Momentum Independent Network Inc. a Texas corporation ("MIN"), is a full-service broker-dealer and registered
investment adviser, serving the investment and capital needs of individual, corporate and institutional clients, as
well as qualified accounts (“client” or “clients”). MIN is a wholly owned subsidiary of Hilltop Securities Holdings
LLC, a Delaware limited liability company.
MIN, as a full-service broker-dealer, provides brokerage, and execution services to its clients. It is registered with
the United States Securities and Exchange Commission (“SEC”) pursuant to the Securities Exchange Act of 1934
and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection
Corporation (“SIPC”). MIN is also an investment adviser registered with the SEC pursuant to the Investment
Advisers Act of 1940. As an Investment Adviser, MIN 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 fee-based or commission-based
relationship.
Each MIN managed account is assigned to an Investment Adviser Representative (“IAR”). Any IAR of MIN who
provides investment advice for a fee is required to meet the appropriate states’ regulatory requirements which may
include an administered exam or an approved designation in lieu of an exam. Registration of an Investment
Advisor does not indicate a higher level of skill or training.
A number of the advisory programs available to clients of MIN are sponsored by Hilltop Securities Inc., (“HTS”
or “Sponsor”), an affiliate of MIN. Registration of an Investment Adviser does not indicate a higher level of skill
or training.
As of December 31, 2023, MIN has $1,117,141,327 assets under management, $314,369,351 on an advisory
discretionary basis, $206,389,611 on separately managed discretionary basis, and $596,382,365 on a non-
discretionary basis.
Services, Fees and Compensation
MIN makes a number of Programs that are designed to help clients meet their investment objectives and goals. The
accounts managed by MIN are generally not intended to provide the client with a complete investment program,
and MIN expects that the assets it manages do not represent the entire value of their investment portfolio. The
service begins with a consultation between the client and their IAR to review the client’s 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 IAR will recommend a specific
advisory program. By reviewing the RTQ and recommending a specific advisory platform, the IAR seeks to
appropriately balance the client’s financial objectives with the appropriate risk tolerance as part of an investment
strategy. The client agrees to immediately notify their IAR of any changes in their financial situation, risk
tolerance, or investment objectives. In some cases, these Programs cost the Client more or less than purchasing the
services separately. The Client should be aware that commission 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 commission
in the absence of the extra advisory services provided.
The fee schedules of MIN are subject to negotiation, depending upon a range of factors including, but not limited to,
total 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. Charles Schwab will
provide all statements and confirmations for the Partner – Third Party Custodian (“TPC”) Program and the Third-
Party Asset Manager (“TAM”) will provide all statements and confirmation for the Explorer 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 to 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 MIN, the IAR nor Envestnet assures that tax
liability will be reduced or that any indicated limits or mandates will be met. Neither MIN, 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 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.
MIN 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 the Sponsor’s Aviator, Co-Pilot, Passport Series Separately Managed
Accounts (“SMA”), Momentum Pathways Unified Managed Account (“UMA”) and Gateway Fund Strategist
Portfolio (“FSP”), Compass UMA and Endeavor ActivePassive Programs.
Additionally, MIN offers the Partner – TPC program which does not make all of the services listed below available
and is further explained in the next section.
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 MIN Programs. This may
include the use of Hilltop Securities Portfolio Management (HTSPM) which is a proprietary Investment
Advisory Manager operating under and sponsored by Hilltop Securities.
• Portfolio trading
• Providing billing for most MIN 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, MIN
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 the clients 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.
MIN will provide the Client with investment advisory services through one or more of its IARs. MIN 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 the Client’s Program Account.
Investment Managers may receive from MIN 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). MIN also may provide Investment Managers with other information regarding
the Client, including a copy of the agreement between MIN and Client. MIN will provide relevant updated
information to Investment Managers after receipt of such information from the Client.
The Client understands and agrees the Investment Managers shall be retained by Envestnet pursuant to agreements
entered into between the Investment Manager and Model Provider. 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 MIN 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 MIN 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.
