Our Firm
Hornor, Townsend & Kent, LLC (“HTK”, “firm”, “us”, “we” or “our”) is registered with the U.S. Securities
and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940
and as a broker-dealer under the Securities Exchange Act of 1934. HTK is also a registered broker-dealer
with the Financial Industry Regulatory Authority, Inc. (“FINRA”) and a member of the Securities Investors
Protection Corporation (“SIPC”).
HTK has been registered with the SEC providing investment advisory services to clients since February
25, 1999. HTK is based in Horsham, Pennsylvania, and is organized as a limited liability company under
the laws of Delaware. HTK is a wholly owned subsidiary of The Penn Mutual Life Insurance Company
(“Penn Mutual”) and serves as a principal underwriter and distributor for variable insurance and annuity
products issued by Penn Mutual and, its insurance affiliate, The Penn Insurance and Annuity Company
(“PIA”). The principal business of Penn Mutual is life insurance.
As of December 31, 2023, HTK manages $6,573,238,327 of client assets on a non-discretionary basis and
$290,625,104 of client assets on a discretionary basis. As a registered investment adviser, HTK provides
advisory services to clients by and through our investment adviser representatives (“Advisers”). For more
information about advisory services provided by an Adviser, please refer to their Brochure Supplement.
The Brochure Supplement is a separate document that is provided by the Adviser along with this
Disclosure Brochure before or at the time a client engages with them. Clients who have not received a
Brochure Supplement for their Adviser should contact their Adviser directly or HTK Client Services at
(800) 873-7637.
This Disclosure Brochure provides clients and prospective clients with information about HTK advisory
services. Clients are advised and should understand that there can be no assurance that any particular
strategy will be successful in achieving the client’s investment goals and objectives. Any investment in
the securities markets involves risk, including the realization of investment loss.
Our Fiduciary Role
HTK and its Advisers are fiduciaries under the law. HTK and Advisers make full disclosure of all material
facts relating to the advisory relationship, seek to avoid conflicts of interest, and make full disclosure
of any material conflicts of interest between us and clients that could affect the advisory relationship.
HTK and Advisers act in the client’s best interest. The level of monitoring in your advisory account will
depend on the type of account and the advisory program you select.
Where Advisers have full discretionary trading authority, which means that the Adviser has the authority,
without consulting with the client, to decide which securities to purchase, sell or retain for the client’s
account, Advisers provide ongoing monitoring and will make changes in a client’s account as deemed
necessary. For all other advisory accounts, the client and the Adviser will review the advisory account’s
objectives, investments and performance relative to the client’s objectives and financial situation, at
least annually, to allow the Adviser the opportunity to recommend changing or maintain the objectives
or investments in the client’s account.
Our Wrap Fee Programs
HTK offers the following wrap fee programs. A more detailed description of each program is provided
under the Description of Wrap Fee Programs heading below. Information related to fees and
compensation for these programs may be found under the Fees and Compensation heading.
HTK Wrap Fee Programs:
• HTK Advisory Series Programs
HTK Professional Asset Management Program (“PAM”)
HTK Adviser as Portfolio Manager (“Adviser as PM”)
HTK Non-discretionary Asset Management Account (Mutual Fund Only) (“NDMA6”)
HTK Non-discretionary Asset Management Account (“NDMA7”)
HTK Discretionary Asset Management Account (“DMA”)
HTK Fee-Based Annuity (“FBA”)
• HTK Asset Management Program (“AMP”)
• HTK Digital Investment Management Program (“Smart Journey”)
A wrap fee program is an investment advisory program in which the client pays one bundled fee to
compensate HTK and the Adviser for their services and to pay the transaction and clearing costs
associated with transactions in the client’s advisory account. HTK offers wrap fee programs in addition
to the advisory services described in the HTK Disclosure Brochure. The HTK Disclosure Brochure is a
separate document that is provided by the Adviser along with this Wrap Fee Program Brochure and the
Adviser’s Brochure Supplement before or at the time the client engages with the Adviser. If a client does
not receive one or both of these brochures, the client should contact the Adviser or HTK at (800) 873-
7637.
