TD Ameritrade Investment Management, LLC (“TDAIM,” or “we,” “us,” or “our”) provides a variety of goal-planning and advisory services to clients. The advisory services are: i) The TDAIM Core Mutual Fund, Core ETF, Supplemental Income, Opportunistic, and Managed Risk Portfolios services (“Selective Portfolios”) with asset allocation involving ETFs or mutual funds, along with cash and cash alternatives, and are on a discretionary basis; ii) The Essential Portfolios, which use ETFs for investors seeking a primarily online discretionary asset allocation service and iii) The Personalized Portfolios, which offer a more tailored discretionary portfolio service, with the client working with a dedicated TDAIM Portfolio Consultant. The services are described in detail below.
We were formed in November 1997 as PFN Investment Management, LLC. TDAIM operated under the name Amerivest Investment Management, LLC from April 2003 to December 2016. TDAIM is wholly owned by Financial Passport, Inc., which is wholly owned by TD Ameritrade Online Holdings Corp. TD Ameritrade Online Holdings Corp. is a wholly owned subsidiary of TD Ameritrade Holding Corporation. TD Ameritrade, Inc. is a registered broker- dealer that principally provides discount brokerage services (“TD Ameritrade”) and TD Ameritrade Clearing, Inc. (“TDAC”), a registered broker-dealer, is our clearing brokerage firm. On October 6, 2020, TD Ameritrade Holding Corporation became a wholly owned subsidiary of The Charles Schwab Corporation (“CSC”), a publicly traded company. As a result, TDAIM became affiliated with Charles Schwab & Co., Inc. (“CS&Co”) and Charles Schwab Investment Management, Inc. dba Schwab Asset Management (“CSIM”). Any information regarding products or services offered by CS&Co or its affiliates, available or viewable on TDAIM’s websites or other TDAIM media sources, that may be available to TDAIM clients or members of the public, is provided solely for educational purposes only and should not be construed as an offer, solicitation, or recommendation by TDAIM or its affiliates of any products or services offered by CS&Co or its affiliates.
SERVICES PROVIDED TDAIM provides discretionary services known as Selective Portfolios, Essential Portfolios and Personalized Portfolios (collectively known as the “Portfolios”) to retail clients of TD Ameritrade. The services are offered only on a discretionary basis that involves the continuous management of client accounts. As of December 31, 2022, TDAIM was providing discretionary advisory services to clients with approximately $15,827,987,428 in assets. We assume all investment duties with respect to the Portfolios held in the client’s dedicated brokerage account at TD Ameritrade (known as a TD Ameritrade Investing Account) and have discretion with respect to such assets, including the initial allocation and ongoing rebalancing (buy, sell, exchange, or otherwise trade) based upon the client’s selected strategy and according to TDAIM’s investment policy for that strategy. We do not take discretion over assets that are not compatible with the Portfolios.
TDAIM has retained CSIM to provide research and investment consulting services. CSIM does not act in the capacity of adviser to TDAIM clients. TDAIM retains ultimate discretion to accept, modify, or reject CSIM’s recommendations. CSIM tailors its recommendations and research provided to TDAIM based on models and parameters set by TDAIM. CSIM manages over $758 billion of client assets on a discretionary basis. TDAIM has reviewed CSIM’s capabilities and has concluded that CSIM will be able to meet TDAIM’s consulting needs. Pursuant to an agreement between CSIM and TDAIM, CSIM is entitled to receive a fee from TDAIM. CSIM does not enter into agreements directly with the TDAIM advised separately managed accounts (“SMA”) and accordingly does not receive direct compensation from, or negotiate fees with, them.
1. Selective and Essential Portfolios – General Description Essential Portfolios was closed to new investors as of March 11, 2021. Existing investors will continue to be able to change strategies, make deposits and request withdrawals of funds per the terms of their investment management agreement, but can no longer open a new account. Selective Portfolios Managed Risk and Supplemental Income Portfolios were closed to new and existing investors as of April 1, 2022. Existing investors will continue to be able to change strategies, make deposits and request withdrawals of funds per the terms of their investment management agreement, except that existing investors, including Essential Portfolios and Personalized Portfolios, will be permitted to open certain new Selective Portfolios accounts. Selective Portfolios Core Mutual Fund, Core ETF, and Core Opportunistic Portfolios will only be available to existing TDAIM clients.
The Selective and Essential Portfolios discretionary services involve the use of CSIM as a consultant to TDAIM. CSIM services to TDAIM with respect to the Selective and Essential Portfolios include but are not limited to: 1. Leveraging annual Capital Market Expectations that are used to produce strategic asset allocations for each approved model; 2. Recommendation of appropriate mutual funds and exchange-traded funds (“ETFs”) for the various portfolio models; 3. Discussion around periodic tactical changes to the portfolio models based on changing market and economic conditions; 4. Ongoing due diligence of the funds used in the model portfolios and periodic recommendations for adding or removing funds from the models (such as: performance concerns, fund manager departures, market exposures, tactical positioning, etc.); and 5. Production of periodic client-facing marketing materials that typically contain market and portfolio analysis. TDAIM will recommend an appropriate strategy to Selective and Essential Portfolios clients according to the client’s planned funding, investment objectives, risk tolerance, investment time horizon, age (in certain circumstances), employment status, likelihood of significant withdrawals from the account, any supplemental information, and any reasonable restrictions (collectively, “Profile Information”). In any case, TDAIM clients will either enter their Profile Information online or convey it to a TD Ameritrade registered representative (individually known as a Financial Consultant and collectively known as “FCs”). This may involve more extended discussions around goal planning. Changes in the client’s Profile Information may result in a new recommended strategy or strategies. Essential Portfolios clients have little or no assistance from FCs, and then monitor their portfolio electronically through an Internet/mobile application. Clients who enter a relatively short time horizon will receive a relatively conservative portfolio recommendation regardless of their risk tolerance.
If the client wishes to use the Selective Portfolios or Essential Portfolios service, the client must authorize TDAIM to exercise discretionary trading authority over the assets dedicated to the client’s selected strategy, which includes the initial allocation and ongoing rebalancing and portfolio reallocation. The discretionary authority allows TDAIM to buy, sell, or otherwise trade recommended and approved assets in the client’s strategy or previously recommended TDAIM securities without prior client approval of each transaction. We are not authorized to withdraw cash or securities from the client’s account other than in connection with the payment of our advisory fees as described in the Fees and Compensation and Custody sections below.
TDA 4855 03/23Page 2 of 29 TDAIM clients are responsible for any tax liabilities resulting from transactions (including any arising from the addition of assets to or withdrawal of assets from the client’s account). We make no representation regarding the likelihood or probability that any proposed investing plan will in fact achieve a particular investment goal. We are unable to predict or forecast market fluctuations or other uncertainties that may affect the value of any investment. Clients are urged to seek the advice of tax professionals and to use all available resources to educate themselves about investing in general, as well as the investments and the overall portfolio composition suggested by TDAIM. See response below at Methods of Analysis, Investment Strategies, and Risk of Loss of this disclosure brochure.
In order to participate in the Selective Portfolios or Essential Portfolios service, the client needs a TD Ameritrade Investing Account. Clients will be able to invest in one strategy per account and will retain ownership of all cash and securities in their accounts. To the extent that a client decides to implement any TDAIM recommendation through his or her TD Ameritrade brokerage account, TD Ameritrade acts solely as a broker on an unsolicited basis in connection with such transactions and is not acting as an advisor to the client.
