Hilltop Securities Inc. a Delaware corporation (“HTS”), is a full-service broker-dealer and registered investment
adviser, serving the investment and capital needs of individual, corporate and institutional clients, banking and
thrift clients, and qualified accounts (“client,” “clients,” or “their”). HTS (“the firm”) is a wholly owned
subsidiary of Hilltop Securities Holdings LLC, a Delaware limited liability company.
HTS, as a full-service broker-dealer, provides brokerage, execution, clearing, and custody services to its clients.
HTS is registered with the United States Securities and Exchange Commission (“SEC”) pursuant to the Securities
Exchange Act of 1934, a member of the New York Stock Exchange (“NYSE”), the American Stock Exchange,
the Financial Industry Regulatory Authority (“FINRA”), and the Securities Investor Protection Corporation
(“SIPC”). HTS is also an Investment Adviser registered with the SEC pursuant to the Investment Advisers Act
of 1940. As an Investment Adviser, HTS completes a Form ADV which contains additional information about
its business and affiliates. The Form ADV and additional information is available through public filings with
the SEC
at www.adviserinfo.sec.gov.
In comparing account types and managed account Programs (“Programs”) and their relative costs, the client
should consider various factors, including, but not limited to, the range of investment products available in each
Program, preference for an advisory or brokerage relationship, and preference for a fee-based or commission-
based relationship.
Each HTS managed account is assigned to an Investment Adviser Representative (“IAR”). Any IAR of HTS
who provides investment advice for a fee is required to meet the appropriate states’ regulatory requirements
which may include an administered examination or an approved designation in lieu of an exam. Registration of
an Investment Adviser does not indicate a higher level of skill or training.
As of December 31, 2023, HTS has $1,866,292,572 assets under management, $1,366,252,847 o n a
discretionary basis and $500,039,725 on a non-discretionary basis.
Services, Fees and Compensation
HTS sponsors a number of Programs that are designed to help clients meet their investment objectives and
goals. The accounts managed by HTS are generally not intended to provide the client with a complete investment
program as HTS expects that the assets it manages for the client do not represent the entire value of their
investment portfolio. The service begins with a consultation between the client and their IAR to review
investment objectives, financial circumstances and risk tolerance. The client will complete a Risk Tolerance
Questionnaire (“RTQ”) to document the results of this assessment. After reviewing the results of the RTQ, the
clients IAR will recommend a specific advisory program. By reviewing the RTQ and recommending a specific
advisory platform, the clients IAR seeks to appropriately balance the client’s financial objectives with their risk
tolerance as part of an investment strategy. The client agrees to immediately notify their IAR of any changes in
their financial situation or risk objectives. In some cases, these Programs cost the client more or less than
purchasing the services separately. The client should be aware that commissions or Program fees charged in
some cases are higher than those otherwise available if the client were to select a separate brokerage service
and negotiate commissions in the absence of the extra advisory services provided.
HTS’ fee schedules are subject to negotiation, depending upon a range of factors including, but not limited to,
account values and overall range of services provided.
Services provided as part of the wrap fee for advisory accounts include, but not limited to:
• Access to an IAR for personal service and financial advice
• Review of suitability based on client provided information in advisory agreements, new account forms
and client interviews.
• Portfolio management services
• Quarterly and/or monthly custodial account statements
• Performance reports available on demand
• Execution of client portfolio transactions
• Custodial services
• Advisory fee billing
If the Client holds qualified accounts in the Programs such as IRA or other tax advantaged types, please note
the client must carefully monitor their contributions to prevent them from inadvertently exceeding federal limits.
The Insurance Carrier will provide all statements and confirmations for the Destination Program.
Tax and Impact Overlay Services
Envestnet as overlay manager offers Tax Overlay and Impact Overlay services for an additional fee. The
services must be selected by the client. If selected by the Client, Envestnet will provide Tax Overlay Services,
Impact Overlay Services, or both, to an account or sleeve. Envestnet operates both services in accordance with
their policies and procedures as described in the Envestnet 2A Disclosure Brochure.
Tax Overlay Services seeks to consider tax implications that detract from the Client’s after-tax returns. The Tax
Overlay Service looks to improve the after-tax return for the Client while staying as consistent as possible with
the risk/return characteristics provided by the model portfolios. Envestnet evaluates proposed trades in the
account and determines if the activity will have an acceptable level of taxable impact to the Client, based on the
tax settings that Envestnet has been provided by the Client through their IAR. The gains and losses realized
with the trading of Strategies and/or Funds are considered as part of the Tax Overlay in the Program account.
Certain Program strategies may also be managed as tax-efficient or tax-aware by the applicable Model Provider.