HTK’s wrap fee programs offer such securities as mutual funds, stocks, bonds, exchange traded funds
(“ETFs”), exchanged traded notes (“ETNs”), real estate investment trusts (“REITs”), unit investment
trusts (“UITs”), and options on brokerage platforms. Transactions in each of these securities have trading
costs associated with them. The wrap fee is not based directly upon the actual transaction or execution
of the transactions in the client’s account. Depending on the underlying investments and amount of
transactions the client expects to be executed in the account, a wrap fee account may cost a client more
than if the client chose to pay separately for all of the transaction costs (i.e., pay the advisory fee plus
all ticket charges).
In choosing one or more of the wrap fee programs above, the Adviser will work with the client to assess
the client’s needs and investment objectives. The Adviser will collect information including, but not
limited to, the client’s investment goals, income requirements, time horizon, and tolerance for risk in
order to tailor recommendations to the client’s needs and objectives. In order for HTK and its Adviser
to provide appropriate recommendations, it is important that clients provide accurate and complete
responses to the questions asked by the Adviser. In addition, clients need to inform the Adviser and HTK
of any changes in their investment objectives, personal circumstances, and any other information, if
any, that affects the client’s overall investment goals. Clients may have the opportunity to impose
reasonable restrictions on the securities purchased or the way the account is managed. Clients should
understand that any restrictions can adversely affect the risk reward level of a portfolio. Clients should
contact the Adviser to discuss any allowable investment and/or account management restrictions
allowable in the wrap fee program(s) selected. Further details regarding the wrap fee program can be
found in the investment advisory agreement.
When opening an advisory account with the deposit of securities or the depositing of additional
securities into an existing account, clients should consider the fees or charges the client has already
paid in connection with these securities, such as commissions or front-end sales loads on mutual fund
shares. Clients could potentially pay additional charges when depositing securities purchased on a
commission basis into an advisory account.
HTK supervisory personnel review, on a periodic basis, client wrap fee program advisory accounts and
advisory services to identify situations that may warrant a more detailed review or specific action on
behalf of a portfolio of a client. Such reviews include, but are not limited to, suitability, fees,
investment results, etc. For DMA and AMP programs, in which HTK and the Adviser have been granted
discretionary trading authority, HTK also monitors for consistency; namely, that securities holdings are
in line with the stated risk tolerance of the client and parameters established by HTK for the AMP and
DMA program accounts. If the portfolio allocation is out of variance, the Adviser, together with the
client, will review to determine next steps and/or actions needed for the account.
The investment recommendations and advice offered by HTK and its Adviser are not legal, tax, or
accounting advice. Clients should consult with their personal attorney, tax professional, or accountant.
Unless independent of their relationship with HTK, neither HTK nor its Advisers are qualified and
appropriately licensed to offer legal, tax, or accounting advice.
Description of Wrap Fee Programs and Fees
HTK sponsors and currently offers wrap fee programs described as follows.
HTK Advisory Series Programs
For HTK Advisory Series Programs, HTK entered into an agreement with Envestnet Portfolio Solutions,
Inc. ("Envestnet"), a provider of wealth management software and services to financial advisers. Through
this agreement, Envestnet provides technology, operational and administrative support services to HTK
in connection with the HTK Advisory Series Program accounts. Envestnet assists HTK with a variety of
account processing and maintenance duties, including client account initiation and setup, client account
trading and processing, custodial reconciliation, and the computation and preparation of client reports.
In some of these programs, Envestnet provides operational and administrative services such as
performance reports, asset allocation models, client proposals, data aggregation services, and fee
calculation services. In other programs, Envestnet serves as the portfolio manager and provides
discretionary advice for client accounts. Envestnet also offers access to MoneyGuide, a suite of web-
based financial planning and retirement planning software. For these programs, Pershing LLC is the
primary custodian. HTK and Envestnet are not affiliated companies.