In certain circumstances, TDAIM clients will transfer incompatible securities into their TD Ameritrade Investing Account and the following will apply: (i) if a client deposits an incompatible security into a newly funded TD Ameritrade Investing Account, we will not start charging our advisory fee, nor will we commence making investments, until the incompatible security is removed from the account; (ii) if a client deposits an incompatible security into an existing TD Ameritrade Investing Account within 30 days of the account’s initial investments, we will provide a fee credit for the amount of time the incompatible security was held in the TD Ameritrade Investing Account up to and through 30 days after the initial investment; (iii) any incompatible security remaining in or deposited into the TD Ameritrade Investing Account beyond 31 days or more following the initial investment will be considered non-managed and will not disrupt management of the portfolio nor assessment of our advisory fee on the remaining compatible assets in the account. (For example, if an existing client with an initial investment date of July 1 deposits an incompatible security into his/her account on July 15 and the incompatible security remains in the account until August 10, TDAIM will credit back the fees for July 15 through July 31. However, if the incompatible security remains in the account only until July 24 rather than August 10, TDAIM will credit back the fees for July 15 through July 23); and (iv) if the TD Ameritrade Investing Account is restricted (for example on account of an estate issue, a divorce issue, a court order, etc.) TDAIM will provide a fee credit from the time we are notified of the restriction. Further, to the extent the client deposits incompatible securities into its TD Ameritrade Investing Account, TDAIM will not assume discretion as to such securities. The client is required to either sell or transfer the securities promptly. Any client transactions in that regard are the client’s responsibility and not based on any recommendation from us. If the incompatible securities are sold by the client, TD Ameritrade does not charge commissions on equity (exchange-listed US stocks) or ETF (domestic and Canadian) transactions and the sale generally is on an unsolicited basis. Any sale of securities or other assets to fund the client’s TD Ameritrade Investing Account may result in expenses, fees or other charges (such as mutual fund deferred sales charges) as well as tax liabilities. The client is responsible for seeking the advice of a tax professional prior to selling any securities or other assets. In certain circumstances, TDAIM may enter the transactions to implement the client’s selected portfolio using the available cash balance and work with the client to promptly remove the incompatible securities.
In addition to the recommended funds, TDAIM will maintain a portion of the account in cash or cash alternatives. The cash buffer ensures the availability of cash for payment of our fee and provides liquidity to cover potential price changes in market orders. For taxable accounts, the principal sweep vehicle TDAIM uses is an insured deposit account (IDA) held at one or more affiliated and unaffiliated “Program Banks”. Affiliated Program Banks, including Charles Schwab Trust Bank Charles Schwab Bank, SSB and Charles Schwab Premier Bank, SSB, earn income on cash balances. (See Other Financial Industry Activities and Affiliations below.) TD Ameritrade will receive a fee of up to $100 per account from affiliated Program Banks. For unaffiliated Program Banks, TD Ameritrade receives a volume-based fee that ranges from 0.70 to 1.00%. The IDA is insured up to the applicable FDIC limits, but is not eligible for SIPC insurance. In non-taxable accounts, the cash sweep vehicle is a U.S. Government money market fund, the Vanguard Treasury Money Market Fund. Investments in money market funds are subject to restrictions, charges, and expenses described in the prospectus. Money market funds are securities that may increase or decrease in value. They are not insured or guaranteed by the FDIC, any government agency, TDAIM or its affiliates, and there can be no assurance that such funds will be able to maintain a stable net asset value of $1 per share. Clients will receive periodic statements for sweep transactions involving money market funds in lieu of immediate confirmations. TDAIM’s advisory fee applies to the portion of the account maintained in cash. If you decide to leave cash or cash alternatives in the account that are not managed by TDAIM, you are not charged a fee until they are invested in the portfolio. (See Fees and Compensation below.) TD Ameritrade Investing Accounts are opened as cash accounts rather than margin accounts and margin is not available. In addition, we generally do not allow clients to fund their TD Ameritrade Investing Accounts with cash borrowed from a margin account, whether from another TD Ameritrade brokerage account or an unrelated broker dealer account.
a. Selective Portfolios Using Mutual Fund Investments i. Selective Core Mutual Fund Portfolios Details Asset allocations for the Selective Core Mutual Fund Portfolios are constructed in consultation with CSIM. The Selective Core Mutual Fund Portfolios use mutual funds as the primary investment vehicles. The portfolio models are: Conservative, Moderate, Moderate Growth, Growth, and Aggressive. The service allocates assets among domestic equity, international, specialty, and fixed-income mutual funds. Selective Core Mutual Fund Portfolios positions are intended to be long-term investments (a minimum investment time horizon of one year) consisting primarily of approximately 20-30 mutual funds with the balance consisting of cash and cash alternatives. The actual portfolio allocations will from time to time differ from the target allocations as a result of market movements, rebalancing tolerances or TDAIM’s adjustments. The cash will be held in a designated cash sweep vehicle. The underlying mutual funds may also contain residual or strategic cash positions.
ii. Selective Supplemental Income Portfolios Details The Selective Supplemental Income Portfolios service uses mutual funds as the primary investment vehicles and pursues an asset allocation strategy. The Supplemental Income Portfolios are generally for more conservative investors who may want supplemental income for retirement or other purposes or as a compliment to other investment strategies with a secondary goal of growth. Due to the conservative nature of the portfolios, TDAIM has created only two models: Conservative and Moderate. The models allocate assets among domestic equity, international, specialty, and fixed- income mutual funds with a focus on investing in income generating securities.
The Supplemental Income Portfolios positions are intended to be long-term investments (a minimum investment time horizon of one year) consisting primarily of approximately 10-20 mutual funds with the balance consisting of cash and cash alternatives. The actual portfolio allocations will from time to time differ from the target allocations as a result of market movements, rebalancing tolerances or TDAIM’s adjustments. The cash will generally be held in a designated cash sweep vehicle. The underlying mutual funds may also contain a residual or strategic cash position.
TDA 4855 03/23Page 3 of 29 The Supplemental Income portfolios offer investment strategies designed to provide both income and total returns while limiting your exposure to volatility. The portfolios are not cash vehicles, cash alternatives, or money market funds and are not for short-term investing (less than one year) and should not be viewed or used for these objectives. The Supplemental Income Portfolios hold equity and bond mutual funds that have risks inherent to investing in these securities, including market and credit risk, and possible loss of value as described in the Methods of Analysis, Investment Strategies, and Risk of Loss section below.
iii. Asset Allocations Pursuant to an agreement CSIM provides asset allocation, fund selection and other services to TDAIM for its portfolios.
The TDAIM asset allocation methodology is based on risk and return parameters relying on historic, current, and forecasted data and on implied risk and return estimates. The Selective Portfolios using mutual fund asset allocations use a strategic asset allocation approach that is value driven. They generally consist of broadly diversified asset allocations that TDAIM will reassess at least annually or more frequently as warranted by market conditions.
TDAIM will strive to meet the asset allocation targets as closely as possible while accounting for fund-specific attributes. However, the actual allocations will fluctuate (for example, in response to changing market conditions). That is because of the nature of mutual fund investment activity and changes in the underlying holdings. In addition, the allocations are subject to change without notice.
iv. Mutual Fund Recommendations CSIM provides TDAIM with mutual fund investment recommendations and quarterly strategy evaluations for the Selective Portfolios. CSIM reassessed the model portfolios quarterly (or more frequently as warranted by market conditions) and provided us with recommended updates to them.
The TDAIM fund universe includes the mutual funds available on the TD Ameritrade platform. The funds are carefully screened and analyzed by TDAIM using a set of qualitative and quantitative factors including but not limited to risk-adjusted performance, variance of returns, tax efficiency, expenses (including as to different expense levels associated with different mutual fund share classes), style consistency, and style purity. TDAIM will have a primary mutual fund and where possible at least one alternate mutual fund for each asset class in consideration of client-initiated investment restrictions. TDAIM periodically will review the funds used and the asset allocations made in the Selective Portfolios service.
TDAIM will attempt to obtain waivers of short-term redemption fees and purchase minimums where possible, as well as access to lower expense share classes, where available. We will attempt to ensure that the lowest expense share class available to our clients on the TD Ameritrade platform is being selected. If a selected mutual fund has a lower expense share class that is available to TDAIM clients, we will select it for use in the Selective Portfolios, so long as we determine the share class is suitable for our clients. TDAIM and TD Ameritrade do not accept 12b-1 fees, other service- related fees, or revenue sharing payments from the mutual fund companies or funds utilized in our advisory service on fund assets held in the Selective Portfolios. TD Ameritrade and our other affiliates may receive compensation from mutual fund companies or funds utilized in the advisory service on assets held outside of the Selective Portfolios, but that compensation does not influence TDAIM’s recommendations.
