SBK Financial, Inc. (“SBK,” or “we”) is a Virginia corporation founded in 2005 and registered
as an investment adviser with the United States Securities and Exchange Commission since
May 2005. SBK is principally owned by J. Kevin King, President and Andrea L. Broughton,
Vice President and Stephanie Stumpf, Director.
INVESTMENT MANAGEMENT SERVICES
SBK provides customized investment management services to high-net-worth individuals
and associated trusts, estates, pension and profit-sharing plans. We primarily invest client
assets in mutual funds or exchange traded funds (“ETFs”). We evaluate, select, and oversee
other investment managers to manage a portion of the client’s account when appropriate.
For clients who are “accredited investors” as defined under Rule 501 of the Securities Act of
1933, as amended, we may occasionally recommend private investment funds, which may
include debt, equity, or pooled investment vehicles when consistent with the client’s
investment objectives. We may also assist in selecting, evaluating, negotiating, closing,
oversight and monitoring investments in certain tax credits, including historic rehabilitation,
land preservation, education improvement scholarship, and neighborhood assistance tax
credits. We engage an investment consulting firm that is independent of SBK (“Due Diligence
Provider” or “Provider”) to perform due diligence on the mutual funds, investment managers
and private investment funds we recommend. In limited circumstances, this Provider may
offer recommendations for funds that have separately engaged the Provider to perform
investment advisory services. This arrangement presents a conflict of interest for the Due
Diligence Provider, which we mitigate when applicable by notifying the affected client,
reminding them that they can limit their investment options, and that they are not obligated
to invest in any private investment funds we recommend.
SBK tailors its services to the individual needs of its clients. We collaborate with each client
to develop an appropriate investment profile and strategy and seek to manage the portfolio
accordingly. To the extent specifically requested by the client, the annual investment
advisory fee charged for investment management services also compensates for limited
financial planning and consulting services such as tax planning, estate planning, non-
investment related financial counseling, etc. While we believe it is important for clients to
address these issues on an ongoing basis, our investment advisory fee will remain the same
regardless of whether clients choose to use those services. In designing an investment
portfolio, we consider the client’s age, investment goals, time horizon, financial
circumstances, tax situation, investment experience, risk tolerance, investment limitations
and trading restrictions. We help clients select from various growth, balanced and
conservative strategies. Clients may impose reasonable restrictions on SBK’s management
of their accounts.
TAX PREPARATION AND PLANNING SERVICES
Certain existing clients may also engage SBK under a separate agreement to provide tax
preparation and/or planning services through its representatives who are Certified Public
Accountants. In these limited circumstances, SBK charges a fixed fee that varies depending
upon the scope and complexity of the tax services required.
FINANCIAL PLANNING LIMITATIONS
As mentioned above, to the extent requested by the client, SBK may also provide financial
planning and related consulting services regarding non-investment related matters, such as
estate planning, tax planning, etc. On a very limited basis, SBK may also provide services to
a client who is not an investment management client in coordination with that client’s other
registered investment advisers. The services SBK may provide could include tax advisory,
estate planning, non-investment related financial counseling, etc., and will be separately
identified and billed. Fees for these limited engagements may vary, are negotiable, may be
charged on a time and materials basis or as a flat fee, and are typically payable in part upon
commencement of a project, periodically over the life of the engagement or upon completion
of the engagement. The client retains absolute discretion over all financial planning and
related implementation decisions and is free to accept or reject any recommendation from
SBK and its representatives in that respect.
ERISA / IRC Fiduciary Acknowledgment. When SBK provides investment advice to a client
about the client’s retirement plan account or individual retirement account, it does so as a
fiduciary within the meaning of Title I of the Employee Retirement Income Security Act
(“ERISA”) and the Internal Revenue Code (“IRC”), as applicable, which are laws governing
retirement accounts. Because the way SBK makes money creates some conflicts with client
interests, SBK operates under a special rule that requires it to act in the client’s best interest
and not put its interests ahead of the client’s. Under this special rule’s provisions, SBK must:
meet a professional standard of care when making investment recommendations (give
prudent advice); never put its financial interests ahead of the client’s when making
recommendations (give loyal advice); avoid misleading statements about conflicts of
interest, fees, and investments; follow policies and procedures designed to ensure that SBK
gives advice that is in the client’s best interest; charge no more than is reasonable for SBK’s
services; and give the client basic information about conflicts of interest.
Client Obligations. When performing its services, SBK is not required to verify any
information received from the client or from the client’s designated professionals and is
expressly authorized to rely on that information. Clients are responsible to promptly notify
SBK if there is ever any change in their financial situation or investment objectives for the
purpose of reviewing or amending SBK’s services or previous recommendations.