HTK Professional Asset Management Program (“PAM”)
With the HTK PAM Program, in consultation with the Adviser, clients can select from a variety of
institutional asset managers through Envestnet, or create custom solutions by combining multiple
managers (strategists or separately managed accounts (“SMAs”)) in a single account. Portfolios offered
by HTK for the PAM Program are subject to HTK’s due diligence process and requirements. Neither HTK
nor the Adviser perform the ongoing discretionary asset management in the portfolio; this is performed
by the Managers and/or Strategists selected by the client and the Adviser within the PAM advisory
account(s).
There are two options available within the PAM Program: Multi-Manager and Single Strategist. Under
these programs, the client selects a Strategist and a portfolio model created by the Strategist. The client
may customize portfolio models using ETFs, mutual funds, or equities. HTK under the Envestnet
relationship also offers PMC Outsourced Consulting, also known as Private Wealth Consulting (“PWC”).
PWC is a solution for high net worth clients with a minimum net worth of $1,000,000. PWC offers clients
custom managed portfolios created and managed by PMC that access multiple asset managers. Some of
these strategies may utilize PMC Funds which Envestnet serves as the investment advisor to the PMC
Funds, and may receive fees for both the PMC Funds and fees as the manager, Envestnet makes a
corresponding fee reduction to the fee that Envestnet normally charges for managing in order to offset
the fees it receives as a result of those assets being invested in the PMC Funds. The Single Strategist
option also includes portfolios from the PMC Foundations series (“PMC”). These portfolios are a
component of Envestnet and PMC’s wealth advisory offerings for clients with smaller account balances.
Clients should refer to Envestnet’s Disclosure Brochure for further details on Envestnet programs
HTK Adviser as Portfolio Manager (“Adviser as PM”) Program
With the HTK Adviser as PM Program, the Adviser may manage client assets on either a discretionary
(limited to only those Advisers who are approved by HTK for the DMA program) or non-discretionary
basis, and create custom asset allocation models to meet the client’s individual needs.
There are three options available within the Adviser as PM Program: Non-discretionary Asset
Management Account (NDMA-6)-Mutual Fund Only; Non-Discretionary Asset Management Account
(NDMA7); and Discretionary Asset Management Account (DMA).
The DMA Program currently offers seven risk levels: Capital Preservation, Conservative, Conservative
Growth, Moderate, Moderate Growth, Growth, and Aggressive Growth. Model asset allocations for the
recommended risk level are provided to the client’s Adviser, based on historical risk and return
characteristics. The Adviser can use the model asset allocation or another allocation, so long as the other
allocation falls within the client’s risk tolerance band. DMA accounts are not permitted to use margin.
In addition to the market fluctuations typical with investing, the client’s performance in DMA will depend
significantly on the Adviser’s ability to determine an asset allocation and select securities. When
appropriate, trades for this program will be aggregated (combined) when trading the same security across
client accounts for the same Adviser. This is to provide assurance that clients of the same Adviser receive
the same price for a particular security and in fulfillment of HTK’s duty to seek the best execution for
its clients.
HTK Fee-Based Annuity Platform (“FBA”)
HTK’s Fee Based Annuity platform partners with Fidx/Envestnet to integrate insurance and protection
strategies alongside investments. It offers a suite of fee-based annuities from a variety of insurance
carriers. With the FBA platform, clients, in consultation with their Adviser, have the ability to invest in
annuities that are designed to be held in a fee based advisory account. Through the FBA platform, the
Adviser will recommend an annuity with an investment allocation in the sub-accounts along with any
additional features and/or benefits made available in the annuity contract based on the client’s risk
profile, goals and/or objectives. HTK and the Adviser will not have discretionary authority and the client
will have the ability to make all investment decisions. The client and the Adviser should discuss the
timing and frequency of rebalancing the sub-accounts, if applicable, to maintain the asset allocation
model. The minimum account size for the FBA platform is generally $10,000.