We may accept and use a compatible mutual fund in the client’s portfolio, even if the mutual fund share is of a different share class than the share class of the mutual fund approved for use in the Selective Portfolios service. For example, if a client transfers in a retail share class mutual fund and TDAIM uses a lower expense share class of the same mutual fund, we may retain the retail share class of the mutual fund in the client’s portfolio. Accepting the retail share class mutual fund will benefit clients as they will be able to invest in their portfolio more quickly. In addition, it may help reduce potential tax liabilities from selling the retail class shares and then buying the lower expense share class. TDAIM will review client accounts that transferred in different share classes of compatible mutual funds and will convert share classes to the approved share class where we believe doing so would be beneficial to the client (for example to help lower the client’s expenses). Share class conversions do not create taxable events. The limitations on compatible mutual funds contained in this paragraph apply to both initial and subsequent contributions. TDAIM will assume discretion as to the compatible mutual funds, and the client acknowledges that all or a portion of the contributed mutual funds may be sold, either initially or during the course of management of his or her strategy.
The dividends and capital gains from the mutual funds generally will be reinvested. However, clients will have the option to request systematic withdrawals including dividend and interest disbursements. Requests for systematic withdrawals that may invade principal by going beyond dividend and interest income will be reviewed and we reserve the right to not accept the request.
Furthermore, if the client’s account falls below the approved account minimum as a result of taking systematic withdrawals, the client acknowledges that TDAIM retains the right to cancel the client’s systematic withdrawal request. If the market value of a client’s account falls below the minimum for his or her strategy due to him or her withdrawing assets from the account, or otherwise falls significantly below the specified minimum to a level where TDAIM believes the account can no longer be managed in accordance with its investment strategy, TDAIM may require the client to deposit additional money to bring the account up to the required minimum, and we reserve the right to discontinue the advisory relationship and transfer the securities into a like-titled brokerage account with TD Ameritrade. Mutual funds can provide a diversified portfolio that may limit exposure to large price fluctuations of individual stocks or bonds. Mutual funds do not provide complete protection from price volatility in the event of broad market declines, however, and individual securities may outperform mutual funds.
v. Placement of Trades In order to begin placing trades for a client’s account, the client’s TD Ameritrade Investing Account application (including related forms) and other required paperwork must first be received and approved. Next, after the client deposits cash in their TD Ameritrade Investing Account in the amount at or above the threshold specified in the TDAIM Service Agreement, the recommended trades will be placed in the account during the next trading window (TDAIM intends to enter the transactions with TDAC, an affiliate, at approximately the same time every business day on which securities markets are open, but reserves the right to change the time when appropriate. The orders will be executed at the end of the day).
trading volume we reserve the right to open an additional or earlier trading window or multiple trading windows over consecutive trading days. We clients do not wish to wait for the next scheduled daily trading window and we determine it is not to the benefit of the clients to enter the orders on an individual account basis. TDAIM will make reasonable efforts to place trades within intended trading windows; however, due to a number of potential factors, trades may be placed during later trading windows.
Since mutual funds trade at a daily NAV, clients participating in the daily trading windows will receive the same average price for that day.
TDA 4855 03/23Page 4 of 29 b. Selective Portfolios Using ETF Investments i. Selective Core ETF Portfolios Details The Selective Core ETF Portfolios are similar to the Selective Core Mutual Fund Portfolios as to asset allocations but use ETFs as the primary investment vehicle. The Selective Core ETF Portfolios are designed for clients who are concerned more about costs and tax efficiency than about accessing actively managed mutual funds. ETFs generally seek to match the performance of a specific market index, asset class, or sector. They usually have lower annual expenses than mutual funds as they require little if any manager oversight (passively managed). They generally are more tax-efficient than mutual funds.
Similar to the Selective Core Mutual Fund Portfolios, asset allocations for the Selective Core ETF Portfolios are constructed in consultation with CSIM. The ETF portfolio models are called: Conservative, Moderate, Moderate Growth, Growth, and Aggressive. In each model, the service allocates assets among domestic equity, international, specialty, and fixed-income ETFs. Selective Core ETF Portfolio positions are intended to be long-term investments (a minimum investment time horizon of one year) consisting primarily of approximately 15-25 ETFs with the balance consisting of cash and cash alternatives. The actual portfolio allocations will from time to time differ from the target allocations as a result of market movements, rebalancing tolerances or TDAIM’s adjustments. The cash will be held in a designated cash sweep vehicle. For information about TDAIM’s tax loss harvesting feature in regard to its Selective ETF Portfolios, see subsection e. below.
ii. Opportunistic Portfolios Details The Opportunistic Portfolios seek long-term growth with a more tactically managed investment approach. They are designed for clients who may be more aggressive investors or prefer a more active portfolio as a complement to other investment strategies.
Unlike the portfolios described above that use a strategic asset allocation method, the Opportunistic Portfolios use a tactical investment approach with an additional equity sector rotation strategy. Strategic asset allocations generally consist of broadly diversified asset allocations that are reassessed at least monthly. The Opportunistic Portfolios use a tactical asset allocation method with more defined asset classes, and generally involve a more active portfolio management strategy to pursue short-term opportunities in different sectors or countries based on changes in the market.
Similar to the strategic portfolios, the Opportunistic Portfolios utilize diversified asset allocations including asset classes, such as domestic equity, international, alternative, and fixed income. However, since the Opportunistic Portfolios have a tactical investment approach, there is a wider diversity of asset classes with industry sectors compared to the strategic portfolios. The expanded asset classes allow for tactical shifts (reallocating). This allows for reallocating assets into sectors with potential larger returns and decreasing assets in sectors with lower potential opportunities. The goal of a tactical portfolio is to outperform relative to a comparison benchmark.
Due to the more aggressive nature of the portfolios, TDAIM has created only two models: Moderate Growth and Aggressive. The portfolios are typically expected to be rebalanced or reallocated monthly. Since strategies using a tactical approach have more frequent trading, they may also have greater tax implications for taxable portfolios.
The Opportunistic Portfolios use ETFs as the primary investment vehicle. Opportunistic Portfolio positions consist primarily of approximately 20-30 ETFs with the balance consisting of cash and cash alternatives. The actual portfolio allocations will from time to time differ from the target allocations as a result of market movements, rebalancing tolerances or TDAIM’s adjustments. There is one primary ETF recommended for each asset class. The cash will be held in a designated cash sweep vehicle.
iii. Asset Allocations Pursuant to an agreement, CSIM provides asset allocation, fund selection and other services to TDAIM. The Selective Core ETF Portfolios asset allocation methodology is based on risk and return parameters relying on historic, current, and forecasted data, and on implied risk and return estimates. The Selective Core ETF Portfolios asset allocations use a strategic asset allocation approach that is value driven and generally consist of broadly diversified asset allocations that will be reassessed at least monthly.
With the Opportunistic Portfolios, TDAIM performs a qualitative calculation which is a fundamental analysis of the global markets. Next, it performs qualitative calculations to determine the momentum/volatility of the whole equity market and each asset class. Finally, it reviews the fundamental dynamic asset allocation, which determines the overall equity and fixed income changes. The calculations produce the adjustments to the portfolios. TDAIM will perform monthly strategy evaluations including reviewing the asset allocations and ETFs utilized. TDAIM will have a primary ETF and where possible at least one alternate/replacement ETF for each asset class in consideration of, among other things, tax-loss harvesting and client- initiated investment restrictions.
The process TDAIM uses to select ETFs is similar to that for mutual funds. TDAIM analyzes the ETFs available through TD Ameritrade. In making the ETF recommendations, however, TDAIM puts a greater focus on evaluating the particular risk characteristics of ETFs (such as trading volume, liquidity, and discounts). TDAIM also spends time determining how best to combine ETFs, as their strategies can be much more narrowly focused than mutual funds and may offer less asset class coverage. TDAIM and TD Ameritrade do not accept 12b-1 fees, other service-related fees, or revenue sharing payments from the fund companies or funds utilized in our advisory service or ETF assets held in the Essential Portfolios. TD Ameritrade and our other affiliates might receive compensation from ETFs utilized in the advisory service on assets held outside of the Essential Portfolios, but that compensation does not influence TDAIM’s recommendations.
