The Brightwater Advisory Wrap Fee Program (the “Program”) is an investment advisory program
sponsored by Brightwater. In addition to the Program, the Firm offers a variety of advisory services,
which include financial planning, consulting, and investment management services under different
arrangements than those described herein. Prior to Brightwater rendering any of the foregoing advisory
services, clients are required to enter into one or more written agreements (the “Advisory Agreement”)
with Brightwater setting forth the relevant terms.
Brightwater was formed in October 2013 and is wholly owned by David C. Maddux, Jr. and Kathleen N.
Maddux. As of December 31, 2023, Brightwater had $240,215,320of assets under management,
$232,973,613 of which was managed on a discretionary basis and $7,241,706 of which was managed on a
non-discretionary basis.
While this Brochure generally describes the business of Brightwater, certain sections also discuss the
activities of its Supervised Persons, which refer to the Firm’s officers, partners, directors (or other persons
occupying a similar status or performing similar functions), employees or any other person who provides
investment advice on Brightwater’s behalf and is subject to the Firm’s supervision or control.
Description of the Program
The Program is offered as a wrap fee program, which provides clients with the ability to trade in certain
investment products without incurring separate brokerage commissions or transaction charges. A wrap fee
program is considered any arrangement under which clients receive investment advisory services (which
may include portfolio management or advice concerning the selection of other investment advisers) and the
execution of client transactions for a specified fee or fees not based upon transactions in their accounts.
Clients must also open a new securities brokerage account and complete a new account agreement with
Schwab Advisor Services™ (“Schwab”) or another broker-dealer that Brightwater approves under the
Program (collectively “Financial Institutions”).
At the onset of the Program, clients complete an investor profile describing their individual investment
objectives, liquidity and cash flow needs, time horizon and risk tolerance, as well as any other factors
pertinent to their specific financial situations. After an analysis of the relevant information, Brightwater
assists its clients in developing an appropriate strategy for managing their assets. Clients’ investment
portfolios are generally managed on a discretionary or non-discretionary basis by Brightwater’s investment
adviser representatives. Brightwater generally allocates clients’ assets among the various investment
products available under the Program, as described further in Item 6 (below).
Fees for Participation in the Program
The Program is offered on a fee basis, meaning participants pay a single annualized fee based upon assets
under management (“Program Fee”).
This Program Fee generally varies between 100 and 150 basis points (1.00 % – 1.50 %) in accordance
with the following blended fee schedule:
PORTFOLIO VALUE BASE FEE
First $500,000 1.50%
Above $500,000 1.00%
The annual fee is prorated and charged quarterly, in advance, based upon the market value of the assets
being managed by Brightwater on the last day of the previous billing period.
If assets in excess of $25,000 are deposited into or withdrawn from an account after the inception of a
billing period, the fee payable with respect to such assets is adjusted to reflect the interim change in
portfolio value. For the initial period of an engagement, the fee is calculated on a pro rata basis. In the
event the Advisory Agreement is terminated, the fee for the final billing period is prorated through the
effective date of the termination and the outstanding or unearned portion of the fee is charged or refunded
to the client, as appropriate.
Fee Comparison
As referenced above, a portion of the fees paid to Brightwater are used to cover certain securities brokerage
commissions and transactional costs attributed to the management of its clients’ portfolios. Services
provided through the Program may cost clients more or less than purchasing these services separately. The
number of transactions made in clients’
accounts, as well as the commissions charged for each transaction,
determines the relative cost of the Program versus paying for execution on a per transaction basis and paying
a separate fee for advisory services. Fees paid for the Program may also be higher or lower than fees charged
by other sponsors of comparable investment advisory programs. Because the Firm pays for the brokerage
fees, the Firm has an incentive to engage in less transactions, or transactions that cost less to the Firm,
including the use of mutual funds that do not have transaction charges, but have higher expenses to the
client. The Firm reviews the frequency and type of investments made in client accounts to act in the client’s
best interest.
Fee Discretion
Brightwater, in its sole discretion, may negotiate to charge a lesser fee based upon certain criteria, such as
anticipated future earning capacity, anticipated future additional assets, dollar amount of assets to be
managed, related accounts, account composition, pre-existing/legacy client relationship, account retention
and pro bono activities.
Other Charges
In addition to the advisory fees paid to Brightwater, clients may also incur certain charges imposed by
other third parties, such as broker-dealers, custodians, trust companies, banks and other financial
institutions. These additional charges may include fees attributable to alternative assets, reporting charges,
margin costs, charges imposed directly by a mutual fund or ETF in a client’s account, as disclosed in the
fund’s prospectus (e.g., fund Program Fees and other fund expenses), fees and commission for assets not
held with Schwab (such as 401(k) or 529 plan assets), deferred sales charges, odd-lot differentials, transfer
taxes, wire transfer and electronic fund fees.
Direct Fee Debit
In addition to the advisory fees paid to Brightwater, clients may also incur certain charges imposed by
other third parties, such as broker-dealers, custodians, trust companies, banks and other financial
institutions. These additional charges may include fees attributable to alternative assets, reporting charges,
margin costs, charges imposed directly by a mutual fund or ETF in a client’s account, as disclosed in the
fund’s prospectus (e.g., fund Program Fees and other fund expenses), fees and commission for assets not
held with the Financial Institutions offered in the Program such as 401(k) or 529 plan assets as well as for
fees for trades executed away from that Financial Institution (a conflict of interest exists where the Firm
avoids expenses by trading through a different Financial Institution), mark-ups and mark-downs on fixed-
income transactions which cannot be paid by the Firm (or it is overly burdensome to determine the
amount of such mark-ups / downs), deferred sales charges, odd-lot differentials, transfer taxes, wire
transfer and electronic fund fees, and other fees and taxes on brokerage accounts and securities
transactions.
Account Additions and Withdrawals
Clients may make additions to and withdrawals from their account at any time, subject to Brightwater’s
right to terminate an account. Additions may be in cash or securities provided that the Firm reserves the
right to liquidate any transferred securities or decline to accept particular securities into a client’s account.
Clients may withdraw account assets on notice to Brightwater, subject to the usual and customary
securities settlement procedures. However, Brightwater designs its portfolios as long-term investments
and the withdrawal of assets may impair the achievement of a client’s investment objectives. Brightwater
may consult with its clients about the options and implications of transferring securities. Clients are
advised that when transferred securities are liquidated, they may be subject to transaction fees, fees
assessed at the mutual fund level (e.g., contingent deferred sales charge) and/or tax ramifications.
Compensation for Recommending the Program
Brightwater has no internal arrangements in place whereby persons recommending the Program are
entitled to receive additional compensation as a result of clients’ participation. A person recommending
the Program will not earn more compensation than he or she would otherwise receive if a client elected
another investment management program.