If the Client and their IAR have selected a tax-efficient or tax-aware strategy, the Client should discuss with
their IAR whether the Tax Overlay Service is appropriate in that circumstance. Neither HTS, the IAR nor
Envestnet assures that tax liability will be reduced or that any indicated limits or mandates will be met. Neither
HTS, the IAR nor Envestnet provide tax planning advice or services. Clients should discuss any question with
or request further information from their IAR or tax consultant in using the Tax Overlay Service. The Tax
Overlay Service is available for accounts in the Momentum Pathways UMA and Gateway FSP Programs.
Impact Overlay Services seek to reflect a client’s own personal values by excluding investments linked to
companies that derive revenues from specific business areas or companies that participate in controversial
business activities (e.g., negative environmental impacts, human rights violations, corruption). The end goal of
the Impact Overlay Service is to align a portfolio with the personal values of the Client, while staying as
consistent as possible with the risk/return characteristics provided in the model portfolios. The Impact Overlay
Service is available for accounts in the Momentum Pathways UMA Program.
A separate approval must be provided to use the Tax Overlay and Impact Overlay services. When choosing to
use either or both services, the Client should consider whether the additional fee, which will be charged on the
full balance of the account, is justified by the benefit they receive from the services. The Client may choose to
terminate these services at any time.
Advisory Accounts available through Envestnet Asset Management, Inc.
HTS advisory Programs and services are available through Envestnet Asset Management, Inc. (“Envestnet”), a
non-affiliate investment adviser registered under the Investment Advisers Act, through its web-based platform.
These services in part or whole apply to HTS’s Aviator, Co-Pilot, Passport Series Separately Managed Accounts
(“SMA”), Momentum Pathways Unified Managed Account (“UMA”), Gateway Fund Strategist Portfolio
(“FSP”), Compass UMA and Endeavor ActivePassive Programs.
The services from Envestnet include:
• Providing access to a variety of Portfolio Managers, Model Providers and Fund Strategists
(Investment Managers) strategies and risk-based asset allocation models available for HTS Programs.
This may include the use of Hilltop Securities Portfolio Management (HTSPM) which is a proprietary
Investment Advisory Manager operating under Hilltop Securities.
• Portfolio trading
• Providing billing for all HTS advisory Program accounts
• Providing account reporting including but not limited to performance, realized/unrealized gains and
losses, account holdings etc.
• Account rebalancing
• Accepting and acting on reasonable account restrictions
IARs will collaborate with their Clients to complete a Statement of Investment Selection (SIS) which includes
a Risk Tolerance Questionnaire. The purpose of the SIS is to establish an understanding between the Client,
HTS and Envestnet Asset Management, Inc. regarding the investment objectives, goals, and guidelines for the
Client’s investment management account. IARs will work with their Clients and provide recommendations
regarding the appropriate asset allocation and underlying strategies to meet their objectives. The Clients are
directing the investments and changes made to the Program portfolio and are ultimately responsible for the
selection of the appropriate asset allocation and underlying Investment Managers strategies.
HTS will provide the Client with investment advisory service through one or more of its IARs. HTS will: (i)
assist the client with defining financial, risk and objective information; (ii) assist the client with the selection of
the Investment Managers; and (iii) review and analyze Client’s Program Account.
Investment Managers may receive from HTS certain information from the SIS, which will include, among other
information, the Client’s investment objective, risk tolerance and any Client imposed restrictions on
management of the Client’s Program Account(s). HTS also may provide Investment Managers with other
information regarding the Client, including a copy of the agreement between HTS and the Client. HTS will
provide relevant updated information to Investment Managers after receipt of such information from the Client.
Client understands and agrees the Investment Managers shall be retained by Envestnet pursuant to agreements
entered into between the Investment Manager. The Client understands that the forgoing Investment Managers
(and any such appointed in the future) shall have full discretionary authority over the Program account.
Investment Managers will manage the Client’s Program Account the basis of the SIS, the Client’s financial
situation and investment objectives and any reasonable restrictions imposed by the Client.
Additional services can be provided based on the Program selected. Fees and additional services for each
Program are listed below.
Aviator and Co-Pilot Program Overview
Aviator Program
The HTS Aviator Program, a fee-based advisory Program, offers an open architecture platform. This enables
the IAR to develop a personalized investment strategy for their Clients, manage their customized portfolios,
and deliver ongoing investment advice. With Aviator, the IAR can construct a portfolio that consists of a wide
assortment of investments including, but not limited to, individual securities, ETFs, mutual funds, and fixed-
income positions. In the Aviator Program, the IAR manages the accounts on a non-discretionary basis.
As of March 31, 2024, the Aviator Program will be closed to NEW discretionary business. All existing
discretionary accounts will continue to be supported and all policies and procedure detailed in this document
will be in force. Under limited circumstances an exception for a new account may be provided.
The Aviator Program features include:
• Customized portfolio and allocations
• Account minimum is $30,000 or as accepted.