Portfolio Trading Activity
/ Inactivity. As part of its investment advisory services, SBK will
manage client portfolios on an ongoing basis to determine if trading is necessary based upon
various factors, including but not limited to investment performance, market conditions,
style drift, account additions/withdrawals, the client’s financial circumstances, and changes
in the client’s investment objectives. Based upon these and other factors, there may be
extended periods when SBK through ongoing management, determines that upon review,
trades within a client’s portfolio are not prudent. Clients nonetheless remain subject to the
fees described in Item 5 during periods of portfolio trading inactivity.
Asset Aggregation / Reporting Services. SBK may provide access to reporting services
through one or more third-party aggregation / reporting platforms that can reflect all of the
client’s investment assets, including those investment assets that the client has not engaged
SBK to manage (the “Excluded Assets”). SBK’s service for the Excluded Assets is strictly
limited to reporting, and specifically excludes investment management or implementation.
Because SBK does not have trading authority for the Excluded Assets, the client (and/or a
designated investment professional), and not SBK, will be exclusively responsible for
implementing any recommendations for the Excluded Assets and the resulting performance
or related activity (such as timing and trade errors) pertaining to the Excluded Assets. The
third-party aggregation / reporting platforms may also provide access to financial planning
information and applications, which should not be construed as services, advice, or
recommendations provided by SBK. Accordingly, SBK would not agree to be held responsible
for any adverse results a client may experience if the client engages in financial planning or
other functions available on the third-party reporting platforms without SBK’s participation
or oversight.
Margin / Securities Based Loans. SBK does not recommend the use of margin for investment
purposes. However, if a client determines to take a margin loan that collateralizes a portion
of the assets that SBK is managing, SBK’s investment advisory fee will be computed based
upon the full value of the assets, without deducting the amount of the margin loan. Without
limiting the above, SBK may recommend that a client establish a margin loan or a securities-
based loan (collectively, “SBLs”) with the client’s broker-dealer/custodian or their affiliated
banks (each, an “SBL Lender”) to access cash flow. Unlike a real estate-backed loan, an SBL
has the potential benefit of enabling borrowers to access funds in a shorter period of time,
providing greater repayment flexibility, and may also result in the borrower receiving
certain tax benefits. Clients interested in learning more about the potential tax benefits of
borrowing money on margin should consult with an accountant or tax advisor. The terms
and conditions of each SBL are contained in a separate agreement between the client and the
SBL Lender selected by the client, which terms and conditions may vary from client to client.
Borrowing funds on margin is not suitable for all clients and is subject to certain risks,
including but not limited to: increased market risk, increased risk of loss, especially in the
event of a significant downturn; liquidity risk; the potential obligation to post collateral or
repay the SBL if the SBL Lender determines that the value of collateralized securities is no
longer sufficient to support the value of the SBL; the risk that the SBL Lender may liquidate
the client’s securities to satisfy its demand for additional collateral or repayment / the risk
that the SBL Lender may terminate the SBL at any time. Before agreeing to participate in an
SBL program, clients should carefully review the applicable SBL agreement and all risk
disclosures provided by the SBL Lender including the initial margin and maintenance
requirements for the specific program in which the client enrolls, and the procedures for
issuing “margin calls” and liquidating securities and other assets in the client’s accounts. If
SBK recommends that a client apply for an SBL instead of selling securities that SBK manages
for a fee to meet liquidity needs, the recommendation presents an ongoing conflict of interest
because selling those securities (instead of leveraging those securities to access an SBL)
would reduce the amount of assets to which SBK’s investment advisory fee percentage is
applied, and thereby reduce the amount of investment advisory fees collected by SBK.
Likewise, the same ongoing conflict of interest is present if a client determines to apply for
an SBL on their own initiative. These ongoing conflicts of interest would persist as long as
SBK has an economic disincentive to recommend that the client terminate the use of SBLs. If
the client were to invest any portion of the SBL proceeds in an account that SBK manages,
SBK will receive an advisory fee on the invested amount, which could compound this conflict
of interest. If a client accesses an SBL through its relationship with SBK and the client’s
relationship with SBK is terminated, that client may incur higher (retail) interest rates on
the outstanding loan balance. Clients are therefore reminded that they are not under any
obligation to employ the use of SBLs, and are solely responsible for determining when to use,
reduce, and terminate the use of SBLs. Although SBK seeks to disclose all conflicts of interest
related to its recommended use of SBLs and related business practices, there may be other
conflicts of interest that are not identified above. Clients are therefore reminded to carefully
review the applicable SBL agreement, and all risk disclosures provided by the SBL Lender as
applicable and contact SBK’s Chief Compliance Officer with any questions regarding the use
of SBLs.
WRAP PROGRAMS
SBK does not offer investment management services on a wrap-fee basis.
REGULATORY ASSETS UNDER MANAGEMENT
As of December 31, 2023, SBK had $1,134,816,590 in assets under management, all of which
was being managed on a discretionary basis.