A. Pathway Financial Advisors, LLC (the “Registrant”) is a limited liability company
formed on September 4th, 2002 in the state of Vermont. The Registrant became registered
as an Investment Adviser Firm in 2002 with the state of Vermont and in 2005 with the
U.S. Securities and Exchange Commission. The Registrant is principally owned by Scott
Beaudin, who is also the Registrant’s Manager and Chief Compliance Officer.
B.
INTEGRATED FINANCIAL PLANNING
“Integrated Financial Planning” clients engage the Registrant to provide integrated
investment management services along with financial advice and guidance about topics
typically including retirement planning, educational planning, estate planning, business
holdings, income tax planning, cash flow planning, budgeting, risk management/
insurance, asset allocation, employee benefits, and others. Each Integrated Financial
Planning client completes a data gathering process and makes an initial data submission.
These documents, along with a personal interview with Registrant, allow the Registrant
to begin assessing the relevant factors of the Client’s individual situation. In most client
engagements, the Registrant prepares an Initial Financial Plan. This Plan may include
discussion on all evaluated matters as well as suggestions in areas that will help the
Client realize their goals and objectives. Suggestions may include investment advice,
including asset allocation. The Plan may include analysis showing the impact of the
Plan’s suggestions.
The Initial Financial Plan is typically presented to Client in a meeting. During this
meeting, the Registrant and Client may discuss the actions necessary to implement the
recommendations contained within the Plan. Such items might include:
• Investment allocation implementation, including account establishment
and/or transfer assistance.
• Investment selection assistance.
• Working with Client’s attorney to discuss any outstanding estate planning
items.
• Working with Client’s insurance provider(s) to discuss any risk
management issues.
• Working with Client’s tax advisor to implement tax planning items.
Integrated Financial Planning often includes a review process. The Registrant offers on-
going support for implementation, review, and updating the Client’s Initial Financial Plan
as requested by Client. Also included as requested by Client is:
• On-going support for the Client for any areas covered by the Client’s Plan.
• Annual investment reports (monthly or quarterly reports are provided by
the individual custodians).
• Support for Client’s periodic financial issues (house refinancing, major
purchase, employment change, etc.).
• Tax return review.
• Investment manager review (if applicable).
Note: The firm’s services do not include:
• Legal counsel.
• Asset custody services.
• Sales of any recommended financial or insurance product.
Next, after the Initial Financial Plan has been developed, the Registrant will allocate
investment assets consistent with the client’s designated investment objectives. The
Registrant primarily allocates client investment assets among: exchange-listed securities,
mutual funds, individual bonds, bond funds, and exchange traded funds (“ETFs”). Once
allocated, the Registrant provides ongoing monitoring and review of account
performance and asset allocation as compared to client investment objectives and may
periodically rebalance/execute transactions for the account based upon such reviews.
DISCRETIONARY INVESTMENT MANAGEMENT SERVICES (STAND-ALONE)
The client can engage the Registrant to provide discretionary investment advisory
services on a fee basis. The Registrant’s annual investment advisory fee is based upon a
percentage (%) of the market value of the assets placed under the Registrant’s
management. Before engaging the Registrant to provide investment advisory services,
clients are required to enter into an Investment Advisory Agreement with Registrant
setting forth the terms and conditions of the engagement (including termination),
describing the scope of the services to be provided, and the fee that is due from the client.
FINANCIAL PLANNING AND CONSULTING SERVICES (STAND-ALONE)
The Registrant may be engaged to provide financial planning and/or consulting services
(including investment and non-investment related matters, including estate planning,
insurance planning, etc.) on a stand-alone separate fee basis. Before engaging the
Registrant to provide planning or consulting services, clients are generally required to
enter into an Engagement Letter with Registrant setting forth the terms and conditions of
the engagement (including termination), describing the scope of the services to be
provided, which may include the development of a written financial plan, and the portion
of the fee that is due from the client prior to Registrant commencing services, if any.