Partner – Third Party Custodian (TPC) Program
The Partner – TPC program is an investment advisory program which enables the IAR to provide investment
advice through an account where the assets are custodied at Charles Schwab & Co., Inc. Advisor Services
(“Schwab”) with access to a wide spectrum of investments choices to help achieve portfolio diversification. Within
the Partner – TPC program, the IAR assists in developing a personalized investment portfolio using a variety of
security types. The IAR obtains the necessary financial data from the client and assists in determining the
suitability of the advisory services and selecting the appropriate investment objective. The IAR provides ongoing
investment advice and management tailored to the individual needs of each client. Schwab will hold client assets
in a brokerage account and buy and sell securities when instructed by MIN and the IAR. In the Partner – TPC
Program the IAR manages the accounts on either a discretionary or non-discretionary basis. In order for an
account to be in the Discretionary Program, the IAR must first be approved to participate in the program.
In addition to the asset-based fee for advisory services, Schwab charges transaction costs; custodial fees;
redemption; retirement plan and administrative fees, or commissions.
MIN offers a limited discretionary service in the Partner – TPC program and that is only available to a limited
number of IARs who meet certain eligibility requirements.
Aviator, Co-Pilot and Partner – TPC - 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 and Partner - TPC Programs. There are several sources
of information that MIN 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, MIN 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
MIN 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 generally 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, Co-Pilot, Partner - TPC Program Fees
The fee schedules, shown in the tables below, are based on Account Value and are negotiable. The fee schedules
for Aviator, Co-Pilot, and Partner – TPC Programs are not applied incrementally; the corresponding rate is applied
to the entire Account Value in determining the fee. The fees do not cover the fees and expenses of any underlying
ETFs, closed-end funds, mutual funds, UITs or exchange traded notes (“ETNs”) or fees for ancillary services such
as wire transfers, returned checks, etc. nor does it cover all applicable exchange fees or option reporting fees.
Program fees will not be adjusted for no or low trading.
The fees are 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. A portion of any fees received by MIN
will be paid to the IAR. MIN can keep between 0 to 100% of the fee and pay the remaining portion to the IAR as agreed upon
with each IAR. This amount will vary depending on a number of factors including negotiated agreements, assets under
management or other factors as determined by MIN. For the Partner – TPC Client has the ability to choose advance or arrears
billing at the time the account is set up.
Aviator; Co-Pilot; Partner - TPC Maximum Annualized Fee Schedule
Total Account Value
Individual Securities
Accounts Fees
Mutual Fund/ETF/UIT
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%
** Any single deposit or any single withdrawal of $10,000 or more of cash and/or securities, the account will be
debited or credited a pro-rated fee on the market value of the assets deposited to or withdrawn. The pro-rated
amount will be due and charged as of the date additional assets were deposited or a pro-rated adjustment or refund
of any prepaid fee as of the date of the withdrawal. MIN will retain between .10% and 25% of the fee assessed to
the Client for administrative services provided. For accounts billed in arrears there will be no credit or debit as the
amount of deposit or withdrawal will already be taken into consideration for the quarterly billing value.
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, the client does so against MIN’s
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 MIN. 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 of time, then the account will be subject to removal
from the Program.
Unsolicited Transactions
The advice and counsel of the client’s IAR is a critical service of the client’s Aviator, Co-Pilot, and Partner - TPC
account. Solicited transactions will be made based on the recommendations that the IAR makes to the client.
Unsolicited transactions are made when the client directs transactions without advice or counsel from their IAR.
Unsolicited transactions will impact the performance of the portfolio and future financial planning activities.
After the client executes an unsolicited transaction without advice from their IAR, for so long as that position is in
the Aviator, Co- Pilot, and Partner - TPC Account, MIN will take into consideration the impact of that asset:
• as part of the overall account assets,
• when MIN provides the client periodic asset allocation advice,
• when MIN values the client’s account holdings,
• when MIN provides analyses and reports on the account’s performance
MIN 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, Co-Pilot, and Partner - TPC account is no longer
appropriate for the client. In these situations, MIN has the right to terminate the account from the program.
