for more information.

We and our Financial Professionals are compensated directly by customers and indirectly from the investments made by customers. When you purchase an investment, we typically get paid an upfront commission or sales load at the time of the transaction and in some cases a deferred sales charge. If we are paid an upfront commission, it means that we are paid more the more transactions you make. We are also paid more the larger the transaction. When we are paid indirectly from the investments made by customers, we receive ongoing compensation, typically called a "trail" payment, for as long as you hold the investment. In addition, we receive compensation from the sponsors of some of the investment products that we offer. The amount we receive varies depending on the particular type of investment purchased. The compensation described in this disclosure summary represents the maximum gain or profit we receive on an investment, before deduction of our expenses. It is important that you read and consider other information, including prospectuses and transaction confirmations to ensure that you are fully apprised of the costs and fees associated with your investment.

Not all of the conflicts described in this disclosure summary apply to a particular Financial Professional, his or her services, or all the products we offer. When Regulation Best Interest applies, our Financial Professionals may be required to disclose additional information specific to them, such as limitations on the securities or investment strategies involving securities that they may recommend, differences in the investment approach they are recommending to you, and any conflicts of interest that may be unique to them. If that is the case, then your Financial Professional will disclose such additional information to you orally or in writing before or at the time they make the recommendation to which that additional information relates.

We also provide important information regarding our compensation, and the costs and fees you pay in documents such as prospectuses, offering materials, account agreements and on our website at www.vanderbiltfg.com/disclosures.

We supervise retail investors’ investments, including the frequency and any material limitations, but we do not provide a monitoring service.

We encourage you to read the contents of this document and reach out to your Financial Professional if you have any questions. If you would prefer to receive a paper copy of the information referenced, please contact us at 631-845-5100.

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What is Reg BI & Form CRS?

Regulation Best Interest (Reg BI)

On June 5, 2019, the Securities Exchange Commission (SEC) adopted Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934. Reg BI establishes a “best interest” standard of conduct for Broker-Dealers (Firms) and associated persons (Financial Professionals) when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.

As part of the rulemaking package, the SEC also adopted new rules and forms to require Broker-Dealers and Financial Professionals to provide a brief relationship summary, Form CRS, to retail investors.

Firms must comply with Reg BI and Form CRS by June 30, 2020.

Form CRS

As part of the Reg BI adoption on June 5, 2019, the SEC adopted a new rule to require registered Financial Professionals and registered Broker-Dealers to provide a brief relationship summary – Form CRS – to retail investors. Below is a summary of Form CRS and its applications. Vanderbilt Financial Group’s Form CRS can be viewed and downloaded here: VFG Form CRS



What is Form CRS?

Form CRS is a client or customer relationship summary. Financial Professionals are required to deliver a relationship summary to you beginning in summer 2020 (effective June 30, 2020). The relationship summary contains important information about the Financial Professional and Firm.

Why should I read a relationship summary?

Choosing or continuing to work with a Financial Professional is an important decision. Financial Professionals offer different types of services and are paid differently. Reading a relationship summary can help you decide if a Financial Professional is right for you.

What information is in a relationship summary?

A relationship summary tells you about:

  • the types of services the Firm offers;
  • the fees, costs, conflicts of interest, and required standard of conduct associated with those services;
  • whether the Firm and its Financial Professionals have reportable legal or disciplinary history; and,
  • how to get more information about the Firm

A relationship summary also includes questions to help you begin a discussion with a Financial Professional about the relationship, including their services, fees, costs, conflicts, and disciplinary information.

When will I receive a relationship summary?

Beginning in the summer of 2020, Financial Professionals and Firms will provide you with a relationship summary when starting a new relationship with you or when your account changes (e.g., you rollover an IRA). If the information in the relationship summary changes, your Financial Professional will be required to give you a new relationship summary or communicate the changes through another disclosure that must be delivered to you. You can also always request a relationship summary.

If you already have a brokerage or advisory account, you will get your first relationship summary by July 30, 2020.

You are also able to find a Firm’s relationship summary and more information about a Firm using the free and simple search tool on Investor.gov.

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VFG and Financial Professional Compensation

Conflicts of interest exist between VFG and its affiliates, such as Vanderbilt Securities, LLC (“VS”), Vanderbilt Advisory Services (“VAS”), Consolidated Portfolio Review Corp.(“CPR”), ImpactU.Investment, LLC (“IUI”), among others. We earn compensation and other benefits when you invest in a product that we (or one of our affiliates) advise, manage, or sponsor. As such, we have an incentive to recommend (or to invest your assets in) the services of our affiliated entities. We address these conflicts of interest by disclosing it to you and by requiring our Financial Professionals and their supervisors to review your account at account-opening to ensure that it is appropriate for you in light of matters such as your investment objectives and financial circumstances.

The compensation structure for our Financial Professionals (“FPs”) result in conflicts of interest between clients and themselves as FPs.  Our Financial Professionals earn compensation and/or benefits based on the revenue VFG and its affiliates earn from client transactions or other compensation earned from transactions with affiliates or third parties.  As revenue increases, a Financial Professional’s compensation and/or benefits will increase.  This compensation structure means a FP has a financial interest in charging more for transactions where they have the discretion to do so, or recommending those transactions that generate higher amounts of revenue for VFG and its affiliates and compensation to the Financial Professional, rather than those transactions that generate lower amounts of revenue.  Additionally, VFG and its affiliates pay its Financial Professionals different compensation percentages based on recruitment incentivizing efforts and/or anticipated retention compensation.

In a brokerage account, a Financial Professional has an incentive to recommend more transactions.  In an investment advisory account, a Financial Professional has an incentive to recommend that you add more assets to your account, as it will generate a higher asset-based fee.  Compensation can vary depending on (i) the type of account (i.e. brokerage vs. investment advisory), (ii) the type of product (including share classes of products), service or strategy recommended to a client, and/or (iii) the size, timing, duration, or frequency of the recommended transaction(s).  As a result, the Financial Professional may receive more or less compensation if, for example, client select certain products over others or if they purchase products in larger or smaller quantities.  Similarly, there may be alternative ways to achieve the same or a similar investment objective which may carry different costs.

Commissions and Sales Charges

VFG receives upfront commissions when we execute transactions that result in the purchase or sale of a security.  A commission, which also may be called a sales load, sales charge, or placement fee, is typically paid at the time of the sale, reduces the amount available to invest or can be charged directly against an investment. 