RETIREMENT PLAN SERVICES
The Registrant also provides retirement plan consulting/management services, pursuant to
which it assists sponsors of self-directed retirement plans organized under the Employee
Retirement Security Act of 1974 (“ERISA”). The terms and conditions of the engagement
shall be set forth in a Retirement Plan Services Agreement between the Registrant and the
plan sponsor.
If the plan sponsor engages the Registrant in an ERISA Section 3(21) capacity, the
Registrant will assist with the selection and/or monitoring of investment options (generally
open-end mutual funds and exchange traded funds) from which plan participants shall
choose in self-directing the investments for their individual plan retirement accounts. If
the plan sponsor chooses to engage the Registrant in an ERISA Section 3(38) capacity,
Registrant may provide the same services as described above, but may also: create specific
asset allocation models that Registrant manages on a discretionary basis, which plan
participants may choose in managing their individual retirement account; and/or modify
the investment options made available to plan participants on a discretionary basis.
MISCELLANEOUS
Limitations of Financial Planning and Non-Investment Consulting/Implementation
Services. As indicated above, to the extent requested by a client, we may provide
financial planning and related consulting services regarding non-investment related
matters, such as estate planning, tax planning, insurance, etc. We do not serve as an
attorney, accountant, or insurance agency, and no portion of our services should be
construed as legal or accounting services. Accordingly, we do not prepare estate planning
documents, tax returns or sell insurance products. To the extent requested by a client, we
may recommend the services of other professionals for certain non-investment
implementation purpose (i.e., attorneys, accountants, insurance, etc.). Clients are
reminded that they are under no obligation to engage the services of any such
recommended professional. The client retains absolute discretion over all such
implementation decisions and is free to accept or reject any recommendation made by
Registrant or its representatives.
If the client engages any unaffiliated recommended professional, and a dispute arises
thereafter relative to such engagement, the client agrees to seek recourse exclusively from
and against the engaged professional. At all times, the engaged licensed professional[s]
(i.e., attorney, accountant, insurance agent, etc.), and not the Registrant, shall be
responsible for the quality and competency of the services provided.
Cash Positions. Registrant continues to treat cash as an asset class. As such, unless
determined to the contrary by Registrant, all cash positions (money markets, etc.) shall
continue to be included as part of assets under management for purposes of calculating
Registrant’s advisory fee. At any specific point in time, depending upon perceived or
anticipated market conditions/events (there being no guarantee that such anticipated
market conditions/events will occur), Registrant may no guarantee maintain cash
positions for defensive purposes. In addition, while assets are maintained in cash, such
amounts could miss market advances. Depending upon current yields, at any point in
time, Registrant’s advisory fee could exceed the interest paid by the client’s money
market fund.
Cash Sweep Accounts. Certain account custodians can require that cash proceeds from
account transactions or new deposits, be swept to and/or initially maintained in a
specific custodian designated sweep account. The yield on the sweep account will
generally be lower than those available for other money market accounts. When this
occurs, to help mitigate the corresponding yield dispersion Registrant shall (usually
within 30 days thereafter) generally (with exceptions) purchase a higher yielding money
market fund (or other type security) available on the custodian’s platform, unless
Registrant reasonably anticipates that it will utilize the cash proceeds during the
subsequent 30-day period to purchase additional investments for the client’s account.
Exceptions and/or modifications can and will occur with respect to all or a portion of the
cash balances for various reasons, including, but not limited to the amount of dispersion
between the sweep account and a money market fund, the size of the cash balance, an
indication from the client of an imminent need for such cash, or the client has a
demonstrated history of writing checks from the account.
The above does not apply to the cash component maintained within a Registrant actively
managed investment strategy (the cash balances for which shall generally remain in the
custodian designated cash sweep account), an indication from the client of a need for
access to such cash, assets allocated to an unaffiliated investment manager and cash
balances maintained for fee billing purposes.
The client shall remain exclusively responsible for yield dispersion/cash balance
decisions and corresponding transactions for cash balances maintained in any Registrant
unmanaged accounts.