Inactive Accounts
Aviator, Co-Pilot and Partner - TPC 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 accounts have had zero trades for the trailing 12
months, the 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 MIN
The Client should be aware that only those mutual fund companies with which MIN has a selling agreement will
be available for purchase within a Program account, and are generally limited to those fund companies that provide
MIN marketing service and support fees, which compensate MIN 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 MIN in addition to the advisory fee
revenue received from customers. These fees range generally range from 0% to .31% (.0031) of the value of MIN
customer assets invested with those mutual fund companies, and in the aggregate are a material revenue source for
MIN. As a result, not all mutual funds available to the investing public will be available for investment. However,
MIN 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 MIN. To the extent that when MIN 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 hare
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 MIN should be aware that if The Firm 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 will 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
MIN will convert existing advisory fee-eligible mutual fund positions in the Aviator, Co-Pilot and the Partner -
TPC Program 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 MIN. MIN 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 Clients’ 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”) and made available to advisory Clients of MIN through a co-advisory agreement
between HTS and MIN. The Passport Series SMA and Momentum Pathways UMA provides the IAR and 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 MIN 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 Managers 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, MIN
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 to 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 the
appropriate asset allocation and underlying Investment Managers’ strategies.
The Passport Series SMA Program is a discretionary Program where Clients are offered access to actively
managed investment portfolios managed by Investment Managers. Unlike a mutual fund, where funds are
comingled, a separately managed account is a portfolio of individually owned securities that can be tailored to fit
the Clients investing preferences. IARs will work with Clients 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, MIN and Envestnet regarding the investment objectives, goals, and guidelines
for the investment management account. This will also assist 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 managers’ 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 with access to
combine a broad selection of Investment Managers as well as including a Co-Pilot account sleeve over which their
IAR has limited trading discretion in a single portfolio. Partner – TPC accounts is not eligible to be an investment
sleeve in the UMA Program. The IAR will provide the Client with recommendations regarding the appropriate
asset allocation and underlying investment vehicles or investment strategies to meet their Clients objectives, but
the Client 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 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 IAR will assist their Client in creating a customized
portfolio, providing Clients 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.
MIN 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 MIN’s decision to remove any Manager/Strategist
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 MIN’s decision to no
longer include the Manager/Strategist on the roster. M I N 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 MIN collects regarding any Investment Manager is believed to be reliable and accurate, but MIN does not
necessarily independently review or verify it on all occasions. While performance results are generally reported to
MIN, MIN does not audit or verify that these results are calculated on a uniform or consistent basis as provided to
MIN.
MIN also provides the Client with monitoring and on demand reporting of portfolio performance on a periodic
basis for their Passport Series and Momentum Pathways Program accounts. As described above, if the Client selects
the Tax Overlay Service within this Program, they will incur an additional cost to the Client. Additionally, as
described above, if the Client selects the Impact Overlay Service within this Program, the client will incur an
additional cost.
Passport Series and Momentum Pathways Program Fees
These Programs charge an annual fee, out of which MIN pays for all portfolio management and administration
(including Envestnet, Investment Manager Fees, and fees payable to the Sponsor and 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 MIN, 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 MIN.
Where applicable, MIN will also receive a portion of the fee for providing advisory services to Clients introduced
to the Program. The amount retained is typically the amount remaining after the deduction of fees payable to
individual portfolio managers and fees payable to MIN for clearing, Program administration and sponsorships. The
MIN portion of the fee will generally fall within a range of 0.50% to 1.75% (annual rate) of assets under
management.
The level of fees 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 or higher than those charged by MIN.
The maximum fee schedule for the Passport Series and Momentum Pathways Program services is set forth below,
but may be negotiable in individual cases:
Passport Series and Momentum Pathways Program Fee
Total Account Value
Maximum Annualized Fee for
Equity/Balanced Portfolios
Maximum Annualized Fee for
Fixed Income Portfolios
First $ 250,000 2.90 - 3.00% 1.55 - 1.65%
Next $ 250,000 2.40 – 2.50% 1.40 – 1.50%
Next $ 500,000 2.15 – 2.25% 1.25 – 1.35%
Next $ 4,000,000 1.90 – 2.00% 1.05 – 1.15%
Over $5,000,000 1.75 – 1.85% 0.90 – 1.00%
* The total fee actually charged to the Client’s account(s) 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 as of the date of the withdrawal.
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 sponsors 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 and MIN 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/MIN 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 - 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–
The 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.