• On-demand performance reporting and other account reports
• Trading is done on the Momentum back-office system
Co-Pilot Program
The HTS Co-Pilot Program, a fee-based advisory Program, offers an Adviser-created model-based platform
that requires the use of Envestnet to create a model portfolio within the Client’s risk tolerance and assign that
model to accounts. This enables the IAR to develop a personalized investment strategy for their Clients, manage
their customized portfolios, and deliver ongoing investment advice. With Co-Pilot, the IAR will construct a
model portfolio that consists of a wide assortment of investments including, but not limited to, individual
securities, ETFs, mutual funds, and fixed-income positions. In the Co-Pilot Program the IAR manages the
accounts on either a discretionary or non-discretionary basis. For the accounts to be in the Discretionary
Program the IAR must first be approved to participate in the Program.
The Co-Pilot Program features include:
• Customized model portfolio and allocations
• Account minimum is $30,000 or as accepted
• On-demand performance reporting and other account reports
• Trading is done on the Envestnet Platform for eligible Platform securities. In some cases, certain
securities will not be traded via the Envestnet Platform.
Aviator/Co-Pilot – Methods of Analysis
Each IAR has the independence to take the approach they believe is most appropriate when analyzing investment
products and strategies for Clients in the Aviator/Co-Pilot Program. There are several sources of information that
HTS and/or IARs use as part of the investment analysis process. These sources include, but are not limited to:
• Financial publications
• Research materials prepared by third parties
• Corporate rating services
• SEC Filings (annual reports, prospectus, 10-K, etc.)
• Company press releases
• Regulatory and self-regulatory reports
• Other public sources
As a firm, HTS does not favor any specific method of analysis over another and therefore would not be considered
to have one approach deemed to be a “significant strategy.” There are, however, a few common approaches that
HTS or the IAR, often use individually or collectively, while providing advice to Clients. Please note that there
is no investment strategy that will guarantee a profit or prevent loss. The following are some common strategies
employed in the management of Client accounts:
• Dollar Cost Averaging (“DCA”): The technique of buying a fixed dollar amount of a particular
investment on a regular schedule, regardless of the share price. More shares are purchased when prices
are low, and fewer shares are bought when prices are high. Periodic investment Programs cannot
guarantee a profit or protect against a loss in a declining market. Dollar cost averaging is a long-term
strategy that involves continuous investing, regardless of fluctuating price levels, and, as a result, the
Client should consider the financial ability to continue to invest during periods of fluctuating price
levels.
• Asset Allocation: An investment strategy that aims to balance risk and reward by allocating assets
among a variety of asset classes. At a high level, there are three main asset classes—equities (stocks),
fixed income (bonds), and cash/cash equivalents— each of which has different risk and reward
profiles/behaviors. Asset classes are often further divided into domestic and foreign investments, and
equities are often divided into small, intermediate, and large capitalization. The general theory behind
asset allocation is that each asset class will perform differently from the others in different market
conditions. By diversifying a portfolio of investments among a wide range of asset classes, IARs seek
to reduce the overall volatility and risk of a portfolio by avoiding overexposure to any one asset class
during various market cycles. Asset allocation does not guarantee a profit or protect against loss.
• Technical Analysis (a.k.a. “Charting”): A method of evaluating securities by analyzing statistics
generated by market activity, such as past prices and volume. Technical analysts do not attempt to
measure a security’s intrinsic value. Instead, they use charts and other tools to identify patterns that can
suggest future activity. When looking at individual equities, a person using technical analysis believes
that performance of the stock, rather than performance of the company itself, has more to do with the
company’s future stock price. It is important to understand that past performance does not guarantee
future results.
• Fundamental Analysis: A method of evaluating a security that entails attempting to measure its
intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
Fundamental analysts attempt to study everything that can affect the security’s value, including
macroeconomic factors (e.g., the overall economy and industry conditions) and company-specific
factors (e.g., financial condition and management). The end goal of performing fundamental analysis is
to produce a value that an investor can compare with the security’s current price, with the aim of
figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell or
short). This method of security analysis is considered to be the opposite of technical analysis.
• Quantitative Analysis: An analysis technique that seeks to understand behavior by using complex
mathematical and statistical modeling, measurement, and research. By assigning a numerical value to
variables, quantitative analysts try to replicate reality mathematically. Some believe that it can also be
used to predict real-world events, such as changes in a share price.
• Qualitative Analysis: Securities analysis that uses subjective judgment based on no quantifiable
information, such as management expertise, industry cycles, strength of research and development, and
labor relations. This type of analysis technique is different from quantitative analysis, which focuses on
numbers. The two techniques, however, are often used together.