Generally, commissions are calculated based on the principal purchase or sale amount involved and the product type. The commission may also be based on the quantity of securities purchased, and other factors. We pay Financial Professionals a portion of the commissions that we receive. Financial Professional compensation generally will increase as the volume of trades increases in a brokerage account.  Please see more information about how we compensate Financial Professionals below.

Because the commissions vary from product to product, we have an incentive to sell a higher commission product rather than a lower commission product. 

The maximum and typical commissions for common investment products are listed below. For more information about other commissions that apply to a particular transaction, we encourage you to refer to the applicable investment's prospectus or other offering document. 

  • Equities and Other Exchange Traded Securities. The commission charged by VFG in an agency capacity on an exchange traded security transaction, such as a stock or equity, ETF, exchange traded note (ETN), or closed-end fund (CEF) can be negotiated and ranges from $7.00-$22.50. Option transactions include additional charges and commissions, including a minimum charge per contract of $0.75-$2.00
  • Mutual Funds and 529s. The maximum commission or sales charge permitted under applicable rules is 8.5%, although the sales charge ranges from $7.00-$22.50.
  • Variable Annuities. The maximum upfront commission paid for new sales of annuities is as high as 7.5% but varies depending on the contract length purchased, and type of annuity and traditional and investment-only variable annuities.
  • Alternative Investments. For alternative investment products, such as non-traded business development companies (BDCs), real estate investment trusts (REITs), or private placements/direct participation programs, the upfront sales load is as high as 7%
  • Unit Investment Trusts (U/Ts).  The maximum upfront sales charge paid typically ranges from 1.35% to 3.5% and will depend on the length of the term of the UIT.
  • Bonds, Structured Products. For investments in bonds and structured products, the commission (called a markup or markdown) is typically included as part of the price you pay or receive for the investment. If we sell the security directly to you or buy it directly from you, rather than acting as your agent to buy or sell the security the transaction is known as a "dealer transactions." In these circumstances, if we sell a bond at a price higher than what we paid for it, we will earn a markup. Or, if we buy a bond from you at a price lower than what we sell it for, we will earn a markdown. The maximum markup/markdown on a transaction with a customer that we receive when acting in a principal capacity typically does not exceed 3.0% of the value of the security. If the Firm acts as an agent, it charges a commission.

Brokerage Account Fees and Charges

VFG is an introducing broker. Your brokerage accounts are carried and cleared on a fully disclosed basis through our clearing and custodial firm: Fidelity Clearing & Custody Solutions (“Fidelity”).

If you hold a brokerage account through VFG you will pay costs for transactions, transfers, certain optional features, retirement account maintenance and other fees. Our Financial Professionals do not, but we do receive a portion of many of the fees charged by our clearing firms as a result of adding a mark-up. Generally, we receive more fees when there are more transactions in an account. Click Here to view the Firm’s Brokerage Account Fee Schedule.

We charge our Financial Professionals various fees for, among other things, trade execution, administrative services, industry-insurance, technology, and licensing. These fees impact the Financial Professional’s ability to be profitable, and provide incentive to offer and recommend certain services or products over others. In certain cases, these fees are reduced based on a Financial Professional's overall business production or the amount of assets serviced by the Financial Professional, which gives the Financial Professional an incentive to recommend that you invest more in your account or engage in more frequent transactions. Transaction fees charged to your Financial Professional can also vary depending on the specific security that the Financial Professional recommends. For example, the transaction fees a Financial Professional pays to purchase or sell a mutual fund for your account may be different from the transaction fee to purchase or sell an ETF, which creates an incentive for your Financial Professional to recommend the product that carries the lowest transaction charge.

Clients that elect our fee-based financial planning services include a discussion of financial resources, evaluation of financial circumstances, and projected needs. Generally, this process seeks information about your current assets, liabilities, income sources, and expenditures, current tax status and future objectives, educational, retirement and other long-term financial goals, insurance and estate planning needs. There are no additional fees or expenses for the services offered in the fee-based financial planning services program. There are additional fees and expenses associated with implementing a financial plan in an advisory account, a brokerage account or a combination of advisory and brokerage accounts. Your Financial Professional can provide you with that information upon your request.

Product Fees and Expenses

Below is a summary of the typical range of expenses of the various investment products we sell. In most cases, these expenses are in addition to the commissions and fees that VFG receives for our brokerage services.

  • ETFs. Expense ratios range from 0.05% to 1.0%, with an average expense ratio of around 0.44%.
  • Mutual Funds. Expense ratios can vary based on the type and share class of mutual fund purchased.  The average expense ratio for actively managed funds is 0.5% to 1.0%, for passive index mutual funds the average is 0.2%.
  • Variable Annuities. The typical range of annual expenses associated with annuities is 0.60% to 5.00% depending on the combination of options selected by the investor including the type of annuity (variable annuities have a mortality and expense fee whereas fixed index annuities do not), optional riders elected (living and/or death benefits), and investment options where applicable (subaccounts or models for variable annuities).
  • Alternative investments. The typical range of annual expenses, excluding any commissions or dealer manager fees, is 0.80% to 6.00%, which may include management fees, acquisition fees, disposition fees, performance participation fees, organization and offering fees, acquired fund fees and expenses, or interest payments on borrowed funds.
  • UITs. Typical annual operating expenses for UITs range from 0.20% to 4.00%, with equity UITs usually at the low end of the range and UITs whose trust consists of a basket of closed-end funds typically at the high end of the range.
  • Cash Balances: At times, a manager or your Financial Professional may believe that it is in a client’s interest to maintain assets in cash, particularly for defensive purposes in volatile markets. There are revenue and fees received by the Firm through bank sweep products or money market balances from client accounts that create a conflict of interest to the extent that the additional payments influence VFG and its affiliates to recommend or select a strategy, model, manager or investment style that favors cash balances.

Conflicts of interests can arise in particular when VFG and its affiliates, such as Vanderbilt Securities, LLC (“VS”), Vanderbilt Advisory Services (“VAS”), Consolidated Portfolio Review Corp.(“CPR”), ImpactU.Investment, LLC (“IUI”), among others have an economic or other incentive to act, or persuade you to act, in a way that favors VFG or its affiliates.

Financial Professional may lack certain licensing or are otherwise limited in the products they can recommend. For example, some Financial Professionals may only be licensed to recommend and provide brokerage services, meaning they cannot recommend or service investment advisory accounts.  In both brokerage and investment advisory accounts, we offer a wide variety of products and services but may limit the products available to you based upon factors such as account limitations and client eligibility requirements.