TDAIM may in its discretion accept ETFs owned by the client into his or her TD Ameritrade Investing Account if the ETFs are considered compatible with his or her strategy. We reserve the right to accept and utilize in the client’s portfolio ETFs that were previously recommended by us. This may result in TDAIM maintaining different sets of ETFs in client portfolios. For example, if a client was in a self-directed portfolio and switched to a Selective Core ETF Portfolio and moved compatible ETFs from his self-directed portfolio to the new Core ETF Portfolio, TDAIM may retain the ETFs if they are valid for the new portfolio even though the ETF may not be the number one ranked ETF for the asset class. Maintaining the ETFs in the new Core ETF Portfolio may be a benefit to the client as it may reduce potential tax liabilities. The limitations on compatible ETFs contained in this paragraph apply to both initial and subsequent contributions. We will assume discretion as to the compatible and previously recommended ETFs, and the client acknowledges that all or a portion of the contributed ETFs may be sold, either initially or in the course of management of his or her strategy. TDA 4855 03/23Page 5 of 29 iv. ETF Transactions In order to begin placing trades for a client’s account, the client’s TD Ameritrade Investing Account application (including related forms) and other required paperwork must first be received and approved. Next, after the client deposits cash in their TD Ameritrade Investing Account in the amount at or above a certain threshold specified in the TDAIM Service Agreement, the recommended trades will be placed in the account during the next trading window. (TDAIM intends to enter the transactions with TD Ameritrade at approximately the same time every business day on which securities markets are open, but reserves the right to change the time when appropriate). We generally trade in full shares of ETFs. However, depending on the value of your TD Ameritrade Investing Account and the price of the ETFs, we may allocate fractional shares of ETFs to your account to help your portfolio maintain positions closer to the recommended target allocation. We will aggregate orders of recommended purchases and sells and enter the orders with TDAC. (See response below at Brokerage Practices of this disclosure brochure.) However, in certain market conditions such as: 1) significant market losses or gains (generally based on important economic news), or 2) significant trading volume, we reserve the right to open an additional or earlier trading window or multiple trading windows over consecutive trading days. We also reserve the right to open an additional trading window if there is a considerable amount of client-initiated requests to liquidate positions and the clients do not wish to wait for the next scheduled daily trading window and we determine it is not to the benefit of the clients to enter the orders on an individual account basis. These orders will be aggregated and will receive an average price that is separate from the regular daily trading job. We also reserve the right to execute ETF transactions using market orders per client request or if extenuating circumstances lead to an account missing a trading window. For example, when a client requests an immediate liquidation and distribution from an account after the daily trading window has closed and before the next trading day. TDAIM will make reasonable efforts to place trades within intended trading windows; however, due to a number of potential factors, trades may be placed during later trading windows.
In addition, the dividends from the ETFs generally will not be reinvested and clients will have the option to request systematic withdrawals including dividend disbursements. However, requests for systematic withdrawals that may invade principal will be reviewed and we reserve the right to not accept the request. Furthermore, if the client’s account falls below the approved account minimum as a result of taking systematic withdrawals, the client acknowledges that TDAIM retains the right to cancel the client’s systematic withdrawal request. If the market value of a client’s account falls below the minimum for his or her strategy due to him or her withdrawing assets from the account, or otherwise falls significantly below the specified minimum to a level where TDAIM believes the account can no longer be managed in accordance with its investment strategy, TDAIM may require the client to deposit additional money to bring the account up to the required minimum, and we reserve the right to discontinue the advisory relationship and transfer the securities into a like-titled brokerage account with TD Ameritrade. ETFs can provide a diversified portfolio. However, ETFs are subject to risk similar to those of stocks. Portfolio investment returns will fluctuate and are subject to market volatility.
c. Managed Risk Portfolio i. Details The Managed Risk Portfolio service uses mutual funds as the primary investment vehicles. The asset allocations and mutual fund selections by TDAIM are constructed in consultation with CSIM. The portfolio is designed for investors seeking relatively consistent growth and preservation of capital rather than maximization of returns.
The Managed Risk Portfolio service seeks to limit portfolio volatility in an effort to provide protection against declines in the equity markets. The service seeks to pursue this goal by investing in selected mutual funds that, when combined in a single portfolio, are expected to provide the desired volatility characteristics and return expectations. The service seeks to provide diversified exposures across asset classes, geographies, economic sectors, and time horizons. The service is not designed to outperform stocks and bonds in strong markets. There is no guarantee the underlying mutual funds will achieve positive returns or that the service’s objectives will be achieved.
The strategy seeks mutual funds that directly or indirectly (as through other mutual funds) invest in a variety of exchange traded financial instruments, including but not limited to: 1. Stocks 2. Bonds 3. Commodities 4. Derivatives 5. Cash The strategy may also use a wide variety of mutual funds that use nontraditional investment strategies, including but not limited to the following: 1. Long-only 2. Long-short 3. Merger Arbitrage 4. Convertible Arbitrage 5. Tactical asset allocation 6. Managed Futures 7. Multistrategy 8. Commodities 9. Multisector fixed income 10. Risk parity TDA 4855 03/23Page 6 of 29 The Managed Risk Portfolio service is intended for long-term investors (a minimum investment time horizon of one year). The portfolio will consist primarily of between 5 and 15 mutual funds, with the balance consisting of cash and cash alternatives. The actual portfolio allocations will from time- to-time differ from the target allocations as a result of market movements or TDAIM’s adjustments. The cash will be held in a designated cash sweep vehicle. The underlying mutual funds may also contain a residual or strategic cash position. Some of the mutual funds used in the portfolio will invest in affiliated funds rather than underlying individual securities. Some of mutual funds the portfolio invests in will be “non-diversified”. That means they may invest in a small number of issuers, sectors, or locations, making them more susceptible to risks affecting such areas of concentration than a more diversified fund might be.
The Managed Risk Portfolio service is not a cash vehicle, cash alternative, or money market fund equivalent and is not for short-term investing (less than one year). It should not be viewed as similar to or used for these objectives.
The mutual funds used in the Managed Risk Portfolio service invest in securities (including mutual funds) and strategies with inherent risks, including market, credit, geographical, and derivatives risk. The mutual funds entail possible loss of value as described in the Methods of Analysis, Investment Strategies, and Risk of Loss section below. ii. Asset Allocations Pursuant to an agreement CSIM provides asset allocation, fund selection and other services to TDAIM for the Managed Risk Portfolios. As described above, the Managed Risk Portfolio service uses an “absolute return” strategy designed to limit volatility and provide diversified exposure across geographies, sectors, and time horizons. The strategy seeks mutual funds with a lower correlation to the equity market (funds that do not move in lockstep with the market). Combining funds that perform differently than the market may help to boost overall (absolute) returns while reducing risk. TDAIM will have a primary mutual fund and where possible at least one alternate mutual fund for each asset class in consideration of client-initiated investment restrictions.
iii. Mutual Fund Recommendations CSIM provides TDAIM with initial mutual fund investment recommendations and quarterly strategy evaluations for the portfolios. The TDAIM fund universe includes the mutual funds available on the TD Ameritrade platform. The funds are carefully screened and analyzed using a set of qualitative and quantitative factors including but not limited to risk adjusted performance, variance of returns, tax efficiency, expenses (including as to different expense levels associated with different mutual fund share classes), style consistency, and style purity.
TDAIM will attempt to obtain waivers of short-term redemption fees and purchase minimums where possible, as well as access to lower expense share classes, where available. We will attempt to ensure that the lowest expense share class available to our clients on the TD Ameritrade platform is being selected. If a selected mutual fund has a lower expense share class that is available to our clients, we will select it for use in the portfolios, so long as we determine the share class is suitable for our clients. TDAIM and TD Ameritrade do not accept 12b-1 fees, other service-related fees, or revenue sharing payments from the mutual fund companies or funds utilized in our advisory service. TD Ameritrade and our other affiliates may receive compensation from mutual fund companies or funds utilized in the advisory service on assets held outside of the Managed Risk Portfolio but that compensation does not influence TDAIM’s recommendations.