Retirement Plan Rollovers – No Obligation / Conflict of Interest. A client or
prospective client leaving an employer typically has four options regarding an existing
retirement plan (and may engage in a combination of these options):
(i) leave the money
in the former employer’s plan, if permitted, (ii) roll over the assets to the new employer’s
plan, if one is available and rollovers are permitted, (iii) roll over to an Individual
Retirement Account (“IRA”), or (iv) cash out the account value (which could, depending
upon the client’s age, result in adverse tax consequences).
The Registrant does not make recommendations to clients with regard to retirement plan
rollovers.
No client is under any obligation to roll over retirement plan assets to an account
managed by Registrant.
Account Aggregation. In conjunction with the services provided by Right Capital, the
Registrant may also provide periodic aggregated reporting services, which can
incorporate all of the client’s investment assets including those investment assets that are
not part of the assets managed by the Registrant (the “Excluded Assets”). The
Registrant’s service relative to the Excluded Assets is limited to reporting services only,
which does not include investment implementation.
Because the Registrant does not have trading authority for the Excluded Assets, to the
extent applicable to the nature of the Excluded Assets (assets over which the client
maintains trading authority vs. trading authority designated to another investment
professional), the client (and/or the other investment professional), and not the Registrant,
shall be exclusively responsible for directly implementing any recommendations relative
to the Excluded Assets. Rather, the client and/or their other advisors that maintain trading
authority, and not the Registrant, shall be exclusively responsible for the investment
performance of the Excluded Assets.
Without limiting the above, the Registrant shall not be responsible for any
implementation error (timing, trading, etc.) relative to the Excluded Assets. In the event
the client desires that the Registrant provide investment management services (whereby
the Registrant would have trading authority) with respect to the Excluded Assets, the
client may engage the Registrant to do so pursuant to the terms and conditions of an
Investment Advisory Agreement between the Registrant and the client.
Private Investment Funds. Registrant may recommend that certain qualified clients
consider an investment in unaffiliated private investment funds. Registrant’s role relative
to the private investment funds shall be limited to its initial and ongoing due diligence
and investment monitoring services. Registrant’s clients are under absolutely no
obligation to consider or make an investment in a private investment fund(s).
Risk Factors: Private investment funds generally involve various risk factors, including,
but not limited to, potential for complete loss of principal, liquidity constraints and lack
of transparency, a complete discussion of which is set forth in each fund’s offering
documents, which will be provided to each client for review and consideration. Unlike
liquid investments that a client may own, private investment funds do not provide daily
liquidity or pricing. Each prospective client investor will be required to complete a
Subscription Agreement, pursuant to which the client shall establish that he/she is
qualified for investment in the fund, and acknowledges and accepts the various risk
factors that are associated with such an investment.
Valuation: If Registrant bills an investment advisory fee based upon the value of private
investment funds or otherwise references private investment funds owned by the client on
any supplemental account reports prepared by Registrant, the value for all private
investment funds owned by the client will reflect the most recent valuation provided by
the fund sponsor. The current value of any private investment fund could be significantly
more or less than the original purchase price or the price reflected in any supplemental
account report.
Use of Mutual Funds and Exchange Traded Funds. While the Registrant may allocate
investment assets to mutual funds and exchange traded funds (“ETFs”) that are not
available directly to the public, the Registrant may also allocate investment assets to
publicly available mutual funds and ETFs that the client could purchase without engaging
Registrant as an investment adviser. However, if a client or prospective client determines
to purchase publicly available mutual funds or ETFs without engaging Registrant as an
investment adviser, the client or prospective client would not receive the benefit of
Registrant’s initial and ongoing investment advisory services with respect to management
of the asset. Other mutual funds, such as those issued by Dimensional Fund Advisors
(“DFA”), are generally only available through selected registered investment advisers.
Registrant may allocate client investment assets to DFA mutual funds. Therefore, upon
the termination of Registrant’s services to a client, restrictions regarding transferability
and/or additional purchases of, or reallocation among DFA funds will apply.