Variable annuity (“VA”) performance is based on its underlying sub-accounts. The client will select which
sub-accounts to invest in. Any benefits or guarantees available under the VA contract are subject to the
claims paying ability of the insurance company issuing the contract. Optional benefits may incur
additional charges and are subject to qualification or may not be available. Clients should carefully
consider the investment objectives, risks, charges and expenses of the VA and the underlying fund
options carefully before investing. Please refer to the applicable VA illustration, if available, the VA
prospectus, and prospectuses for the underlying sub-accounts. Carefully read all materials before making
a purchase. Clients should be aware that the underlying sub-accounts cannot be purchased directly and
that there may be limitations to the timing or frequency of reallocations between sub-accounts. Any
and all annuities offered through the FBA platform are fee-based. No commission-based annuities are
included.
HTK AMP
HTK AMP is a legacy asset management program utilizing stocks, bonds, mutual funds without a sales
charge (“no load” or “load waived”), ETFs, options and UITs. Only certain Advisers may offer this
program to their clients. Certain other programs may be available to meet client needs. Under the HTK
AMP program, assets are either managed on a discretionary basis (limited to only mutual funds) or a non-
discretionary basis. Custom asset allocation models are created to meet the client’s needs. Clients
should refer to the investment advisory agreement for details and terms and conditions of the program.
Based on the information gathered during the profiling process, the client and the Adviser choose both
the asset allocation strategy and select the securities to complete the portfolio allocation. The Adviser
assists the client in making investment decisions for HTK AMP and the client agrees to furnish HTK and
the Adviser with any information that might change the recommendation. The client receives a quarterly
performance report for AMP account(s). With limited discretion in the AMP mutual fund only program,
Advisers will use an array of investment methodologies to provide advice to clients, and different clients
whose accounts are in the same risk level can hold different securities in their accounts and have
different performance from one another.
HTK Digital Investment Management Program (“Smart Journey”)
Smart Journey is an HTK branded wrap fee program administered by Betterment LLC ("Betterment"), a
registered investment adviser with the SEC. Betterment is unaffiliated with HTK. In its relationship with
Betterment, HTK also serves as a registered investment adviser. Betterment provides the client with
discretionary, managed account services as Smart Journey’s Sub-Adviser.
Funds in the client’s Betterment account that are not otherwise invested, are swept into Betterment’s
cash management program, an interest-bearing deposit account at banks that agree to accept funds
through the program.
Betterment Securities, a broker-dealer and affiliate of Betterment, is the broker-dealer for client
account(s) in the Smart Journey program. Apex Clearing Corporation (“Apex”) is the primary custodian.
For more information, clients should refer to Betterment's Wrap Fee Brochure Supplement.
Fees and Compensation
A wrap fee program is an investment advisory program in which the client pays one bundled fee (“wrap
fee”) to compensate HTK and the Adviser for their services and to pay the transaction and clearing costs
associated with transactions in the advisory account. Clients should understand that, when opening a
Wrap Fee Program account(s) with HTK, there are additional fees and/or charges that may be imposed
by the custodian. These fees and charges will include standard account administrative fees such as
electronic fund and wire transfer charges, annual IRA custodial fees, termination fees, and other
miscellaneous charges incurred in the normal course of business.
The client may pay more or less for advisory services, execution of transactions, custody, and reporting
than other advisory programs offered by HTK or other investment advisers, or if investment advisory,
execution, custody and reporting services were purchased separately. The factors that bear upon the
relative costs of any advisory program include, but are not limited to, the number of and timing of
transactions, types of security purchased or sold, advisory fees, custody charges, administrative charges,
research costs, and promotion material costs. These and other factors affect the cost of obtaining these
services separately.
Advisers may receive greater compensation to recommend specific programs within Envestnet. This
presents a conflict of interest in that it could incentivize advisers to recommend these programs based
on the additional compensation that the Adviser will receive rather than based on a client’s needs. HTK
addresses this conflict through this disclosure. Clients should discuss any questions with their Adviser.