Compensation to Financial Professionals

We typically pay our Financial Professionals a percentage of the revenue they generate from sales of products and services. The percentage received can vary (typically between 45% to 95%) depending on a Financial Professional’s agreement for certain levels of production and the investment product or service provided. Compensation of this type creates a financial incentive for the Financial Professional to meet the production or asset levels, or to sell products that pay higher commissions. 

It is customary for us to pay a portion of a Financial Professional’s compensation to the Financial Professional’s branch manager or another licensed person for supervision and/or administrative or sales support. There is a conflict of interest because the compensation affects the manager/supervisor’s ability to provide objective supervision of the Financial Professional. We address this conflict by implementing a supervisory system that includes checks and balances. 

Other Benefits 

Financial Professionals are eligible to receive other benefits based on the revenue generated from sales of products and services.  These benefits present a conflict of interest because a Financial Professional has an incentive to remain with VFG in order to maintain these benefits. These benefits include eligibility for practice management support and enhanced service support levels that confer a variety of benefits, conferences (e.g., for education, networking, training, and personal and professional development), and other non-cash compensation. These benefits also include free or reduced cost marketing materials, reimbursement or credits of fees that Financial Professionals pay to VFG for items such as administrative services or technology, and payments that can be in the form of repayable or forgivable loans (e.g. for retention purposes or to assist a Financial Professional grow his or her securities practice). If we make a loan to a new or current Financial Professional, there is also a conflict of interest because VFG's interest in collecting on the loan affects our ability to objectively supervise the Financial Professional.

A Financial Professional's Outside Business Activities

Our Financial Professionals may engage in certain approved outside business activities other than providing brokerage and advisory services through VFG, and in certain cases, a Financial Professional receives more compensation, benefits, and non-cash compensation through an outside business activity than through VFG. 

When this happens, the Financial Professional is subject to the policies and procedures of the third-party entity, and there are different conflicts of interest in addition to those discuss by VFG. A Financial Professional may receive compensation, benefits, and non-cash compensation through the third-party insurance agency and may have an incentive to recommend you purchase insurance products away from VFG.  If you contract with a Financial Professional for services separate or away from VFG, you should discuss any questions you have about the compensation they receive from the outside activity.  

VFG requires the Financial Professional to disclose these activities but they are offered outside the services provided by VFG and subject to their own separate disclosures. You can find more information on FINRA's website at https:// brokercheck.finra.org

Please be advised of the following:

  • DO NOT issue a check or other form or payment to a Financial Professional’s outside business activity name or entity for any VFG business.
  • DO NOT issue a check or other form or payment to a Financial Professional’s outside business activity name or entity for any VFG investment. ALL payments for investments must be made to Fidelity, or directly to the product sponsor.
  • ASK before investing.  If you are confused about the relationship between a Financial Professional’s outside activity and VFG, please contact us immediately at: info@vanderbiltsecurities.com

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Third Party Compensation

VFG, our affiliates, and our Financial Professionals receive compensation from third-party unaffiliated sponsors and managers when we recommend or sell certain products such as mutual funds, annuities, and alternative investments. As such, we have an incentive to recommend (or to invest your assets in) products of third-parties that pay us over products of third parties that do not pay us, or pay us less. Certain types of third-party compensation are received by VFG and shared with our Financial Professionals, and other types are retained only by VFG. 

Certain managers, sponsors (or their affiliates), and our clearing firm share the revenue they earn when you invest in certain of their investment products, such as money market balances, bank sweep products balances, platform fees, and alternative investments through marketing money or warrants, with us. As such, we have an incentive to recommend (or to invest your assets in) products of sponsors and managers that share their revenue with us, over other products of sponsors or managers that do not share their revenue, or who share less. 

Trail Compensation

VFG, our affiliates, and our Financial Professionals receive compensation from third-party unaffiliated sponsors and managers when we recommend or sell certain products such as mutual funds, annuities, and alternative investments. As such, we have an incentive to recommend (or to invest your assets in) products of third-parties that pay us over products of third parties that do not pay us, or pay us less. Certain types of third-party compensation are received by VFG and shared with our Financial Professionals, and other types are retained only by VFG. 

Certain managers, sponsors (or their affiliates), and our clearing firm share the revenue they earn when you invest in certain of their investment products, such as money market balances, bank sweep products balances, platform fees, and alternative investments through marketing money or warrants, with us. As such, we have an incentive to recommend (or to invest your assets in) products of sponsors and managers that share their revenue with us, over other products of sponsors or managers that do not share their revenue, or who share less. 

The amount of trails received varies by product. This creates an incentive to recommend a product that pays a higher trail rather than a lower trail. We also have an incentive to recommend a product that pays trails (regardless of amount) rather than products that do not pay trails.

For more information about trail compensation received with respect to a particular investment, please refer to the prospectus or offering document for the investment.

  • Mutual Funds and 529s. The ongoing payment depends on the class of shares but is typically between 0.25% and 1% of assets annually.
  • Annuities. We receive a trail payment from an insurance company for the promotion, sale, and servicing of a policy. The amount and timing of trail payments vary depending on the agreement between VFG and the issuer and the type of policy purchased. The maximum trail payment for annuities is typically 1.5% and varies depending on the type of annuity.
  • Alternative Investments. For alternative investment products, such as non-traded REITs, trail payments are typically 1% or less, but can be as high as 1.25% on an annual basis.

VFG and its affiliates’ Code of Ethics prohibits Employees from engaging in securities transactions or activities that involve a material conflict of interest, possible diversion of a corporate opportunity, or the appearance of impropriety. Employees must always place the interests of their clients above their own and must never use knowledge of client transactions acquired in the course of their work to their own advantage. Supervisors are required to use reasonable supervision to detect and prevent any violations of the Code of Ethics by the individuals, branches and departments that they supervise. The Code of Ethics generally operates to protect against conflicts of interest either by subjecting Employee activities to specified limitations (including pre-approval requirements) or by prohibiting certain activities.

Non-Cash Compensation

VFG and our Financial Professionals receive non-cash compensation from investment sponsors that is not in connection with any particular customer or investment. Compensation includes such items as gifts valued at less than $100 annually, an occasional dinner or ticket to a sporting event, or reimbursement for expenses in connection with educational meetings, customer workshops or events, or marketing or advertising initiatives, including services for identifying prospective customers. Investment sponsors also pay or reimburse VFG and/or our Financial Professionals, for the costs associated with education or training events that may be attended by VFG employees and Financial Professionals and for VFG sponsored conferences and events.