Aviator and Co-Pilot Program Fees
Fees for the Aviator and Co-Pilot Program are offered on a wrap fee basis, covering all of HTS’s execution,
consulting and custodial services. The maximum Aviator/Co-Pilot Program fee schedule, shown in the table
below, is based on the total account value and is negotiable. The fee schedule is not applied incrementally; the
corresponding rate is applied to the entire total account value in the determination of the fee. The fee does not
cover the fees and expenses of any underlying exchange traded funds (“ETFs”), closed-end funds, mutual funds,
unit investment trusts or exchange traded notes (“ETNs”). The fee is calculated using the market value of the
account on the last day of the preceding quarter. The fee is applied to the account each calendar quarter, on a
pro-rated quarterly basis, and is billed in advance. The Clients’ Program fee will not be adjusted for no or low
trading activity.
Total Account Value Maximum Annualized Fee for
Individual Securities Accounts
Maximum Annualized Fee for
Mutual Fund/ETF/UIT
Only Accounts
Up to $249,999 2.25% 1.75%
$250,000 – $499,999 2.00% 1.50%
$500,000 – $999,999 1.75% 1.25%
$1,000,000 and over 1.50% 1.00%
If the Client should make any single deposit or any single withdrawal of $10,000 or more of cash and/or
securities, they will be debited or credited a pro-rated fee on the market value of the assets. The pro-rated amount
will be due and charged to their account as of the date they deposit the additional assets, or the Client will
receive a pro-rated adjustment or refund of any prepaid fee as of the date of withdrawal.
Cash/Money Market and Securities Concentrations
Advisory Programs are not appropriate for Clients who want to maintain a high level of cash and/or highly
concentrated positions that will not be sold regardless of market conditions. If the Client continues to hold high
levels of cash/money market and/or highly concentrated positions, then the Client does so against HTS’
recommendation and with the understanding that the value of those securities will be included for the purposes
of calculating the Program fee, resulting in a higher fee to HTS. Clients may hold excess cash or concentrated
positions in a brokerage account without incurring the Advisory Program Fee. If the account continues to be
outside of the cash and concentration guidelines over a specified period, then the account will be subject to
removal from the Program.
Unsolicited Transactions
The advice and counsel of the clients IAR is a critical service of the Aviator and Co-Pilot Programs. Solicited
transactions will be made based on the recommendations that the IAR makes to the client. Unsolicited
transactions are made when the client directs the trades without advice or counsel from their IAR. Unsolicited
transactions will impact the performance of the portfolio and future financial planning activities.
After the client has executed an unsolicited transaction without HTS’ advice, for so long as they hold that
position in their Aviator/Co- Pilot Account, HTS will take that asset into consideration:
• as part of the overall account assets,
• when HTS provides the Client periodic asset allocation advice,
• when HTS values the Client’s account holdings,
• when HTS provides analyses and reports on the account’s performance
HTS will include any holding that is acquired in an unsolicited transaction as part of the client account assets
for calculating their advisory fee on the last business day of each calendar quarter. Holdings that remain in the
account will continue to be part of each fee cycle calculation until the holding is transferred or liquidated. A
significant unsolicited trading pattern will indicate that the Aviator and/or Co-Pilot account is no longer
appropriate for the client. In these situations, HTS has the right to terminate the account from the program.
Inactive Accounts
Aviator/Co-Pilot Program accounts are reviewed on a quarterly basis for trading inactivity for accounts that
have been in the Program for over 12 months. If the Clients’ accounts have had zero trades for the trailing 12
months, their IAR will be notified of the inactivity and if the account does not have trading activity by the end
of the next quarter review, the account will be subject to conversion to a brokerage account due to the continued
inactivity. The reinvestment of Dividends and Capital Gains are not considered trades for this purpose.
Mutual Fund Investments available through HTS
The Client should be aware that only those mutual fund companies with which HTS has a selling agreement
will be available for purchase within a Program account, and are generally limited to those fund companies that
provide HTS marketing service and support fees, which compensate HTS for marketing efforts to its Clients
concerning the mutual funds, as well as for shareholder servicing activities (such as order-taking, responding to
customer inquiries, providing confirms, statements, prospectuses and issuer communications) that the mutual
funds otherwise would have to provide to customers themselves, and are revenues to HTS in addition to the
advisory fee revenue HTS receives from customers. These fees generally range from 0% to .31% (thirty-one,
one hundredths of one percent) on HTS customer assets invested with those mutual fund companies, and in the
aggregate are a material revenue source for HTS. As a result, not all mutual funds available to the investing
public will be available for investment. However, HTS has selling agreements with over three hundred fund
companies.
The Client should be aware that mutual funds contain internal expenses which are apart from and in addition to
Program account fees and which are described in the respective funds’ prospectuses. Certain funds offered in
the Program, while not having sales charges or having sales charges waived, assess distribution fees, such as
those assessed pursuant to SEC Rule 12b-1 of the Investment Company Act of 1940, as amended (“12b-1 Fees”)
which are paid to HTS. To the extent that HTS receives 12b-1 shareholder servicing fees in any Managed
Accounts, they will be rebated to Clients. The respective mutual fund prospectuses provide detailed information
about such fees.