Wrap Fee schedule for PAM Programs; Multi-manager and Single Strategist (excluding PMC)
The total maximum wrap fee is comprised of the PAM Program fee plus the Adviser fee that the client
and the Adviser
agree upon plus a manager fee (e.g. the fee assessed by any strategist or SMA investment
manager) plus any tax and/or impact overlay services fees. Please also refer to the HTK investment
advisory agreement for further details. The program fee includes all the Envestnet services provided,
such as the proposal generation platform, research and analytical tools for the investment solutions,
ongoing monitoring of accounts, billing, and performance reporting (on demand and quarterly). This fee
also includes all the Pershing trading costs and custody services. HTK receives the program fee paid by
the client. The manager fee will only apply when using PAM Strategist and/or SMA Managers. Manager
fee rates vary by Adviser, PAM strategist and/or SMA Manager. For PAM Strategists, it covers the
investment management of the model portfolio, which is separate from the mutual fund/ETF expenses
of the underlying holdings. For SMAs, it covers the management of the portfolio. Also, this fee includes
the data integration and ongoing research provided by Envestnet through the platform. Tax and/or
impact overlay services are optional and can be applied to either PAM Strategist and/or SMA accounts.
Clients should consult with the Adviser as to whether these services may be appropriate based on the
client’s individual needs. Please consult with the Adviser as to the specific strategist or investment
manager fee. Tax and/or Impact Overlay Service Fees generally start at 0.10% and may be less dependent
on total PAM and/or SMA account asset values. These services are provided by Envestnet.
PAM Account Fee
Minimum Investment Amount Total Maximum Wrap Fee
$25,000 2.50%*
* For PWC there may be additional charges. The total maximum wrap fee for PWC is 2.75%.
Clients should consult with their Adviser to determine if they are receiving all eligible fee breakpoints.
Retroactive basis-fee charged based on cumulative assets. Each breakpoint will be reached with the next
additional dollar.
The annual minimum fee is $200. The annual minimum client fee is assessed when the calculated
quarterly advisory fee falls below this minimum fee. This fee is charged on each client account or all
accounts in the aggregate if accounts are linked.
Wrap Fee schedule for PAM: Single Strategist - PMC Foundations portfolios:
The total maximum wrap fee is comprised of the Program Fee plus the Adviser fee that the client and
the Adviser agree upon. The Program Fee includes all the Envestnet services provided, such as the
proposal generation platform, research and analytical tools for the investment solutions, ongoing
monitoring of accounts, billing, and performance reporting (on demand and quarterly). This fee also
includes all the Pershing trading costs and custody services. HTK receives the Program Fee paid by the
client. Please also refer to the HTK investment advisory agreement for further details.
PAM-Single Strategist/PMC Foundations Fee
Minimum Investment Amount Total Maximum Wrap Fee
$25,000 1.75%
The annual minimum fee is $40. The annual minimum client fee is assessed when the calculated quarterly
advisory fee falls below this minimum fee. This fee is charged on each client account or all accounts in
the aggregate if accounts are linked.
Certain Strategists pursue an investment strategy that uses proprietary funds, or underlying mutual funds
or ETFs advised by the Strategist or its affiliate(s). In these situations, the Strategist or its affiliate(s)
will receive fees from the proprietary funds as detailed in the proprietary fund’s prospectus. These fees
will be in addition to the model provider fees that a Strategist receives in PAM and they create a financial
incentive for the Strategist to use proprietary funds. Clients should discuss any questions with or request
further information from their Adviser concerning the use of Proprietary Funds in model portfolios or the
conflict of interest this creates.
Wrap Fee schedule for Adviser as PM Program:
The total maximum wrap fee is comprised of the program fee plus the Adviser fee that the client and
the Adviser agree upon. Please also refer to the HTK investment advisory agreement for further details.
The program fee includes all the Envestnet services provided, such as the proposal generation platform,
research and analytical tools for the investment solutions, ongoing monitoring, billing, and performance
reporting (on demand and quarterly). This fee also includes all the Pershing trading costs and custody
services. HTK receives the program fee the client pays.
Adviser as PM Program Fee
Minimum Investment Amount Total Maximum Wrap Fee
$25,000 1.75%
*Clients should consult with their Adviser to determine if they are receiving all eligible fee breakpoints.
Retroactive basis-fee charged based on cumulative assets. Each breakpoint will be reached with the next
additional dollar.