We may accept and use a compatible mutual fund in the client’s portfolio, even if the mutual fund share is of a different share class than the share class of the mutual fund approved for use in the Selective Portfolios service. For example, if a client transfers in a retail share class mutual fund and TDAIM uses a lower expense share class of the same mutual fund, we may retain the retail share class of the mutual fund in the client’s portfolio. Accepting the retail share class mutual fund will benefit clients as they will be able to invest in their portfolio more quickly. In

addition, it may help reduce potential tax liabilities from selling the retail class shares and then buying the lower expense share class. TDAIM will review client accounts that transferred in different share classes of compatible mutual funds and will convert share classes to the approved share class where we believe doing so would be beneficial to the client (for example to help lower the client’s expenses). Share class conversions do not create taxable events. The limitations on compatible mutual funds contained in this paragraph apply to both initial and subsequent contributions. TDAIM will assume discretion as to the compatible mutual funds, and the client acknowledges that all or a portion of the contributed mutual funds may be redeemed, either initially or during the course of management of his or her strategy.
The dividends and capital gains from the mutual funds generally will be reinvested. However, clients will have the option to request systematic withdrawals including dividend and interest disbursements. Requests for systematic withdrawals that may invade principal by going beyond dividend and interest income will be reviewed and we reserve the right to not accept the request.
Furthermore, if the client’s account falls below the approved account minimum as a result of taking systematic withdrawals, the client acknowledges that TDAIM retains the right to cancel the client’s systematic withdrawal request. If the market value of a client’s account falls below the minimum for his or her strategy due to him or her withdrawing assets from the account, or otherwise falls significantly below the specified minimum to a level where TDAIM believes the account can no longer be managed in accordance with its investment strategy, TDAIM may require the client to deposit additional money to bring the account up to the required minimum, and we reserve the right to discontinue the advisory relationship and transfer the securities into a like-titled brokerage account with TD Ameritrade. Mutual funds can provide a diversified portfolio that may limit exposure to large price fluctuations of individual stocks or bonds. Mutual funds do not provide complete protection from price volatility in the event of broad market declines, however, and individual securities may outperform mutual funds. iv. Placement of Trades In order to begin placing trades for a client’s account, the client’s TD Ameritrade Investing Account application (including related forms) and other required paperwork must first be received and approved. Next, after the client deposits cash in their TD Ameritrade Investing Account in an amount at or above a certain threshold specified in the TDAIM Service Agreement, the recommended trades for the portfolios will be placed in the account during the next trading window (TDAIM intends to enter the transactions with TD Ameritrade at approximately the same time every business day on which securities markets are open, but reserves the right to change the time when appropriate. The orders will be executed at the end of the day).
TDA 4855 03/23Page 7 of 29 trading volume, we reserve the right to open an additional or earlier trading window or multiple trading windows over consecutive trading days. We clients do not wish to wait for the next scheduled daily trading window and we determine it is not to the benefit of the clients to enter the orders on an individual account basis. TDAIM will make reasonable efforts to place trades within intended trading windows; however, due to a number of potential factors, trades may be placed during later trading windows.
Since mutual funds trade at a daily NAV, clients participating in the daily trading windows will receive the same average price.
d. Essential Portfolios – General Description i. Details Essential Portfolios was closed to new investors as of March 11, 2021. Existing investors will continue to be able to change strategies, make deposits and request withdrawals of funds per the terms of their investment management agreement but are no longer able to open a new Essential Portfolio account as of April 1, 2022. The Essential Portfolios are a discretionary advisory service and are offered electronically via the Internet as the primary channel of interaction with TDAIM and may be referred to as a robo-advisory service. Accordingly, Essential Portfolios clients need Internet access for activities such as monitoring their portfolio, updating their Profile Information, conducting cash and securities transfers, and communicating with the Essential Portfolios specialists. Essential Portfolios clients agree to receive notices including disclosure brochures, regulatory communications, and other materials electronically in lieu of paper communications. The communications will be delivered electronically to the email address provided on the client’s TD Ameritrade Investing Account application. The Essential Portfolios service uses ETFs as the sole investment vehicles. ETFs generally seek to match the performance of a specific market index, asset class, or sector. They usually have lower annual expenses than mutual funds as they require little if any manager oversight (passively managed). They generally are more tax-efficient than mutual funds.
The Essential Portfolios are based on asset allocations and fund selections constructed in consultation with CSIM. The portfolio models are: Conservative, Moderate, Moderate Growth, Growth, and Aggressive. A Socially-Aware version of the portfolio models is also available to clients. With the Socially-Aware portfolio models, the equity allocation utilizes ETFs that track companies that have positive environmental, social, and governance characteristics. The ETFs utilized for the fixed income allocation for all Essential Portfolios models are the same. They generally will not reflect environmental, social, and governance characteristics as there are relatively few such fixed income ETFs. In each model, the service allocates assets among domestic equity, international equity, emerging markets, domestic, and international fixed income ETFs. TDAIM will recommend one ETF for each of the 6-10 asset classes, with the balance consisting of cash and cash alternatives. In comparison, the Selective Core ETF Portfolios utilize additional asset classes and consist of approximately 15-25 ETFs. The Essential Portfolios are intended to be long-term investments (a minimum investment time horizon of one year). The actual portfolio allocations will time to time differ from the target allocations as a result of market movements or TDAIM’s adjustments. The cash will be held in a designated cash sweep vehicle.
ii. Asset Allocations Pursuant to an agreement, CSIM provides asset allocation, fund selection and other investment services to TDAIM.
TDAIM’s Essential Portfolios asset allocation methodology is based on risk and return parameters relying on historic, current, and forecasted data, and on implied risk and return estimates. The asset allocations use a strategic asset allocation approach that is value driven and generally consist of broadly diversified asset allocations that TDAIM will reassess at least annually or more frequently as warranted by market conditions. TDAIM will have a primary ETF and if possible at least one alternate/replacement ETF for each asset class in consideration of, among other things, tax-loss harvesting and client-initiated investment restrictions.
The process TDAIM uses to select ETFs is similar to the one it uses for mutual funds. TDAIM analyzes the ETFs available through TD Ameritrade. In making the ETF recommendations, however, TDAIM puts a greater focus on evaluating the particular risk characteristics of ETFs (such as trading volume, liquidity, and discounts). TDAIM also spends time determining how best to combine ETFs, as their strategies can be much more narrowly focused than mutual funds and may offer less asset class coverage. TDAIM and TD Ameritrade do not accept 12b-1 fees, other service-related fees, or revenue sharing payments from the fund companies or funds utilized in our advisory service or ETF assets held in the Essential Portfolios. TD Ameritrade and our other affiliates might receive compensation from ETFs utilized in the advisory service on assets held outside of the Essential Portfolios, but that compensation does not influence TDAIM’s recommendations.
TDAIM may in its discretion accept ETFs owned by the client into his or her TD Ameritrade Investing Accounts if the ETFs are compatible with his or her strategy. We reserve the right to accept and utilize in the client’s portfolio ETFs that were previously recommended by us. This may result in TDAIM maintaining different sets of ETFs in client portfolios. For example, if a client was in a self-directed portfolio and switched to an Essential Portfolio and moved compatible ETFs from a self-directed portfolio to the new Essential Portfolio, TDAIM may retain the ETFs if they are valid for the new portfolio even though the ETF may not be the number one ranked ETF for the asset class. Maintaining compatible ETFs in the new Essential Portfolio may be a benefit to the client as it may reduce potential tax liabilities. The limitations on compatible ETFs contained in this paragraph apply to both initial and subsequent contributions. We will assume discretion as to the compatible ETFs, and the client acknowledges that all or a portion of the contributed ETFs may be sold, either initially or in the course of management of his or her strategy. iii. ETF Transactions In order to begin placing trades for a client’s Essential Portfolio, the client’s TD Ameritrade Investing Account application (including related forms) and other required forms must first be received and approved. Next, after the client deposits cash in their TD Ameritrade Investing Account in the amount at or above a certain threshold specified in the TDAIM Service Agreement, the recommended trades will be placed in the account during the next trading window. (TDAIM intends to enter the transactions with TD Ameritrade at approximately the same time every business day on which securities markets are open, but reserves the right to change the time when appropriate). We generally trade in full shares of ETFs. However, depending on the value of your TD Ameritrade Investing Account and the price of the ETFs, we may allocate fractional shares of ETFs to your account to help your portfolio maintain positions closer to the recommended target allocation. We will aggregate orders of recommended purchases and sells and enter the orders with TDAC. (See response below at Brokerage Practices of this disclosure brochure.) TDA 4855 03/23Page 8 of 29 trading volume, we reserve the right to open an additional or earlier trading window or multiple trading windows over consecutive trading days. We clients do not wish to wait for the next scheduled daily trading window and we determine it is not to the benefit of the clients to enter the orders on an individual account basis. These orders will be aggregated and will receive an average price that is separate from the regular daily trading job. We also reserve the right to execute ETF transactions using market orders per client request or extenuating circumstances lead to an account missing a trading window. For example, when a client requests an immediate liquidation and distribution from an account after the daily trading window has closed and before the next trading day. TDAIM will make reasonable efforts to place trades within intended trading windows; however, due to a number of potential factors, trades may be placed during later trading windows.