Eligibility for various share classes offered by mutual funds to be used as part of the Advisory Services Group
(“ASG”) Programs, is determined by the mutual fund company and disclosed in the fund’s prospectus. Rule
12b-1 fees will be rebated to Client accounts as they are received. Use of a more costly share class will reduce
the performance of a Client’s account. Any recommendation to use a more costly share class when a lower cost
share class of the same fund is available is a conflict of interest. The Firm mitigates this conflict in that advisors
do not have an incentive to recommend or select share classes that have higher expense ratios because their
compensation is not affected by the share class selected.
Shareholders considering transferring mutual fund shares to or from HTS should be aware that if The Firm from
or to which the shares are to be transferred does not have a selling agreement with the fund company, the
shareholder must either redeem the shares (potentially incurring a tax liability) or continue to maintain an
investment account at The Firm where the fund shares are currently being held. Clients should inquire as to the
transferability, or “portability,” of mutual fund shares prior to initiating such a transfer.
Upon termination of their Managed account, Clients would generally be permitted to continue holding the
institutional class of the fund but will be unable to make additional investments.
Mutual Funds Assessed / Subject to 12B-1 Fees or Sales Charges
HTS will convert existing advisory fee-eligible mutual fund positions in the Aviator and Co-Pilot Programs
accounts to a specific mutual fund share class (“wrap recommended share class”) in an effort to provide advisory
Clients with lowest cost share class available through HTS. The Firm will perform ongoing quarterly
maintenance conversions to ensure the wrap recommended share class has been selected for the Client’s account.
These share class conversions are non-taxable events, and Client’s cost basis will carry over to the new wrap
recommended share class.
Passport Series SMA/Momentum Pathways UMA
The Passport Series SMA and Momentum Pathways UMA are discretionary investment advisory Programs
sponsored by HTS (“Sponsor”), available through it IARs that provides the Client access to a broad selection
of Separately Managed Accounts (“SMAs”) and Unified Managed Account strategies (“UMAs”).
Passport Series and Momentum Pathways are made available with Envestnet Asset Management, Inc.
(“Envestnet”), a non-affiliate investment adviser registered under the Investment Advisers Act, through its web-
based platform. As manager of the web-based platform, Envestnet has entered into a sub-management agreement
with Investment Managers to manage various types of portfolios offered through the platform and to develop
model portfolios and research that is made available to Sponsor, IARs and IAR Clients. For certain Investment
Managers, Envestnet has entered into a licensing agreement with the manager, whereby Envestnet performs
administrative and/or trading duties pursuant to the direction of the sub-manager. In such situations the
Investment Manager is acting in the role of Model Provider. The Investment Managers are responsible for all
investment selections made for the portfolios they create. It is up to the Client to select a third-party model
portfolio. Unless Envestnet affirmatively cites the Investment Manager as “approved” as described below in
Methods of Analysis section, Envestnet does not collect and report data on investment style and philosophy,
past performance and personnel of Investment Managers.
IARs will collaborate with their Clients to complete a Statement of Investment Selection (SIS) which includes
a Risk Tolerance Questionnaire. The purpose of the SIS is to establish an understanding between the Client,
HTS and Envestnet Asset Management, Inc. regarding the investment objectives, goals, and guidelines for the
Client’s investment management account. IARs will work with Clients to provide recommendations regarding
the appropriate asset allocation and underlying strategies to meet their objectives, but clients are directing the
investments and changes made to the Program portfolio and are ultimately responsible for the selection the
appropriate asset allocation and underlying Investment Managers’ strategies.
The Passport Series SMA Program is a discretionary Program where the Client is offered access to actively
managed investment portfolios managed by Investment Managers. Unlike a mutual fund, where funds are
commingled, a separately managed account is a portfolio of individually owned securities that can be tailored
to fit the stated investing preferences. IARs will work with the Client to complete a Statement of Investment
Selection (“SIS”) which includes a Risk Tolerance Questionnaire. The purpose of this statement is to establish
an understanding between the Client, HTS and Envestnet regarding the investment objectives, goals, and
guidelines for the Client’s investment management account. This will also assist the Client with the selection
of the Investment Manager(s). The Investment Managers who are selected for these Programs employ different
methods of analysis that are described in each manager’s disclosure brochure. The HTSPM strategies are
available along with the other unaffiliated Investment Managers.