Third Party Compensation Retained by VFG

When Fidelity Clearing & Custody Solutions (“Fidelity”) is the custodian of your account, Fidelity automatically moves (sweeps) the cash in your account into money market funds and/or FDIC insured bank deposit accounts. Fidelity retains some of the interest paid on the bank deposit account or shareholder servicing fees paid on the money market fund and pays a portion of that to VFG. These payments to VFG are called “distribution assistance” and they vary based on the bank deposit account or money market fund. VFG does not determine the interest rates paid on bank deposit accounts or shareholder servicing fees paid on money market funds, or the amount or percentage of distribution payments that it will receive. We do not share distribution assistance payments with our Financial Professionals.

Fidelity also pays fees to VFG, or shares fees it earns with VFG. Vanderbilt may receive up to a 5 basis point net flow payment annually from Fidelity. For the purposes of calculating the, “Net Flows” shall be defined as the value of cash and securities transferred onto the NFS platform and into Customer Accounts, net of the value of cash and securities transferred out of Customer Accounts and off of the NFS platform, in connection with any of the following transaction types: Rollovers, Distributions, Checks Paid and Received, TOA’s, Contributions, Wires, Card Activity, and Transfers for a calendar year.

Explicitly excluded from the definition of “Net Flows” are the following transaction types: Net Sales, Dividends, Capital Gains, Fees, and Tax Withholding.

For clarity, explicitly excluded from the calculation of “Net Flows” are transfers of cash or securities between Customer Accounts and any other accounts custodied or introduced by NFS or its affiliates.  For example, the transfer of cash or securities from an account on the NFS platform that was introduced to Net Flows and any transfer of cash or securities out of a Customer Account to another account introduced to NFS by Fidelity Brokerage Services LLC or another introducing broker dealer shall not reduce Net Flows.

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Communications

VFG and its affiliates along with our Financial Professionals and employees may interact with you via electronic means of communication, such as email. A client can elect eDelivery and/or eConsent to the delivery of important communications, documentation and disclosures, including, but not limited to, Firm communications, the Firm’s Client Relationship Summary (Form CRS), fraud alerts, account statements, account documentation, trade confirmations, performance reports, and legal and regulatory notices and disclosures. When you enroll in eDelivery and/or eConsent, you consent to the electronic delivery of all eligible documents, however once enrolled you can customize the selection of documents and update your delivery preferences.

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Product and Services Descriptions, Risk Disclosures and Resources for more information

Our Financial Professionals provide recommendations with respect to a broad range of investment products, including certain Mutual Funds with which we have selling agreements (Onshore and Offshore Mutual Funds such as Equity Funds, Fixed Income Funds, and Balance Funds), U.S. Equities (listed companies on all U.S. exchanges, Nasdaq stocks, Bulletin Board stocks, and Pink Sheet stocks), Non-USD Equities, Fixed Income (U.S. Treasury bonds, notes, and bills; U.S. Government Sponsored Enterprise (GSE) securities; U.S. Corporate Bonds), Options, and Exchange Traded Funds (ETFs), and Alternative Investments.

Each type of investment product carries unique risks, and many investment products charge fees and costs that are separate from and in addition to the commissions and fees that VFG and our Financial Professionals receive. You can learn more about these risks and the fees and costs charged by an investment product by reviewing the investment product's prospectus, offering memorandum, or other disclosure documents along with any other documentation we provide you at the time of recommendation. Organized by product type below, the following summaries and resources are intended to supplement the information already provided to you at the time of a recommendation.

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Mutual Funds, Share Classes and Fund Selection

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

Mutual funds offer professional investment management and potential diversification. They also offer three ways to earn money:

  • Dividend Payments. A fund may earn income from dividends on stock or interest on bonds. The fund then pays the shareholders nearly all the income, less expenses.
  • Capital Gains Distributions. The price of the securities in a fund may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, the fund distributes these capital gains, minus any capital losses, to investors.
  • Increased NAV. If the market value of a fund’s portfolio increases, after deducting expenses, then the value of the fund and its shares increases. The higher NAV reflects the higher value of your investment.

All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.

A fund’s past performance is not as important as you might think because past performance does not predict future returns. But past performance can tell you how volatile or stable a fund has been over a period of time. The more volatile the fund, the higher the investment risk.

Please read more about mutual funds at:

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-1

Here are some additional resources for your consideration:

Title

Web Address

Closed-End Fund Distributions: Where is the Money Coming From?

https://www.finra.org/investors/alerts/closed-end-fund-distributions-where-money-coming

Alternative Funds Are Not Your Typical Mutual Funds

https://www.finra.org/investors/alerts/alternative-funds-are-not-your-typical-mutual-funds

Treasury's Guarantee Program for Money Market Mutual Funds: What You Should Know

https://www.finra.org/investors/alerts/treasurys-guarantee-program-money-market-mutual-funds-what-you-should-know

Class B Mutual Fund Shares: Do They Make the Grade?

https://www.finra.org/investors/alerts/class-b-mutual-fund-shares-do-they-make-grade

Updated: Understanding Mutual Fund Classes

https://www.finra.org/investors/alerts/understanding-mutual-fund-classes

Net Asset Value Transfers: Look Before You Leap Into Another Mutual Fund

https://www.finra.org/investors/alerts/net-asset-value-transfers-look-you-leap-another-mutual-fund

Principal-Protected Funds—Security Has a Price

https://www.finra.org/investors/alerts/principal-protected-funds-security-has-price

Updated: Mutual Fund Breakpoints: A Break Worth Taking

https://www.finra.org/investors/alerts/mutual-fund-breakpoints-break-worth-taking

Mutual Fund Breakpoints: Are You Owed a Refund?

https://www.finra.org/investors/alerts/mutual-fund-breakpoints-are-you-owed-refund

We offer various share classes of mutual funds and 529s. As an example, certain mutual fund share classes, often referred to as Class A shares, charge an upfront sales charge and an ongoing trail. For other mutual fund share classes, often titled Class C shares, there is no upfront sale charge paid, however, there is an ongoing trail payment and a contingent deferred sales charge (CDSC) to the customer if there is a redemption within a certain period of time after purchase. Depending on the length of the holding period for a mutual fund or 529 plan, and other factors, one share class may be less expensive to you than another, and VFG and your Financial Professional may earn more or less in compensation for one share class than another. Because of their characteristics and sales load structure, mutual funds generally are longer term investments. Frequent purchases and sales of mutual funds can result in significant sales charges unless the transactions are limited to exchanges among mutual funds offered by a sponsor that permits exchanges without additional sales charges. We maintain policies and procedures that are designed to detect and prevent excessive mutual fund switching, but you should carefully review the mutual fund prospective, regularly monitor your account and discuss with your Financial Professional any frequent mutual fund purchases and sales.