In addition, the dividends from the ETFs generally will not be reinvested and clients will have the option to request systematic withdrawals including dividend disbursements. However, requests for systematic withdrawals that may invade principal will be reviewed and we reserve the right to not accept the request. Furthermore, if the client’s account falls below the approved account minimum as a result of taking systematic withdrawals, the client acknowledges that TDAIM retains the right to cancel the client’s systematic withdrawal request. If the market value of a client’s account falls below the minimum for his or her strategy due to him or her withdrawing assets from the account, or otherwise falls significantly below the specified minimum to a level where TDAIM believes the account can no longer be managed in accordance with its investment strategy, TDAIM may require the client to deposit additional money to bring the account up to the required minimum, and we reserve the right to discontinue the advisory relationship and transfer the securities into a like-titled brokerage account with TD Ameritrade. ETFs can provide a diversified portfolio. However, ETFs are subject to risk similar to those of stocks. Portfolio investment returns will fluctuate and are subject to market volatility.
e. Tax-Loss Harvesting TDAIM offers a tax-loss harvesting (“TLH”) feature. It is a strategy designed to help manage your portfolio in a tax-efficient manner by seeking to lower your taxes by selling securities at a loss to offset potential capital gains. Tax-loss harvesting is not appropriate for all investors. It generally is more beneficial to investors in higher tax brackets and high tax states. For more information, please see our whitepaper at https://www.tdameritrade.com/ investment-guidance/investment-management-services/tax-loss-harvesting/tax-loss-harvesting-wash-sales.page.
The TLH feature is currently only available in taxable accounts utilizing the Essential Portfolios or Selective Portfolios services, which use ETFs as the investments, and in certain Personalized Portfolios. In addition, accounts with certain investment restrictions are not eligible for the TLH feature.
For clients who have enrolled in the TLH feature, generally each trading day TDAIM will attempt to review your account for any ETFs that have unrealized losses. Specifically, we look at the individual tax lot to identify investment losses meeting or exceeding a specified loss threshold and dollar amount. If these thresholds are met, that tax lot will be sold. To replace the sold security, we will attempt to buy shares of a replacement security if there is a replacement security available that fits your portfolio’s asset allocation and risk characteristics and itself is not subject to the 30 day wash sale period. TDAIM does not represent or guarantee that the objectives of the TLH feature will be met or that a replacement security will be available when a tax lot is sold. In some instances with the Socially-Aware portfolio models, the availability of a replacement security with the appropriate environmental, social governance characteristics will be limited. In these instances, TDAIM generally utilizes non-socially aware ETFs as a replacement and then rebalance back into the primary ETFs after the wash sale period has passed. Wash sales, missed tax-loss events, excess cash or inadvertent gains may be generated. The performance of the replacement security may be better or worse than the performance of the security that is sold for tax-loss harvesting purposes. TDAIM will execute the tax-loss harvesting trades on a best efforts basis as there are situations when we are unable to harvest losses due to possible wash sale avoidance or to avoid excess cash in the portfolio. In addition, during volatile markets, small gains may be harvested as the price of the security being sold for a loss may move between the time of the TLH calculations and the scheduled daily trading job. When you enroll in the tax-loss harvesting feature, the enrollment is on an account basis and does not apply to other TDAIM portfolios you may have.
TDAIM and its affiliates do not provide tax advice. We suggest you consult a tax-planning professional with regard to your personal circumstances as to whether the TLH feature is appropriate for you. You should educate yourself regarding the Internal Revenue Service (“IRS”) wash sale rule. The IRS identifies the specifics of this rule in IRS Publication 550. In brief summation, the IRS established the wash sale rule to limit an investor’s ability to claim a tax loss. If you do not have any capital gains or you have more losses than gains, you can use up to $3,000 of investment losses to offset your income.
The IRS prohibits an investor from claiming a tax loss if an investor repurchases the same security (or a substantially similar security) either 30 days before OR 30 days after selling a security for a loss. To evaluate whether an investor violated the wash sale rule or not, the entire trading activity of an investor must be reviewed. Our TLH feature is only available on an account basis and does not apply to other TDAIM portfolios you may have. Each eligible TDAIM portfolio must be enrolled separately in the TLH feature. Accordingly, we do not base tax loss situations on activity that happens in your other TDAIM portfolios or any other brokerage account. So it is important to review all your taxable and non-taxable accounts including your spouse’s accounts and accounts of business entities controlled by you to determine if you run the risk of violating the wash sale rule. The wash sale rule postpones losses on a sale, if replacement shares are bought around the same time. f. Drift-Based Rebalancing Depending on your selected model, there will generally be an annual, quarterly or monthly rebalancing of your portfolio along with automatic drift- based rebalancing designed to keep the portfolio close to its target allocations during higher market volatility.
Through natural market movements, a security may drift from its target allocation. Drift-based rebalancing is designed to automatically bring an allocation back to its target allocation. When certain parameters are triggered, a rebalance occurs to bring the security back to its target allocation and reallocate/rebalance across the portfolio.
TDA 4855 03/23Page 9 of 29 2. Personalized Portfolios – General Description Personalized Portfolios are closed to new and existing investors as of April 1, 2022. Existing investors will continue to be able to change strategies, make deposits and request withdrawals of funds per the terms of their investment management agreement but can no longer open an additional account. The Personalized Portfolios discretionary service involved the use of CSIM as an investment consultant to TDAIM. CSIM services to TDAIM with respect to the Personalized Portfolios include but are not limited to: 1. Leveraging annual Capital Market Expectations that are used to produce strategic asset allocations for each approved model; 2. Recommendation of appropriate mutual funds and ETFs for the various portfolio models, 3. Discussion around periodic tactical changes to the portfolio models based on changing market and economic conditions; 4. Ongoing due diligence of the funds used in the model portfolios and periodic recommendations for adding or removing funds from the models (such as: performance concerns, fund manager departures, market exposures, tactical positioning, etc.); and 5. Production of periodic client-facing marketing materials that typically contain market and portfolio analysis.
TDAIM will recommend an appropriate long-term asset allocation strategy to Personalized Portfolios clients according to the client’s planned funding, investment objectives, risk tolerance, investment time horizon, age (in certain circumstances), employment status, likelihood of significant withdrawals from the account, any supplemental information, and any reasonable restrictions (collectively, “Profile Information”). In any case, TDAIM clients will convey their Profile Information to an FC who will help prospects become TDAIM clients. Then the FC will forward the client’s Profile Information to a TDAIM Portfolio Consultant (“PC”) to have more extended discussions around goal planning. The PC will work with the client to build a tailored portfolio based on the client’s Profile Information. The client will be recommended a Strategy (Core, Tax-Aware, Socially Aware, etc.) using a combination of ETFs, mutual funds and/or SMAs. However, after further discussing their needs with a PC, the PC may recommend another strategy that may be more appropriate for the client because of client imposed investment restrictions, client preferences, or management style. The other strategies include, but are not limited to, Tax-Aware, Socially-Aware, Ultra-Conservative, Ultra-Aggressive, Income and Growth, and Equity Income Portfolios and/or the client may be recommended a +/- 5% variance on the recommended Strategy’s equity allocation. Clients who enter a relatively short time horizon will receive a relatively conservative portfolio recommendation regardless of their risk tolerance. The construction of your Personalized Portfolio(s) is based solely on the information provided by you to TDAIM and is assembled in consideration of the suitability and risk tolerance presented specific to your portfolios. A Personalized Portfolio is not intended to provide a complete financial plan.