The Momentum Pathways UMA Program is a discretionary Program that provides the Client access to
combine a broad selection of Investment Managers as well as a Co-Pilot account sleeve over which their IAR
may exercise limited trading discretion in a single portfolio. The IAR will provide the Client with
recommendations regarding the appropriate asset allocation and underlying investment vehicles or investment
strategies to meet their objectives, but the Client is making the selection of the Investment Managers and
changes made to the UMA portfolio and are ultimately responsible for the selection of the appropriate asset
allocation and underlying investment strategies. Envestnet provides overlay management services for UMA
accounts and implements trade orders based on the directions of the investment strategies contained in the UMA
portfolio. The Clients’ IAR will assist in creating a customized portfolio, providing the Client with
recommendations regarding the asset allocation and underlying investment strategies. The Client shall select the
asset allocation and the investment strategies. The asset managers who are selected for this Program employ
different methods of analysis that are described in each manager’s Disclosure Brochure. In addition, to the
extent that other investment vehicles are utilized in the portfolio such as mutual funds or ETFs. The Client should
read the offering documents (e.g., prospectus, offering memorandum, etc.) carefully to fully understand the
various risks, investment objectives, expenses and other information about the company associated with the
investment. The HTSPM strategies are available along with the other unaffiliated Investment Managers and
Model Providers.
HTS reserves the right to remove any Investment Manager from the Passport Series and Momentum Pathways
Programs without prior notice to the Client. Factors involved in HTS’ decision to remove any Investment
Manager include failure to adhere to a management style or the Client objectives, a material change in the
adviser’s professional staff, unexplained poor performance, dispersions of the account performance, or HTS’
decision to no longer include the Investment Manager on the roster. HTS will determine whether any or all of
these factors are material when deciding whether to recommend termination. The Client can elect to remove an
Investment Manager from their account at any time.
Information HTS collects regarding any Investment Manager is believed to be reliable and accurate, but HTS
does not necessarily independently review or verify it on all occasions. While performance results are generally
reported to HTS, the firm does not audit or verify that these results are calculated on a uniform or consistent
basis as provided to HTS.
HTS also provides the Client with monitoring and on demand reporting of portfolio performance on an on-
demand basis. for the Passport Series and Momentum Pathways Program accounts. As described above, the
Client may select the Tax Overlay Service within this Program which will incur an additional cost to the Client.
Additionally, as described above, the Client may select the Impact Overlay Service within this Program which
will incur an additional cost to the Client.
Passport Series and Momentum Pathways Program Fees
These Programs charge an annual fee, out of which HTS pays for all portfolio management and administration,
including Envestnet, Investment Manager Fees, and fees payable to the Sponsor and Sponsors IARs, as well as
costs for transaction execution, clearing, custody and reporting. The sub-manager’s fee will generally fall within
a range of 0.15% to 0.75% (annual rate) of assets under management. The fee payable to HTS, as the Sponsor,
will generally fall within a range of 0.10% to 0.38% (annual rate) of assets under management. The Program fee
will not be adjusted if the manager trades away from HTS.
The level of fee will vary with the amount of assets under advisement in the Programs and the particular
investment styles and investment options chosen or recommended. Clients could receive comparable services
from other sources for fees that are lower than those charged by HTS.
The maximum fee schedule for the Passport Series and Momentum Pathways Program services is set forth
below and is negotiable in individual cases:
Total Account Value
Maximum Annualized Fee
for Equity/Balanced SMA
Portfolios
Maximum Annualized
Fee for Fixed Income
SMA Portfolios
Maximum
Annualized Fee for
UMA account
First $ 250,000 2.90 – 3.00% 1.55 – 1.65% 2.35%
Next $ 250,000 2.40 – 2.50% 1.40 – 1.50% 2.30%
Next $ 500,000 2.15 – 2.25% 1.25 – 1.35% 2.10%
Next $ 4,000,000 1.90 – 2.00% 1.05 – 1.15% 1.90%
Over $ 5,000,000 1.75 – 1.85% 0.90 – 1.00% 1.70%
* The total fee charged to Clients’ accounts will vary depending upon the selection of sub-managers and
allocation of total portfolio assets thereto, the total amount of portfolio assets in the Program and other factors.
Additions and Withdrawals from a Passport Series or Momentum Pathways Account
If the Client makes any deposit or withdrawal of $10,000 or more during a fee period, the Client will be debited
or credited a pro-rated fee on the market value of the assets deposited or withdrawn. The pro-rated amount will
be due and charged to the account on the date the Client deposits the additional assets, or the Client will receive
a pro-rated adjustment of refund of any prepaid fee.
Hilltop Securities Portfolio Management (HTSPM)
Types of Services Provided by Hilltop Securities, Inc. as Portfolio Manager
In addition to offering advisory services through our Wrap Fee program described above, HTS makes available
certain separately managed accounts (SMA) offered through Hilltop Securities Portfolio Management
(HTSPM). HTSPM is proprietary investment advisory service operating under Hilltop Securities, Inc., a
registered investment adviser and registered broker dealer. HTSPM provides discretionary investment advisory
services and offers several fixed income strategies available in the Passport Series SMA and Momentum
Pathways UMA Programs (Program) to individuals, high net worth individuals, families, trusts, estates,
corporate and non-corporate entities, retirement plans, pension plans, profit-sharing plans, and government
entities.