The annual minimum client fee is $160. The annual minimum client fee is assessed when the calculated
quarterly advisory fee falls below this minimum fee. This fee is charged on each client account or all
accounts in the aggregate if accounts are linked.
Additional information about fees and billing for the HTK Advisory Series Programs include:
• Initial fees are charged on the date the assets fund the account (inception date) and are based
on the asset value on that date. This fee is charged in advance and will cover the period from
the inception date through the last day of the billing quarter and will be prorated accordingly.
Pro-rata fees are processed monthly.
• Quarterly fees are deducted from the client’s account on a quarterly basis in advance of the
quarter, in accordance with the client’s investment advisory agreement. The quarterly fee is
based on the average daily balance of the account during the previous quarter. The quarterly
advisory fees are processed in January, April, July and October.
• All trading fees (ticket charges) are included in the Program Fee.
• All 12b-1 payments (if any) that are associated with mutual funds in HTK Advisory Series
accounts are credited back to the client. The client will see these payments periodically on
their statements when Pershing receives them from the mutual fund companies.
• All C-share mutual funds can be held as an accommodation in the Adviser as PM program.
However, these positions must be excluded from billing in the proposal so no fees will be
assessed on them.
The HTK Investment Advisory Agreement for any wrap fee programs that the client may be invested can
be terminated by either party upon written notice to the other party.
If an account is to be liquidated as the result of a termination notice, a reasonable timeframe may be
required in order to liquidate assets. The client will receive a pro-rated refund of any quarterly advisory
fees assessed, based upon the number of days remaining in the quarter, after the termination date.
Subject to the payment of any outstanding fees, proceeds will be payable to the client within sixty (60)
days of liquidation. Termination of the agreement will not affect the liabilities or obligations of the
parties arising from transactions initiated prior to termination.
Wrap Fee Schedule for HTK Fee Based Annuity Platform (“FBA”)
Variable annuities include separate layers of fees. These include fees charged by or through the insurance
company at the contract level, as well as, fees associated with the underlying insurance products. Please
refer to the prospectus for important information about the product and for detailed information about
your specific variable annuity. For information related to fee charged by HTK, please refer to the chart
below.
Fee Based Annuity Platform Fee
Minimum Investment Amount Total Maximum Wrap Fee
Varies based on carrier 1.75%
The annual minimum fee is $200. The annual minimum client fee is assessed when the calculated
quarterly advisory fee falls below this minimum fee. This fee is charged on each client account.
Wrap Fee Schedule for HTK AMP Program
The total maximum wrap fee is comprised of the program fee plus the Adviser fee that the client and
the Adviser agree upon. Please also refer to the HTK investment advisory agreement for further details.
The program fee includes advice, management, and monitoring services provided in connection with HTK
AMP accounts. Pershing, LLC (the clearing broker-dealer for AMP) also receives a portion of the Wrap
Fee for providing trading costs, client billing and performance reporting. Envestnet receives a portion of
the Wrap Fee for providing monitoring services for HTK AMP accounts. HTK entered into a separate
arrangement with Envestnet in order to provide account variance monitoring for AMP accounts held
directly on Pershing, LLC’s managed account platform.
HTK AMP Fee
Minimum Investment Amount Total Maximum Wrap Fee
$25,000 1.75%
Clients should consult with their Adviser to determine if they are receiving all eligible fee breakpoints.
Retroactive basis-fee charged based on cumulative assets. Each breakpoint will be reached with the
next additional dollar.
The annual client minimum is $140.The annual minimum client fee is assessed when the calculated
quarterly advisory fee falls below this minimum fee. This fee is charged on each client account.
The wrap fee is payable quarterly in advance. The initial quarterly fee is based on the initial account
balance and prorated for the number of days remaining in the quarter, if applicable. All ongoing quarterly
fees are based on the Account value as of the last day of the previous calendar quarter. Quarterly fees
are adjusted for any withdrawals and/or deposits of $5,000 or more that occurred within the account
during the previous quarter.