We offer various mutual funds and ETFs, some of which have similar or identical investment strategies but differing fee structures. For example, a mutual fund that is designed to track an index of securities, such as the S&P 500 Index, may have higher or different types of fees than an ETF that is designed to track the same index. Whether a fund or ETF is more expensive than another fund or ETF with a similar or identical investment strategy may depend on factors such as length of holding, size of the initial investment, and other factors. In addition, holding an ETF in a taxable account will generate less tax liabilities than a similarly structured mutual fund. VFG and your Financial Professional may earn more compensation for one fund or ETF than another, giving VFG and your Financial Professional an incentive to recommend the product that pays more compensation to us.

You should familiarize yourself with tools and information that will help you make sound decisions about investing.

We encourage you to refer to FINRA’s Fund Analyzer and 529 Savings Plan Analyzer found here:

Title

Web Address

Fund Analyzer

https://tools.finra.org/fund_analyzer/

529 Savings Plan Analyzer

https://tools.finra.org/529_calculator/main

VFG does not offer all the securities and services available across the broad markets due to structure, size, and liquidity of the security or similar characteristics of the security or underlying investments, and decisions made for product offerings by our principals team or Fidelity. Funds available for purchase through VFG are generally limited to fund companies with which we have selling agreements or that have agreements in place with our custodians. Not all mutual funds available to the investing public will be available to you through VFG, including funds with lower fees and expenses. All share classes offered by a fund company are also not always available due to the selling agreements we have negotiated. This means that lower cost share classes might not be available to you through VFG, even though you might otherwise be eligible to purchase those lower share classes elsewhere.

Some mutual funds and other products offer lower commissions for higher investment amounts. This discounts are called “breakpoints.” Because an investor meeting a breakpoint pays a lower sales concession, we are incentivized to make investment recommendations below the breakpoint. The prospectus you receive in connection with your investment provides important information about breakpoints that should be used to help inform you investment decision. You should also familiarize yourself with tools and information that will help you make sound decisions about investing in products with breakpoints. We encourage you to refer to FINRA’s Investor Alert titled “Mutual Fund Breakpoints: A Break Worth Taking” and other tools and information available at https://www.finra.org/investors/alerts .

Products that include alternative investments impose minimum account sizes and also require that investors meet specific criteria. Therefore, these products are not offered or available to all investors.

When applicable, VFG provides product-specific limitations and criteria at the time of the recommendation, including through prospectuses or offering materials. These documents are your primary source of information.

There are many types of Mutual Funds. Here are descriptions of some of the varieties and links to more information:

Alternative Mutual Funds

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-funds

In addition to the usual market and investment risks associated with traditional mutual funds, alt funds may face additional risks to the extent they use relatively complex investment and trading strategies.  Depending on the strategy being used, these potential risks can include use of derivatives and leverage, futures contracts, short selling and swaps.

Leveraged Loan Funds

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-0

Like every investment, leveraged loans involve a trade-off between rewards and risks. They could cause the fund (and you) to lose money. Risks include:

  • Credit default: Borrowers of leveraged loans may go out of business or become unable to pay their debts. This risk could be heightened if interest rates rise or the economy declines. While leveraged loans may be secured by collateral, the value of that collateral may not be sufficient to repay the lender if the borrower is unable to pay back the loan.
  • Liquidity: Leveraged loans may not be as easily purchased or sold as publicly-traded securities. In addition, leveraged loans typically have a long settlement period, meaning it could take the fund a long time to get its money after selling its investment. This could present a challenge for a fund if it concentrates its investments in leveraged loans and needs to sell many investments quickly, which could in turn affect the value of your investment.
  • Fewer protections: Sometimes leveraged loans are “covenant-lite,” meaning they generally have fewer restrictions that protect the lender than traditional loans. This could leave a fund exposed to greater losses if the borrower is unable to pay back the loan.
  • LIBOR: Many leveraged loans pay interest tied to a reference rate known as LIBOR. LIBOR is expected to be discontinued after 2021. For loans that will continue past 2021, it is unclear what interest rates may be paid. This uncertainty may impact the value and liquidity of these loans.

Index Funds

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-4

Like any investment, index funds involve risk. An index fund will be subject to the same general risks as the securities in the index it tracks. The fund may also be subject to certain other risks, such as:

  • Lack of Flexibility. An index fund may have less flexibility than a non-index fund to react to price declines in the securities in the index.
  • Tracking Error. An index fund may not perfectly track its index. For example, a fund may only invest in a sampling of the securities in the market index, in which case the fund’s performance may be less likely to match the index.
  • Underperformance. An index fund may underperform its index because of fees and expenses, trading costs, and tracking error.
  • Smart Beta, Quant Funds and other Non-Traditional Index Funds

https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-3

Non-traditional index funds have unique characteristics and risks. In some cases, they may be complex and difficult to understand. Take time to make sure a fund is a good fit for you by considering such things as:

  • Correlation to market. These funds may behave very differently than the market and traditional index funds. Because non-traditional index funds may be less correlated to the market, you may want to consider investing in them together with other types of funds. Depending on their characteristics, the other funds may help smooth out volatility and decrease risk.
  • Returns. These funds may have some features of active management, including seeking to outperform the market. But, these funds will not necessarily outperform the market or even perform comparably to the market. In addition, these funds may have limited performance histories. It may not be clear how they will perform under different market conditions.
  • Diversification. These funds can be used to help create a diversified portfolio. But, to ensure a fund adds diversity to your portfolio, you should understand how the index was constructed. In addition, look through the index to the actual holdings of the fund. Different indexes may include the same securities. Or, indexes could give more weight to certain securities than you might expect. Make sure your investments are as diversified as you think they are.
  • Complexity. These products may be difficult to understand because their methods for attempting to achieve returns may not be straightforward. For example, an index based on quantitative analysis or algorithms may involve complicated mathematical calculations and economic concepts.
  • Cost. These funds may be less expensive than actively managed funds because managers are not actively picking securities, so they do not need the services of research analysts and others that help pick securities. But, these funds typically have higher expenses than traditional index funds. Always be sure you understand the actual cost of any fund before investing.

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Money Market Funds

Money market mutual funds typically pay interest at about the same rate and many offer check-writing privileges. One advantage is that there's usually no limit on the number of checks you can write each month. However, any check you write against the account may have to be for at least the required minimum, such as $500. One drawback is that money market funds, unlike money market accounts, are not FDIC insured, although some offer their own insurance. While fund companies try to keep their money market share price stable at $1 a share, there is the possibility you could lose some of your principal.