Assets held at other financial institutions, while used in the assessment of your overall investment and risk profile, are a snapshot in time and are not monitored, reviewed, or in any way evaluated in the ongoing management of the advisory accounts by TDAIM. You are responsible to contact your Financial Consultant if you have changes to your assets not managed by TDAIM or if there is a change to your financial circumstances that would necessitate the need for an updated assessment of your Personalized Portfolio.
Securities used in a strategy may include, but are not limited to, ETFs, closed-end funds, open-end mutual funds, common or preferred stock, convertible stocks or bonds, options, warrants, and rights as well as corporate, municipal, or government bonds, notes, or bills. We may also recommend allocating portions of your account into an SMA. TDAIM will place uninvested cash in your account into a cash sweep vehicle. The cash buffer ensures the availability of cash for payment of our advisory fee and provides liquidity to cover potential price changes in market orders. In taxable accounts, the cash sweep vehicle is the TD Ameritrade FDIC Insured Deposit Account (“IDA”) provided by one or more banks (“Program Banks”). The IDA is insured up to the applicable FDIC limits. In non-taxable accounts, the cash sweep vehicle is a US Government money market fund, the Vanguard Treasury Money Market Fund. Investments in money market funds are subject to restrictions, charges, and expenses described in the prospectus. Money market funds are securities that may increase or decrease in value. They are not insured or guaranteed by the FDIC, any government agency, TDAIM, or its affiliates, and there can be no assurance that such funds will be able to maintain a stable net asset value of $1 per share. You understand that you will receive periodic statements for sweep transactions involving money market funds in lieu of immediate confirmations. TDAIM’s advisory fee applies to the portion of the account maintained in cash. If you decide to leave cash or cash alternatives in the account that are not managed by TDAIM, you are not charged a fee until they are invested in the portfolio. (See Fees and Compensation below.) TD Ameritrade Investing Accounts are opened as cash accounts rather than margin accounts and margin is not available. In addition, we generally do not allow clients to fund their TD Ameritrade Investing Accounts with cash borrowed from a margin account, whether from another TD Ameritrade brokerage account or another unrelated broker-dealer account.
In order to participate in the Personalized Portfolios Service, the client will need to open a TD Ameritrade Investing Account. The client grants TDAIM discretion in the TD Ameritrade Investing Account to buy, sell, or otherwise trade securities or other investments in the account without discussing the transactions with the client in advance. To the extent that a client decides to implement any TDAIM recommendation through his or her TD Ameritrade brokerage account, TD Ameritrade acts solely as a broker on an unsolicited basis in connection with such transactions and is not acting as an advisor to the client. TDAIM will make investment decisions for the account according to the investment objectives and financial circumstances described in the client’s Profile Information or such documents that outline the client’s assets, goals, investment time horizon, and risk tolerance. In addition, the client grants TDAIM the authority to delegate any or all of its discretionary authority and any other rights, powers and functions granted to TDAIM to the sub-advisor described below, which will assist TDAIM in providing services to the client. We are not authorized to withdraw cash or securities from the client’s account other than in connection with the payment of our advisory fees as described in the Fees and Compensation and Custody sections below.
TDAIM’s discretionary decisions generally are made without considering potential tax consequences to the client, but such consequences may be taken into account in connection with possible fund substitutions within the same mutual fund family. The client is responsible for any tax liabilities resulting from transactions (including any arising from the addition of assets to or withdrawal of assets from the client’s account). We make no representation regarding the likelihood or probability that any proposed investing plan will in fact achieve a particular investment goal. We are unable to predict or forecast market fluctuations or other uncertainties that may affect the value of any investment. Clients are urged to seek the advice of tax professionals and to use all available resources to educate themselves about investing in general, as well as the investments and the overall portfolio composition suggested by TDAIM. See response below at Methods of Analysis, Investment Strategies, and Risk of Loss of this disclosure brochure.
TDA 4855 03/23Page 10 of 29 TDAIM has appointed Simplicity Solutions, LLC (formerly Sawtooth Solutions, LLC), a federally registered investment adviser, as sub-advisor to the client (hereinafter, the “Sub-Advisor”). The Sub-Advisor has been selected to provide additional services to the client. Those services include portfolio management services such as trading, account monitoring, and performance reporting as well as for the selection, due diligence, and access to the Model Managers in the Sub- Advisor’s Managed Account Program. The Sub-Advisor has the discretionary authority to (i) invest and reinvest the assets in the account, and (ii) implement the models in the Managed Account Program described below. The Sub-Advisor shall bear no responsibility or liability for any portions of the client accounts it does not manage.
The Sub-Advisor offers the Managed Account Program (the “Program”). The Program provides the client with access to the investment management services of the Sub-Advisor, which includes the selection of (i) individual securities, or (ii) one or more proprietary model portfolios, or (iii) the model portfolios of various third-party investment advisors. A third-party investment advisor, or “Model Manager,” provides the research and development for their model portfolio as well as continuous monitoring of the selection and allocation of securities utilized in the model portfolio. The Sub-Advisor will receive from the Model Manager all purchase and sale recommendations for the model portfolios that will enable the Sub- Advisor to manage client assets in accordance with a Model Manager’s recommendations. In the event the Sub-Advisor’s proprietary model portfolio is utilized in the client’s account, the Sub-Advisor will provide the related purchase and sale recommendations.
The Sub-Advisor will monitor the performance of the client’s account and may reallocate the client’s account assets among the available Model Manager’s model portfolios according to the individual needs and circumstances of the client. The Sub-Advisor will have full discretion to allocate and reallocate the account and to increase or decrease the portion of the account allocated to each Model Manager, including itself. The Sub-Advisor also acts as a “manager of managers” by retaining and replacing any third-party Model Manager, by allocating and reallocating the account among the Model Managers in the Program, or by allocating to individual securities.
Under certain circumstances, the Sub-Advisor may offer the client the ability to utilize a proprietary model developed by a third-party advisor. In such cases, the Sub-Advisor will implement standard Model Manager due diligence on the advisor, including but not limited to; examining the experience, expertise, investment philosophies, and past performance of the advisor to determine if it has demonstrated an ability to invest over a period of time and in different economic conditions. The Sub-Advisor reserves the right to decline any advisor’s proposed strategy for any reason. If accepted, the Sub-Advisor will enter into a standard Model Portfolio Agreement with the advisor to provide third-party research that will include purchase and sale recommendations in the form of a model portfolio to be used in the management of the investments in the Client’s Account.
TDAIM and TD Ameritrade provide periodic comprehensive reporting services via ByAllAccounts, which can incorporate other client investment assets including those investment assets that are not part of the assets managed by TDAIM (the “Excluded Assets”) (assets over which the client maintains trading authority vs. trading authority designated to another investment professional). The service relative to the Excluded Assets is limited to reporting services only, which does not include investment implementation. Because TDAIM and TD Ameritrade do not have trading authority for the Excluded Assets, to the extent applicable to the nature of the Excluded Assets, the client (and/or the other investment professional), and not TDAIM or TD Ameritrade shall be exclusively responsible for directly implementing any recommendations relative to the Excluded Assets.
Furthermore, the client and the client’s advisors that maintain trading authority, and not TDAIM or TD Ameritrade, shall be exclusively responsible for the investment performance of the Excluded Assets. Without limiting the above, TDAIM and TD Ameritrade shall not be responsible for any implementation error (timing, trading, etc.) relative to the Excluded Assets. i. Asset Allocations Asset allocations for the Personalized Portfolios are constructed in consultation with CSIM. When developing asset allocations a strategic asset allocation approach is used that is value driven and generally consists of broadly diversified asset allocations. TDAIM will strive to meet the asset allocation targets as closely as possible while accounting for fund-specific attributes. However, the actual allocations will fluctuate (for example, in response to changing market conditions). That is because of the nature of mutual fund investment activity and changes in the underlying holdings. In addition, the allocations are subject to change without notice.