Wrap Fee Schedule for HTK Smart Journey Program
For the HTK Smart Journey Program, HTK may charge a fee up to 1.00 percent of the client’s account’s
value. A portion of this fee is paid to the Adviser. This fee does include Betterment's program fee. For
further details, please see Betterment's Wrap Fee Brochure Supplement, investment advisory agreement
and account opening documents. Each of our Advisers negotiate their own management fee schedule,
however Betterment's management fee charged in connection with their services are disclosed in
Betterment’s advisory agreement. Betterment, LLC offers direct-to- consumer services similar to HTK
Smart Journey Program. Therefore, clients would pay a lower advisory fee for algorithm-driven,
automated investment advisory services by going direct to Betterment, LLC or other similar Digital
Advisors.
The Investment Advisory Agreement can be terminated by either party upon written notice to the other
party. If a program account is to be liquidated as the result of a termination notice, a reasonable
timeframe may be required in order to liquidate assets. Clients will receive a pro-rated refund of any
quarterly advisory fees assessed, based upon the number of days remaining in the quarter after the
termination date. Subject to the payment of any outstanding fees, proceeds will be payable to the client
within sixty (60) days of liquidation. Termination of the agreement will not affect the liabilities or
obligations of the parties arising from transactions initiated prior to termination.
Investments in Funds
Clients should be aware that when assets are invested in shares of mutual funds, ETFs, closed-end funds,
UITs, or other pooled investment vehicles, the client will pay both the direct management fees to HTK
for its services in connection with these investments and, indirectly, the client’s pro-rata share of any
internal management fees or expenses related to owning those investments. The client has the ability
to invest directly in these securities without incurring the fees charged by HTK. An explanation of the
fees and expenses associated with these investments, along with other important information, is
contained in the prospectus, disclosures and/or other information provided by the investment product
provider to clients.
In addition, there can be tax consequences for fund share redemptions made by or on behalf of clients,
as well as deferred sales charges or redemption fees. Short-term redemption fees can be applied if a
fund has been held for less than three (3) months.
Investments in Insurance Products
The advisory fees payable to HTK are separate from additional fees which are payable to the insurance
carrier or pursuant to the terms governing the insurance products. HTK reserves the right to pass on to
the client all fees and other charges imposed by the carrier, the insurance products and/or any related
transactions in connection with the client’s account. Please consult the prospectus, insurance contract,
and any related fee schedules provided by the carrier for the respective insurance products for more
information regarding their fees.
Compensation for Recommending the Wrap Fee Program
HTK and the Adviser receive compensation as a result of recommending the client’s participation in any
of HTK’s Wrap Fee programs. The amount of this compensation is more or less than what the client would
pay if the client participated in other HTK programs or paid separately for investment advice, brokerage,
and other services. Therefore, there is a financial incentive for the Adviser to recommend a HTK Wrap
Fee Program over other programs or services offered by HTK.
Revenue Sharing and 12b-1 Fees Received from Mutual Fund Advisers and Distributors
HTK and Advisers receive compensation from advisers and distributors of certain mutual funds
(“Distributors”) that have Rule 12b-1 distribution plans. Specifically, when an Adviser invests client
assets in mutual funds that have Rule 12b-1 distribution plans, Distributors will receive fees from mutual
funds and share those fees (called “12b-1 Fees” with HTK. A mutual fund’s 12b-1 distribution plan is
typically disclosed in the applicable mutual fund’s prospectus.
HTK receives 12b-1 fees from load and no-load mutual funds that pay 12b-1 Fees. HTK’s receipt of 12b-
1 fees presents a conflict of interest between HTK and its clients as HTK is incentivized to invest client
assets in mutual funds that pay HTK 12b-1 fees, preferring these to funds that have no such fees or that
have lower fees. HTK addresses this conflict through this disclosure and by automatically crediting to
client accounts all 12b-1 fees generated by mutual funds owned by HTK clients in its Wrap Fee Programs
outside of the Pershing cash sweep program.