Please review descriptions of the types of risks of investing in Money Market Funds below:

  • Money Market Funds are Technically a Security, and You Can Lose Money

The fund managers attempt to keep the share price constant at $1 per share. However, there is no guarantee that the share price will stay at $1 per share. If the share price declines, you can lose some or all of your principal.

  • Money Market Funds are not FDIC Insured

If you keep money in a regular bank deposit account, such as savings or checking, your bank provides FDIC insurance for up to $250,000. Although money market funds are relatively safe, there is still a small amount of risk that could have disastrous consequences if you can’t afford any losses. There is no government entity covering potential market losses. In return for that risk, you should (ideally) earn a better return on your cash than you’d earn in an FDIC insured savings account.

  • Money Market Fund Rates are Variable

You cannot know how much you’ll earn on your investment as the future unfolds. The rate could go up or down. If it goes up, that may be a good thing. However, if it goes down—and you earn less than you expected—you may end up needing more cash to meet your goals. This risk exists with other securities investments, but it is still worth noting if you're looking for predictable returns on your funds.

  • You Have Potential Opportunity Costs and Inflation Risk

Because money market funds are considered to be safer than other investments like equities, long-term average returns on money market funds may be lower than long-term average returns on riskier investments. Over long periods, inflation can eat away at your returns, and you might be better served with higher-yielding investments if you have the capacity and desire to take the risk.

  • Locked up Funds

In some cases, money market funds can become illiquid, which helps to reduce problems during market turmoil. Funds can impose liquidity fees that require you to pay for cashing out. They may also use redemption gates that require you to wait before receiving proceeds from a money market fund. Here is a resource with additional information:

https://www.finra.org/investors/alerts/treasurys-guarantee-program-money-market-mutual-funds-what-you-should-know

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Exchange Traded Funds (ETFs)

Exchange-traded funds (ETFs) combine aspects of mutual funds and conventional stocks. Like a mutual fund, an ETF is a pooled investment fund that offers an investor an interest in a professionally managed, diversified portfolio of investments. But unlike mutual funds, ETF shares trade like stocks on stock exchanges and can be bought or sold throughout the trading day at fluctuating prices.

Please review the types of risks inherent in investing in ETFs:

  • Market risk: ETFs cannot avoid the fates of the market they track. While ETFs provide numerous advantages that can help investors mitigate risks, nothing will stop them from going down if their underlying assets are falling. Market risks are one of the biggest costs of trading and cannot be mitigated directly. Rather, investors should allocate capital in their portfolio in a way that reduces exposure to any one asset or risk.
  • Trading risk:Trading risk refers to the total cost of owning an ETF portfolio. ETFs have been described as tax efficient, transparent and cheaper when compared to other asset classes. However, they still entail costs in the form of commissions, sales charges, market impact costs and direct trading costs, such as the bid-ask spread and management expense ratio.

ETFs may also suffer from crowded trade risks, given the sheer number of market participants involved in this market. Like other assets, ETFs also carry opportunity costs, creation and redemption fees and taxes on interest income and capital gains. These fees must be factored into overall trading costs so there aren’t any surprises down the road.

  • Liquidity risk: Since ETFs are at least as liquid as their underlying assets, trading conditions are more accurately reflected in implied liquidity rather than the average daily volume of the ETF itself. Implied liquidity is a measure of what can potentially be traded in ETFs based on its underlying assets.

This is very different from average daily volume, which provides a historical account of how frequently the ETF is traded. Investors who have in the past relied on average daily volume to gauge liquidity need to reassess their strategy for the ETF market.

  • Composition risk: Composition risk refers to the fact that indices, and the ETFs that track them, aren’t interchangeable. While two ETFs may track the same index or sector, their performance may not be equal due to different holdings in the underlying basket.
  • Methodology risk: ETFs are not all created equal, even those that track the same market or sector. Methodology risks aren’t always easy to see, which means investors need to read the fund prospectus to understand the nuances of the investment strategy, including its holdings and weightings.
  • Tracking error risk: Tracking risk occurs when an ETF does not mimic or follow the index it is tracking due to a combination of management fees, tax treatment and dividend timing. ETFs that use physical replication exhibit larger tracking errors compared to ETFs that use synthetic replication. Investors need to be aware of this difference when selecting ETFs with physical replication. A synthetic ETF is designed to replicate the return of a selected index via financial engineering.
  • Counterparty risk: In general, counterparty risk comes into play when dealing with securities lending and synthetic replication. In the case of securities lending, counterparty risk is seen when holdings are lent to another investor for a short period. This risk can be minimized by establishing collateral requirements. In the case of synthetic replication ETFs that track indices via swaps, risks can be mitigated by collateralizing the fund’s swap exposure. This leads to higher risk, but investors are compensated for this by being offered lower tracking error and lower fees compared to their physically backed peers.
  • Tax risk: ETFs are widely considered to be tax efficient, but this doesn’t apply to all of them. It’s important for investors to read up on a fund’s tax treatment, especially if it’s exposed to commodity and currency markets. These funds are usually taxed differently than others.

ETFs typically do in-kind transactions to avoid paying capital gains distributions. However, actively managed ETFs may not do all their selling in-kind, leaving investors exposed to capital gains taxes. This also applies to international ETFs, funds that use derivatives, commodity ETFs and currency ETFs.

  • Closure risk: On average, about 100 ETFs close each year. When this occurs, managers liquidate the fund and pay out their shareholders. Managers incur capital gains, transaction expenses and in some cases legal expenses, which ultimately trickle down to the investor. Closure risk is part and parcel of being an active market participant. Investors should sell an ETF as soon as the issuer announces it will close.
  • Hype risk: Hype risk often feeds into herd mentality, where investors chase the next big thing because fellow market participants are doing the same. ETFs are all the rage these days, which means many funds are propping into existence. Buzz is bound to happen. While exuberance is to be expected in a bull market, investors should be wary of chasing the so-called “next big thing.” This means sticking true to your investment strategy and studying each ETF’s methodology and documentation.

Here are some additional resources for your consideration:

Title

Web Address

Exchange-Traded Notes—Avoid Unpleasant Surprises

https://www.finra.org/investors/alerts/exchange-traded-notes-avoid-unpleasant-surprises

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors

https://www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors

https://www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors

Mutual Fund Breakpoints: Are You Owed a Refund?

https://www.finra.org/investors/alerts/mutual-fund-breakpoints-are-you-owed-refund

Updated: Mutual Fund Breakpoints: A Break Worth Taking

https://www.finra.org/investors/alerts/mutual-fund-breakpoints-break-worth-taking

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Margin

Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that:

  • You can lose more money than you have invested;
  • You may have to deposit additional cash or securities in your account on short notice to cover market losses;
  • You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and
  • Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you.