TDAIM will have a primary security along with at least one alternate security for each asset class in consideration of, among other things, tax-loss harvesting and client-initiated investment restrictions.
ii. ETF, Mutual Fund, and SMA Recommendations The client will be recommended a Strategy (Core, Tax-Aware, Socially Aware, etc.) using a combination of ETFs, mutual funds and/or SMAs.
The recommended investment vehicles within the Strategies are carefully screened and analyzed by TDAIM using a set of qualitative and quantitative factors including but not limited to risk-adjusted performance, variance of returns, tax efficiency, expenses, style consistency, and style purity.
When choosing mutual funds, TDAIM will attempt to obtain waivers of short-term redemption fees and purchase minimums where possible, as well as access to lower expense share classes, where available. We will attempt to ensure that the lowest expense share class available to our clients on the TD Ameritrade platform is being selected. If a selected mutual fund has a lower expense share class that is available to TDAIM clients, we will select it for use in the Personalized Portfolios, so long as we determine the share class is suitable for our clients. TDAIM and TD Ameritrade do not accept 12b-1 fees, other service-related fees, or revenue sharing payments from the mutual fund companies or funds utilized in our advisory service for assets held in the Personalized Portfolios. TD Ameritrade and our other affiliates might receive compensation from mutual fund companies or funds utilized in the advisory service on assets held outside of the Personalized Portfolios, but that compensation does not influence TDAIM’s recommendations.
The process TDAIM uses to select ETFs is similar to that for mutual funds. TDAIM analyzes the ETFs available through TD Ameritrade. In selecting ETFs, however, TDAIM puts a greater focus on evaluating the particular risk characteristics of ETFs (such as trading volume, liquidity, and discounts). TDAIM also spends time determining how best to combine ETFs, as their strategies can be much more narrowly focused than mutual funds and may offer less asset class coverage.
TDA 4855 03/23Page 11 of 29 TDAIM may in its discretion accept ETFs owned by the client into his or her TD Ameritrade Investing Accounts if the ETFs are compatible with his or her strategy. We reserve the right to accept and utilize in the client’s portfolio ETFs that are considered compatible. This may result in TDAIM maintaining different sets of ETFs in client portfolios. TDAIM may retain the ETFs if they are valid for the new portfolio even though the ETF may not be the number one ranked ETF for the asset class. Maintaining compatible ETFs may be a benefit to the client as it may reduce potential tax liabilities. The limitations on compatible ETFs contained in this paragraph apply to both initial and subsequent contributions. We will assume discretion as to the compatible ETFs, and the client acknowledges that all or a portion of the contributed ETFs may be sold, either initially or in the course of management of his or her strategy.
ETF trades in a TD Ameritrade Investing Account holding Personalized Portfolios are executed according to, and dependent upon, the number of shares of a particular ETF that are submitted for trading during regular market hours.
If the client’s account falls below the approved account minimum as a result of taking systematic withdrawals, the client acknowledges that TDAIM retains the right to cancel the client’s systematic withdrawal request. If the market value of a client’s account falls below the minimum for his or her strategy due to him or her withdrawing assets from the account, or otherwise fall significantly below the specified minimum to a level where TDAIM believes the account can no longer be managed in accordance with its investment strategy, TDAIM may require the client to deposit additional money to bring the account up to the required minimum, and we reserve the right to discontinue the advisory relationship and transfer the securities into a like-titled brokerage account with TD Ameritrade. ETFs can provide a diversified portfolio. However, ETFs are subject to risk similar to those of stocks. Portfolio investment returns will fluctuate and are subject to market volatility.
SMAs may be used to provide diversification or specialization within a particular sector of the market. The process for choosing SMAs is like the process for selecting mutual funds. SMA strategies are carefully screened and analyzed by TDAIM, along with Simplicity Solutions, LLC, using a set of qualitative and quantitative factors including but not limited to risk-adjusted performance, variance of returns, tax efficiency, expenses, style consistency, style purity and manager capabilities. TDAIM will attempt to ensure that the lowest management fee SMAs available to our clients through Simplicity Solutions, LLC are being selected considering other relevant qualitative and quantitative factors.
iii. Incompatible Securities Asset deposits to TD Ameritrade Investing Accounts, from internal (TD Ameritrade) or external sources, may be subject to recommendations made by TDAIM for funding of Personalized Portfolio strategies. TDAIM will not charge for liquidations of securities in TD Ameritrade Investing Accounts. Assets identified as not subject to liquidation recommendations will be transferred in-kind to a TD Ameritrade retail brokerage account for self- directed management by the client. The Investing Account will not be actively managed until all the incompatible securities have either been liquidated or transferred from the account. We do not charge advisory fees on incompatible securities in the client’s TD Ameritrade Investing Account. See response below at Fees and Compensation of this disclosure brochure.
iv. Tax-Loss Harvesting TDAIM offers a tax-loss harvesting (“TLH”) feature for the ETF portion of a Personalized Portfolio. It is a strategy designed to help manage your portfolio in a tax efficient manner by seeking to lower your taxes by selling securities at a loss to offset potential capital gains. Tax-loss harvesting is not appropriate for all investors. It generally is more beneficial to investors in higher tax brackets and high tax states. For more information, please see our whitepaper at https://www.tdameritrade.com/investment-guidance/investment-management-services/tax-loss-harvesting/tax-loss-harvesting-wash- sales.html.
With Personalized Portfolios, the TLH feature is currently only available with the ETF portion of taxable accounts. In addition, accounts with certain investment restrictions are not eligible for the TLH feature.
For clients who have enrolled in the TLH feature, each trading day TDAIM will review your account for any ETFs that have unrealized losses. Specifically, we look at the individual tax lot to identify investment losses meeting or exceeding a specified loss threshold and dollar amount. If these thresholds are met, that tax lot will be sold. To replace the sold security, we will attempt to buy shares of a replacement security if there is a replacement security available that fits your portfolio’s asset allocation and risk characteristics and itself is not subject to the 30-day wash sale period. TDAIM does not represent or guarantee that the objectives of the TLH feature will be met or that a replacement security will be available when a tax lot is sold. In the Socially-Aware portfolio models, the availability of a replacement security with the appropriate environmental, social governance characteristics is limited. Wash sales, missed tax-loss events, excess cash or inadvertent gains may be generated. The performance of the replacement security may be better or worse than the performance of the security that is sold for tax-loss harvesting purposes. TDAIM will execute the tax-loss harvesting trades on a best efforts basis as there are situations when we are unable to harvest losses due to possible wash sale avoidance or to avoid excess cash in the portfolio. In addition, during volatile markets, small gains may be harvested as the price of the security being sold for a loss may move between the time of the TLH calculations and the scheduled daily trading job.
TDAIM and its affiliates do not provide tax advice. We suggest you consult a tax-planning professional with regard to your personal circumstances as to whether the TLH feature is appropriate for you. You should educate yourself regarding the Internal Revenue Service (“IRS”) wash sale rule. The IRS identifies the specifics of this rule in IRS Publication 550. In brief summation, the IRS established the wash sale rule to limit an investor’s ability to claim a tax loss. If you do not have any capital gains or you have more losses than gains, you can use up $3,000 of investment losses to offset your income.
The IRS prohibits an investor from claiming a tax loss if an investor repurchases the same security (or a substantially similar security) either 30 days before OR 30 days after selling a security for a loss. To evaluate whether an investor violated the wash sale rule or not, the entire trading activity of an investor must be reviewed. Our TLH feature is only available on an account basis and does not apply to other TDAIM portfolios you may have. Each eligible TDAIM portfolio must be enrolled separately in the TLH feature. Accordingly, we do not base tax loss situations on activity that happens in your other TDAIM portfolios or any other brokerage account. So it is important to review all your taxable and non-taxable accounts, including your spouse’s accounts and accounts of business entities controlled by you, to determine if you run the risk of violating the wash sale rule. The wash sale rule postpones losses on a sale, if replacement shares are bought around the same time.
v. Drift-Based Rebalancing Through natural market movements, a security may drift from its target allocation. Drift-based rebalancing is designed to automatically bring an allocation back to its target allocation. When certain parameters are triggered, a rebalance occurs to bring the security back to its target allocation and reallocate/rebalance across the portfolio.
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