HTSPM acts as Sub-Advisor to HTS registered Investment Adviser Representatives (IAR), where the IAR
selects one or more of HTSPM’s fixed income strategies for their client’s program account based on the
Statement of Investment Selection (SIS). HTS relies on such strategy selection by the client’s IAR, and the
information captured in the SIS.
HTSPM will begin providing investment advisory services to clients upon the creation of the Program Account,
completion of the SIS as accepted by HTS and Envestnet Asset Management, in accordance with the fixed
income strategy selected, and any applicable restrictions of the Client. Our investment advisory services may
be terminated by either party in accordance with any applicable contractual notice provision.
Minimum Investment
The minimum initial investment for an account managed by HTSPM is $125,000, which may be waived at HTS
and HTSPMs sole discretion.
Level of Service Offered by HTSPM
HTSPM manages its investment advisory accounts in accordance with HTS fixed income strategies. HTSPM
permits the Client to identify reasonable restrictions on the Client’s Program account. However, such
restrictions may have a significant impact on the timing of Client’s strategy implementation, yield,
diversification, and account performance. HTS and HTSPM, may decline all or some of the Client’s restrictions.
HTSPM Fees and Compensation
HTSPM receives a management fee based on a percentage of assets under management for providing investment
advisory services to the accounts in the Program. HTSPM does not charge performance-based fees on Program
Accounts. These HTSPM fees will be detailed and incorporated on the Client’s SIS and included in the Annual
Fee that the Client is charged HTS.
Other Compensation
HTSPM does not charge commissions, markups, or mark-downs to the Client’s participating in the Program.
HTSPM Methods of Analysis
HTSPM makes available several fixed income strategies in the Passport Series SMA and Momentum Pathways
UMA Programs that primarily invest in tax-free municipal bonds. HTSPM considers many factors in analyzing
and constructing fixed income portfolios. These include, but are not limited to maturity, coupon, ratings, sector,
duration, callability, yield, spread to various benchmarks, and liquidity.
HTSPM Short Municipal Ladder
The investment objective is to generate tax-efficient income consistent with low principal volatility through
investment in short maturity fixed income securities. The strategy invests primarily in tax-exempt municipal
bonds with a maximum maturity of 5 years with an objective of approximately equal maturity amounts each
year. Under certain circumstances the strategy will also permit customization of certain portfolio parameters
(maturity, minimum ratings, geographic concentration, or avoidance) at client request.
Client may choose to opt into the Optional Tax-Aware Management Strategy, which incorporates the use of
taxable securities (treasuries, agencies, and taxable municipal bonds) to maximize after-tax yield based on client
federal and state tax brackets.
There will be two versions of the HTSPM Short Municipal Ladder Strategy: National and California.
HTSPM Short-Intermediate Municipal Ladder
The investment objective is to generate tax-efficient income consistent with low principal volatility through
investment in short to intermediate fixed income securities. The strategy invests primarily in tax-exempt
municipal bonds with a maximum maturity of 10 years with an objective of approximately equal maturity
amounts each year. Under certain circumstances the strategy will also permit customization of certain portfolio
parameters (maturity, minimum ratings, geographic concentration, or avoidance) at client request.
Client may choose to opt into the Optional Tax-Aware Management Strategy, which incorporates the use of
taxable securities (treasuries, agencies, and taxable municipal bonds) to maximize after-tax yield based on client
federal and state tax brackets.
There will be two versions of the HTSPM Short-Intermediate Municipal Ladder Strategy: National and
California.
HTSPM Intermediate Municipal Ladder - investment objective is to maximize tax-efficient income
consistent with limited principal through investment in intermediate fixed income securities. The strategy
invests primarily in tax-exempt municipal bonds with a maximum maturity of 17 years with an objective of
approximately equal maturity amounts spread across the investment horizon. Under certain circumstances the
strategy will also permit customization of certain portfolio parameters (maturity, minimum ratings, geographic
concentration, or avoidance) at client request.
Client may choose to opt into the Optional Tax-Aware Management Strategy, which incorporates the use of
taxable securities (treasuries, agencies, and taxable municipal bonds) to maximize after-tax yield based on client
federal and state tax brackets.
There will be two versions of the HTSPM Intermediate Municipal Ladder Strategy: National and California.
HTSPM Full Curve Municipal Ladder
The investment objective is to maximize tax-efficient income through investment in fixed income securities
across the entire maturity spectrum. The strategy invests primarily in tax-exempt municipal bonds with a
maximum maturity of 30 years, an objective of approximately equal maturity amounts spread across the
investment horizon. Under certain circumstances the strategy will also permit customization of certain portfolio
parameters (maturity, minimum ratings, geographic concentration, or avoidance) at client request.