You can protect yourself by knowing how a margin account works and what happens if the price of the stock purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to ask your broker whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk.

There is additional information in this article published on the SEC website at:

https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html

You will also receive a Margin Agreement when we recommend a margin account for you. Please read it carefully. It is your primary source of information.

Here is additional information for your consideration when trading on margin:

Title

Web Address

Investing with Borrowed Funds: No “Margin” for Error

https://www.finra.org/investors/alerts/investing-borrowed-funds-no-margin-error

Stock-Based Loan Programs: What Investors Need to Know

https://www.finra.org/investors/alerts/stock-based-loan-programs-what-investors-need-know

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Options

Options are contracts that give the purchaser the right, but not the obligation, to buy or sell a security, such as a stock or exchange-traded fund, at a fixed price within a specific period of time.

Options can help you manage risk. But buying and selling options also involves risk, and it is possible to lose money. It pays to learn about different types of options, trading strategies and the risks involved.

If you invest in options, you will receive a separate Options Disclosure Document. We encourage you to read it carefully.

We also encourage you to review FINRA’s Options resources found here:

https://www.finra.org/investors/learn-to-invest/types-investments/options

Here are general descriptions of the risks inherent in options investing:

1. Risks of option holders

  • An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time.
    • The more an option is out of the money and the shorter the remaining time to expiration, the greater the risk that an option holder will lose all or part of his investment in the option.
    • Prior to the period when a European-style option or a capped option is exercisable, the only means through which the holder can realize value from the option (unless the capped option is automatically exercised) is to sell it at its then market price in an available secondary market.
    • The exercise provisions of an option may create certain risks for the option holders
    • The courts, the SEC, another regulatory agency, OCC or the options markets may impose exercise restrictions.

2. Risks of option writers

  • An option writer may be assigned to an exercise at any time during the period the option is exercisable.
  • The writer of a covered call forgoes the opportunity to benefit from an increase in the value of the underlying interest above the option price, but continues to bear the risk of a decline in the value of the underlying interest.
  • The Writer of an uncovered call is in an extremely risky position and may incur large losses if the value of the underlying interest increases above the exercise price.
  • As with writing uncovered calls, the risk of writing put options is substantial. The writer of a put option bears a risk of loss if the value of the underlying interest declines below the exercise price, and such loss could be substantial if the decline is significant.
  • The risk of being an option writer may be reduced by the purchase of other options on the same underlying interest-and thereby assuming a spread position- or by acquiring other types of hedging positions in the options markets or other markets. However, even where the writer has assumed a spread or other hedging position, the risks may still be significant.
  • The obligation of a writer of an uncovered call or of a put that is not cash-secured to meet applicable margin requirements creates additional risks.
  • Since the leverage inherent in an option can cause the impact of price changes in the underlying interest to be magnified in the price of the option, a writer of an option that is uncovered and unhedged may have a significantly greater risk than a short seller of the underlying interest.
  • The fact that an option writer may not receive immediate notification of an assignment creates special risk for uncovered writers of physical delivery call stock options that are exercisable when the underlying security is the subject of a tender offer, exchange offer or similar event.
  • An option writer will be assigned an exercised that is made based on news that is published after the established exercise cut-off time and that the writer may not have an effective remedy to compensate for the violation of the options market’s rules.
  • If a trading market in an option should become unavailable, or if the writers of the option are otherwise unable to engage in closing transactions, the writers of that option would remain obligated until expiration or assignment.
  • A sudden development may cause a sharp upward or downward spike in the value of interest underlying a capped option. Such a spike could cause the capped option to be automatically exercised.

Here are some additional resources for your consideration:

Title

Web Address

Options A-Z: The Basics to the Greeks

https://www.finra.org/investors/insights/options-z-basics-greeks

The Characteristics and Risks of Standardized Options

https://www.theocc.com/about/publications/character-risks.jsp

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors

https://www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors

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Private Placements, Alternative Investments

Simply stated, a private placement is an offering of a company's securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public at large.

Many private placements are offered pursuant to Regulation D of the Securities Act of 1933, which specifies the amount of money that can be raised and the type of investor that can be solicited to participate in the offering. See https://www.sec.gov/fast-answers/answers-regdhtm.html for a plain English explanation.

The offering document, sometimes called a private placement memorandum or term sheet, likely will contain limited information on the company's business (and may not be provided at all, if the offering is sold only to accredited investors). Since many private placement securities are issued by companies that are not required to file financial reports, you may have problems finding out how the company is doing, and gauging how your private placement is likely to perform over time.

There are limitations to who can invest in a private placement. You generally must be an accredited investor to invest in a private placement, but there are exceptions. In order to make the investment, you should carefully consider the risk, and understand that the Financial Professional and VFG likely make more commission if you buy the private placement than they would for an alternative investment. Ask yourself if you can absorb a substantial loss, even the entire amount of the investment, or if you can withstand a long period of time, even indefinitely before you money is available to you again. Keep in mind that private placement securities are considered "restricted" securities and cannot be resold without registration or an exemption from registration – features that make them difficult to sell (illiquid) and may negatively impact the price at which you are able to sell them. In addition, the issuer typically does not have an obligation to provide liquidity to investors by buying the securities back when the investor wants to sell.

Important information regarding a private placement is provided an offering memorandum, sometimes called a PPM. Read it very carefully – it is your primary source of information. If you do not understand it, or you are not comfortable with the information – do not invest.