Socially Responsible (ESG) Investing Limitations. Socially Responsible Investing
involves the incorporation of Environmental, Social and Governance (“ESG”)
considerations into the investment due diligence process. ESG investing incorporates a
set of criteria/factors used in evaluating potential investments: Environmental (i.e.,
considers how a company safeguards the environment); Social (i.e., the manner in which
a company manages relationships with its employees, customers, and the communities
in which it operates); and Governance (i.e., company management considerations). The
number of companies that meet an acceptable ESG mandate can be limited when
compared to those that do not and could underperform broad market indices. Investors
must accept these limitations, including potential for underperformance.
Correspondingly, the number of ESG mutual funds and exchange-traded funds are
limited when compared to those that do not maintain such a mandate. As with any type of
investment (including any investment and/or investment strategies recommended and/or
undertaken by Registrant), there can be no assurance that investment in ESG securities or
funds will be profitable or prove successful. Registrant does not maintain or advocate an
ESG investment strategy but will seek to employ ESG if directed by a client to do so. If
implemented, Registrant shall rely upon the assessments undertaken by the unaffiliated
mutual fund, exchange traded fund or separate account portfolio manager to determine
that the fund’s or portfolio’s underlying company securities meet a socially responsible
mandate.
Portfolio Activity. Registrant has a fiduciary duty to provide services consistent with the
client’s best interest. As part of its investment advisory services, Registrant will review
client portfolios on an ongoing basis to determine if any changes are necessary based
upon various factors, including but not limited to investment performance, fund manager
tenure, 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 of time when Registrant determines that changes to a
client’s portfolio are neither necessary nor prudent. Clients nonetheless remain subject to
the fees described in Item 5 below during periods of account inactivity.
Client Obligations. In performing its services, Registrant shall not be required to verify
any information received from the client or from the client’s other professionals, and is
expressly authorized to rely thereon. Moreover, each client is advised that it remains their
responsibility to promptly notify the Registrant if there is ever any change in their
financial situation or investment objectives for the purpose of reviewing, evaluating or
revising Registrant’s previous recommendations and/or services.
Cybersecurity Risk. The information technology systems and networks that Registrant
and its third-party service providers use to provide services to Registrant’s clients employ
various controls, which are designed to prevent cybersecurity incidents stemming from
intentional or unintentional actions that could cause significant interruptions in
Registrant’s operations and result in the unauthorized acquisition or use of clients’
confidential or non-public personal information. Clients and Registrant are nonetheless
subject to the risk of cybersecurity incidents that could ultimately cause them to incur
losses, including for example: financial losses, cost and reputational damage to respond
to regulatory obligations, other costs associated with corrective measures, and loss from
damage or interruption to systems. Although Registrant has established its procedures to
reduce the risk of cybersecurity incidents, there is no guarantee that these efforts will
always be successful, especially considering that Registrant does not directly control the
cybersecurity measures and policies employed by third-party service providers. Clients
could incur similar adverse consequences resulting from cybersecurity incidents that
more directly affect issuers of securities in which those clients invest, broker-dealers,
qualified custodians, governmental and other regulatory authorities, exchange and other
financial market operators, or other financial institutions.
Disclosure Statement. A copy of the Registrant’s written Brochure and Client
Relationship Summary, as set forth on Part 2 of Form ADV and Form CRS respectively,
shall be provided to each client prior to, or contemporaneously with, the execution of the
Investment Advisory Agreement or Engagement Letter.
C. The Registrant shall provide advisory or consulting services specific to the needs of each
client. Prior to providing investment advisory services, an investment adviser
representative will ascertain each client’s attributes and their investment objective(s).
Thereafter, the Registrant shall allocate and/or recommend that the client allocate
investment assets consistent with the designated investment objective(s). The client may,
at any time, impose reasonable restrictions, in writing, on the Registrant’s services.
D. The Registrant does not participate in a wrap fee program.
E. As of December 31, 2023, the Registrant had $782,973,506 in assets under management
on a discretionary basis.