Client may choose to opt into the Optional Tax-Aware Management Strategy, which incorporates the use of
taxable securities (treasuries, agencies, and taxable municipal bonds) to maximize after-tax yield based on client
federal and state tax brackets.
There will be two versions of the HTSPM Full Curve Municipal Ladder Strategy: National and California.
Before an Investment manager is made available for the Passport Series/Momentum Pathways/Gateway FSP
Program, general research is conducted by HTS to determine eligibility. This includes, among other things,
assets under management, inception date of Strategy, manager tenure, investment style and performance factors.
HTS also reviews investment philosophy and process, trading practices, fundamental and quantitative statistics
of the Strategy. In some cases, HTS may also conduct interviews with portfolio managers, principals, and key
staff members.
HTS conducts an annual review of all strategies available. This review is based on applicable information
gathered from various sources that include, but are not limited to, disclosure documents, performance, assets
under management and other applicable criteria. As a result of these reviews, HTS can request that Envestnet
take corrective action to address such concerns. From time to time, these reviews may result in the removal of a
manager/strategist being available to HTS Clients.
Neither HTSPM, HTS, nor their IARs provide tax or legal advice. Each Client’s tax or financial situation is
different, and the Client is advised to consult with their tax or legal advisor for advice and information specific
to their individual situation.
HTSPM Portfolio Risks
Fixed Income Securities Risks: Portfolios will invest in a variety of fixed income securities. Fixed income
securities are subject to a number of risks including credit risk, interest rate risk, and liquidity risk.
• Credit risk is the risk the issuer or guarantor of a debt security will be unable or unwilling to make
timely payments of interest or principal or to otherwise honor its obligations.
• Interest rate risk is the risk of losses due to changes in interest rates. In general, the prices of debt
securities rise when interest rates fall, and the prices fall when interest rates rise.
• Liquidity risk is the risk that a particular security may be difficult to purchase or sell and that an
investor may be unable to sell illiquid securities at an advantageous time or price.
Duration measures the change in the price of a fixed income security based on the increase or decrease in overall
interest rates. Bonds with higher duration generally carry more risks and have higher price volatility than bonds
with lower duration. Therefore, if interest rates are low at the time of purchase of the bonds, when interest rates
eventually do rise, the price of such lower interest rate bonds will decrease, and anyone needing to sell such
bonds at that time, rather than holding them to maturity, could realize a loss. It should be noted that HTSPM
does not explicitly forecast interest rates.
Municipal bonds may also have a call feature, entitling the issuer to redeem the bond prior to maturity. A
callable security’s duration, or sensitivity to interest rate changes, decreases when rates fall and increases when
rates rise because issuers are likely to call the bond only if the rates are low. Investors in callable bonds are
therefore subject to reinvestment risk – that is, the risk that they will need to reinvest their proceeds at lower
rates.
Municipal bonds are also subject to state-specific risks, such as changes in the issuing state’s credit rating, as
well as the risk that legislative changes may affect the tax status of such bonds.
Tax-Exempt Securities Risks: Portfolios may also invest in tax-exempt municipal bonds. In order to pay
interest that is exempt from federal or state and local income tax, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received and distributed to bond holders
to be taxable. In addition, income from one or more municipal bonds held in a Portfolio could be declared
taxable because of unfavorable changes in tax or other laws, adverse interpretations by the Internal Revenue
Service (IRS), state, or other tax authorities, or noncompliant conduct of a bond issuer. Changes or proposed
changes in federal or state income tax or other laws may also cause the prices of tax-exempt securities to fall.
Finally, income from certain municipal bonds may be subject to the alternative minimum tax (AMT) and/or
state and local taxes, based on the investor’s state of residence.
Municipal Securities Risks: Municipal issuers may be adversely affected by rising health care costs, increasing
unfunded pension liabilities, and by the phasing out of federal programs providing financial support.
Unfavorable conditions and developments relating to projects financed with municipal securities can result in
lower revenues to issuers of municipal securities. Issuers often depend on revenues from these projects to make
principal and interest payments. The value of municipal securities can also be adversely affected by changes in
the financial condition of one or more individual municipal issuers or insurers of municipal issuers, regulatory
and political developments, tax law changes or other legislative actions (as discussed under Tax-Exempt
Securities Risk above), and by uncertainties and public perceptions concerning these and other factors. In recent
periods, an increasing number of municipal issuers in the United States have defaulted on obligations and
commenced insolvency proceedings. Financial difficulties of municipal issuers may continue or get worse.
The potential tax benefits of a tax free or tax deferred investment are eliminated if the investment is made in a
qualified plan, such as a 401(k) or IRA.
Investing Side by Side with Clients
HTSPM Portfolio Managers and its support personnel are not permitted to trade in the same fixed income
securities as those the firm manages for investment advisory clients in the Program.