On its website, FINRA offers investors the following tips in the excerpt below about investing in private placements:

  • Ask your broker what information he or she was able to review about the issuing company and this private placement. Expect your broker to be knowledgeable about any risk factors associated with the company's business, such as other competitors in the company's space, or economic risks specific to the company's business. Risk factors might also include risks associated with the issuing company itself, such as a weak balance sheet, use of leverage or a limited operating history. In addition, your broker should also be familiar with the risks and features of the private placement.
  • Ask your broker how this investment fits in with the mix of other investments you hold. How does it align with your risk profile? Be extremely wary if you receive paperwork to sign about a private placement without having a personalized discussion with your broker about why such an investment is right for you.
  • If you are provided with a private placement memorandum or other offering document, carefully review it. Make sure that statements by your broker or in other sale materials are consistent with it. The offering document—and any sales materials associated with the private placement—should be detailed and balanced. If you don't understand them, don't invest. Ask for a copy of the offering document, if one has not been provided to you.
  • Read the issuing company's Form D, if available on the SEC's EDGAR database. While it contains only limited financial information, it identifies the company's executives and describes other matters that can be valuable. Also contact your state securities regulator for information.
  • For real estate private placements, ask about the schedule and source of investor distributions. Specifically, find out if the company's income is able to cover those distributions, or if distributions may be made from proceeds from sales of additional shares or borrowings.
  • For oil and gas private placements, ask what you can expect to receive in return for your investment, and the circumstances that would result in a loss of some or all of your investment. Ask if the issuer has entered into any operational or services agreements with affiliates, since this can add additional costs that may dilute your return. Also ask about the issuer's past performance in prior offerings, and review the map of the proposed well locations for drilling activity, whether successful or not, in the vicinity. Lastly, ask how—and when—you will be informed of the status of the drilling efforts and whether or not audited financials of the issuer or the specific offering will be provided.
  • Ask whether the private placement is being sold on a conditional or contingency basis. These types of private placements are designed to be concluded only when certain conditions are met, such as a specific dollar amount invested by a given date. If so, there should be specific information regarding whether the proceeds from sales of securities received prior to the contingency being satisfied may be accessed by the issuer. If any specified conditions or contingencies are not met, the offering document should clearly state that investors will be refunded their investment amount. If there are no contingencies, be wary. An offering that may proceed without a minimum level of investments or other conditions could be a red flag, as the issuer can use the proceeds immediately, regardless of the amount raised from other investors.
  • Be extremely wary of private placements you hear about through spam emails or cold calling. They are very often fraudulent. A legitimate broker must be properly licensed, and his or her firm must be registered with FINRA, the SEC and a state securities regulator—depending on the type of business the firm conducts. To check the background of a broker or investment adviser, use FINRA's BrokerCheck. (Note: officers, directors and other persons associated with an issuer may sell securities of that issuer without being licensed, so long as they are not compensated for the transaction and meet other conditions of SEC Rule 3a4-1.) If you suspect fraud or believe you are being treated unfairly by a securities professional or firm, File a Complaint with FINRA.
  • Ask and check. Ask if the investment professional selling the private placement is registered with FINRA or the SEC. Then check to see if this is in fact the case.

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Retirement Accounts, Rollovers

If a customer decides to roll assets out of a retirement plan, such as a 401(k) plan, and into an individual retirement account (IRA), we have a financial incentive to recommend that the customer invest those assets through VFG, because we will be paid on those assets, for example, through commissions, fees, and/or third-party payments.

Please be advised of your options, and what a rollover means to you.

If you leave your employer you typically have four options (and may engage in a combination of these options):

•   leave the money in the former employer's plan, if permitted;

•   roll over the assets to your new employer's plan, if one is available and rollovers are permitted;

•   roll over to an Individual Retirement Account; or

•   cash out the account value.

Each choice offers advantages and disadvantages, depending on your desired investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and your unique financial needs and retirement plans. The complexity of these choices may lead you to seek assistance one of our Financial Professionals. The options that we offer you will result in revenue to our Financial Professionals and our firm. You should be aware that such fees and commissions likely will be higher than those the customer pays through their plan, and there can be custodial and other maintenance fees. As securities held in a retirement plan generally cannot be transferred to an IRA, commissions and sales charges may be charged when liquidating such securities prior to the transfer, in addition to commissions and sales charges previously paid on transactions in the plan.

Therefore, we have an incentive to recommend that you “roll-over” your employer plan to us. Please consider each of your options before making a decision.

Here are some additional resources for your consideration:

Title

Web Address

The IRA Rollover: 10 Tips to Making a Sound Decision

https://www.finra.org/investors/alerts/ira-rollover-10-tips-making-sound-decision

Why Leave Money on the Table—Make the Most of Your Employer's 401(k) Match

https://www.finra.org/investors/alerts/why-leave-money-table-make-most-your-employers-401k-match

401(k) Debit Cards—Think Before You Swipe

https://www.finra.org/investors/alerts/401k-debit-cards-think-you-swipe

Putting Too Much Stock in Your Company—A 401(k) Problem

https://www.finra.org/investors/alerts/putting-too-much-stock-your-company-401k-problem

Look Before You Leave: Don't Be Misled By Early Retirement Investment Pitches That Promise Too Much

https://www.finra.org/investors/alerts/look-you-leave-dont-be-misled-early-retirement-investment-pitches-promise-too-much

Think Twice Before Cashing Out Your 401(k)

https://www.finra.org/investors/alerts/think-twice-cashing-out-your-401k

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SIPC Coverage Summary

Please review the following disclosures regarding insurance coverage relevant to your investments:

  • Covered Investments: Registered securities and cash.
  • Available Coverage: Generally protects SEC-registered securities to maximum of $500,000, including $250,000 coverage for claims for cash.
  • Excess SIPC coverage offered by our clearing firm, through underwriters and other commercial insurers.

The Firm is a member of the Securities Investor Protection Corporation (SIPC). SIPC provides coverage, as set forth above, in the unlikely event that we fail financially. Money market fund shares are not considered cash for this purpose; they are securities. An explanatory brochure is available upon request at www.sipc.org. SIPC asset protection limits apply, in the aggregate, to all securities accounts that you hold with us in a particular capacity. SIPC coverage does not insure against the loss of your investment. SIPC coverage does not ensure the quality of investments, protect against a decline or fluctuations in the value of your investment, or cover securities not held by us. Account protection applies when an SIPC-member firm fails financially and is unable to meet obligations to securities clients, but it does not protect against market fluctuations.

SIPC coverage is not the same as FDIC deposit insurance and operates differently. FDIC is an independent agency of the U.S. government that insures bank-held assets as set forth above.

Unless explicitly stated, products sold by the Firm are not considered bank deposits and are not covered by FDIC insurance. Further information on FDIC insurance can be obtained from your Financial Professional, who will provide you with the FDIC brochure, “Your Insured Deposits, FDIC’s Guide to Deposit Insurance Coverage,” upon request. You can obtain information directly from the FDIC, Division of Supervision and Consumer Protection, by writing to Deposit Insurance Outreach, 550 17th Street N.W., Washington, DC 20429, or telephoning 877-275-3342 or 800-925-4618 (TDD). Or, you may visit the FDIC website at www.fdic.gov or e-mail them at dcainternet@fdic.gov. You may also wish to consult with your attorney concerning FDIC coverage of deposits, particularly when held in more than one capacity.

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