Mutual funds, including money market funds, generally offer multiple share classes available for
investment based upon certain eligibility and/or purchase requirements. For instance, in addition to
retail share classes (typically referred to as class A, class B, and class C shares), mutual funds also offer
institutional share classes or other share classes that are specifically designed for purchase by investors
who meet certain specified eligibility criteria. Requirements may include considerations, such as,
minimum dollar amount thresholds or advisory program eligibility. Institutional share classes typically
have a lower expense ratio than other share classes and do not pay 12b-1 fees. Clients who are invested
in mutual funds that pay 12b-1 fees will pay more in expenses and over time likely will have lower returns
than clients who are invested in mutual funds that have similar investment strategies and holdings, but
do not pay 12b-1 fees. HTK has a financial incentive to recommend or select share classes that have
higher expense ratios, including 12b-1 fees, because such share classes can generally result in higher
compensation to HTK. HTK addresses this conflict of interest by: automatically crediting to client
accounts all 12b-1 fees paid to HTK (outside of the Pershing cash sweep program), that are attributable
to mutual fund holdings in accounts within HTK’s Advisory Series Program; disclosing the conflict
presented; providing its Advisers with education and guidance and supervising its Advisers on this issue.
Regardless of such considerations, HTK clients should not assume that they will be invested in the share
class with the lowest possible expense ratio or one that does not pay 12b-1 fees.
HTK Smart Journey (Betterment) offers a cash sweep program to hold funds in client accounts that are
not otherwise invested, until those funds are used to fund securities transactions or withdrawn.
Betterment may receive payments from cash sweep program banks, and this may create a conflict of
interest. Neither HTK nor its Advisers receive revenue from Betterment’s cash sweep program. Refer to
Betterment’s Brochure and Brochure Supplement for details.
Revenue Sharing from Pershing, LLC
In certain HTK Advisory programs, HTK relies on Pershing for custody and clearing. Pershing accounts
require a designated “sweep” option to hold cash that has not been invested. For example, money that
had just been deposited into the account, or proceeds from a sale in the account. HTK automatically
places this money into the account’s designated sweep option. HTK, its Advisers, or clients can choose
from a list of available sweep options. In the event that no alternative sweep option is selected, HTK
will use a default sweep option. Sweep options offer different benefits and risks, including different
interest rates. Some may have certain eligibility criteria, such as minimum account balances and specific
account types. Pershing receives revenue, which it terms “distribution assistance,” for certain cash
sweep options available in HTK Advisory Series Program and, in some circumstances, shares that revenue
with HTK. A part of this revenue includes Rule 12b-1 fees. To the extent that the revenue Pershing
shares with HTK includes proceeds related to these 12b-1 fees, these payments are not credited back to
client accounts in the Advisory Series Program. HTK offers sweep options that provide HTK with varying
amounts of “distribution assistance.” When choosing a money market fund to serve as the default cash
sweep option, Advisers or clients have the option to elect other money market funds that may provide
more or less distribution assistance to HTK.
HTK receives revenue sharing payments, which it terms “distribution assistance”, from Pershing its
custodian and clearing firm. This distribution assistance includes 12b-1 Fees paid to Pershing from mutual
fund advisers and distributors.
Until July 12, 2018, HTK participated in Pershing’s no-transaction-fee program called “Fund Vest.” The
mutual funds adviser on the Fund Vest platform made revenue sharing payments to Pershing, including
12b-1 fees. Pershing shares this compensation with HTK, including 12b-1 fees, and will continue to share
such revenue with HTK as long as the client continues to own mutual funds from the Fund Vest platform
in their Advisory Series Program account. The receipt of revenue sharing created an incentive for HTK to
recommend funds that pay 12b-1 fees, preferring these to those funds that have no such fees or that
have lower fees. HTK addresses this conflict through this disclosure and by automatically crediting to
client accounts all 12b-1 fees generated by mutual funds owned by HTK clients in the Advisory Series
Program on the Fund Vest platform.
Pershing also pays compensation to HTK in the form of the annual maintenance fee charged for individual
retirement accounts (i.e., Traditional, Rollover and/or Roth accounts) held with Pershing. This
compensation creates a conflict of interest for HTK when recommending clients’ custody their retirement
accounts with Pershing.
Clients should read their agreement(s) carefully and ask their Adviser any questions related to fees and
compensation.