SMI Private Client – Wrap Fee Program
SMI offers a proprietary investment service based on investment strategies that originated in the Sound Mind
Investing newsletter, which is an affiliate of SMI, due to the ownership interests of Austin Pryor and Mark
Biller (see Item 9, below). The Sound Mind Investing newsletter was designed for do-it-yourself investors.
The SMI Separately Managed Accounts (or Privately Managed Accounts “PMA(s)”) also provide Clients with
a way to have the SMI strategies implemented for them, but compared to the SMI Family of mutual funds,
PMAs provide the Client with greater flexibility to tailor their portfolio to the ratio of the SMI strategies that
the Client chooses. Once the risk assessment is completed and the strategy allocations are selected by the
Client, SMI manages each Client’s portfolio according to those chosen strategy allocations. The SMI Private
Client Wrap Fee Program is offered to all SMI Private Client accounts.
We encourage visiting our website
www.SMIPrivateClient.com for additional information.
Tailored Advisory Services
To provide its advisory services SMI collects information from each PMA Client, including specific
information about their investing profile such as financial situation, investment experience, and investment
objectives. SMI maintains this information in strict confidence subject to its Privacy Policy. When
implementing its investment solutions, SMI relies upon the information received from a Client. Although
SMI contacts its Clients periodically as described further in Item 9 below, a Client must promptly notify SMI
of any change in their financial situation or investment objectives that might require a review or revision of
their portfolio.
SMI typically receives discretionary authority from the client at the outset of an advisory relationship (via the
investment advisory agreement) to select, purchase and sell securities for the client’s account. This discretion
includes the authority to place securities transactions without prior consent from you. SMI’s service includes
preselected securities for each strategy the Client selects. SMI does not allow Clients to select their own
securities, instead the Client selects their strategies and SMI selects the corresponding securities.
SMI will observe limitations and/or restrictions placed by the Client on managing the account. Clients may
discuss imposing reasonable restrictions on their account, but must understand that it may preclude them
from participating in a particular strategy or model.
Advisory Fees
Our wrap fee program allows you to pay a single fee that covers advisory services, trade execution, custody
and other standard brokerage services. The fee based on the net market value of a Client’s Account. SMI
reserves the right, in its sole discretion, to negotiate, reduce, change or waive the advisory fee for certain
Client Accounts for any period of time determined by SMI. In addition, SMI may reduce or waive its fees for
the Accounts of some Clients without notice to, or fee adjustment for, other Clients.
Schwab’s Brokerage ServicesIn addition to the advisory services, the wrap fee program includes certain
brokerage services of Charles Schwab & Co., Inc. (“Schwab”) a broker-dealer registered with the Securities
and Exchange Commission and a member of FINRA and SIPC. We are independently owned and operated
and not affiliated with Schwab. Schwab will act solely as a broker-dealer and not as an investment advisor
to you. It will have no discretion over your account and will act solely on instructions it receives from us (or
you). Schwab has no responsibility for our services and undertakes no duty to you to monitor our
management of your account or other services we provide to you. Schwab will hold your assets in a
brokerage account and buy and sell securities and execute other transactions when we (or you) instruct
them to do so. We do not open the account for you, but we do assist in that process.
You should note that the same (or similar) services as those described above may be available from other
sources at a lower cost to you. Depending upon the level of the wrap fee charges, the amount of portfolio
activity in your account, the value of services that are provided, and other factors, a wrap fee may exceed
the aggregate cost of services if they were to be provided separately. Generally, wrap programs are
relatively less expensive for actively traded accounts. However, a non-wrapped pricing arrangement can be
more cost effective for accounts that do not experience frequent trading activity.
Fees for Wrap ProgramWe charge a single asset-based fee for services covered by the wrap program. The
maximum fee charged for the program is set forth below.
Fees We Pay Schwab In addition to compensating SMI for advisory services, the wrap fee you pay us allows
us to pay for brokerage and execution services provided by Schwab.
• When accounts are established as “Transaction Based Pricing”, SMI pays Schwab transaction costs
for each executed trade in wrap fee accounts. However, we do not charge our clients higher
advisory fees based on their trading activity, but you should be aware that we have an incentive to
limit our trading in your account(s) because we are charged for executed trades.
• When accounts are established as “Asset Based Pricing”, SMI pays Schwab a single asset-based fee in
lieu of transaction-based commissions. The fees we pay Schwab are assessed on certain assets in
your account(s) at Schwab. We have a conflict of interest because we have a financial incentive to
maximize our compensation by seeking to reduce or minimize the total costs incurred in your
account(s) subject to a wrap fee.
SMI Private Client – Wrap Fee Program
Program Client Assets Annual Fee
Transaction
Costs
SMI Private Client - Classic $50,000 - $249,999 1.00% Included*
SMI Private Client - Select $250,000 - $999,999 0.95% Included*
SMI Private Client - Premier $1,000,000 and above 0.85% Included*
*Clients will pay any transaction charges incurred by the Held Away Account(s).
Relative Cost of Wrap Fee Program A wrap fee is not based directly on the number of transactions in your
account. Various factors influence the relative cost of our wrap fee program to you, including the cost of our
investment advice, custody and brokerage services if you purchased them separately, the types of
investments held in your account, and the frequency, type and size of trades in your account. The program
could cost you more or less than purchasing our investment advice and custody/brokerage services
separately.
Fees and Costs Not Included Our wrap fee covers our advisory services and the brokerage services provided
by Schwab [including custody of assets, equity trades, ETFs, and agency transactions in fixed income
securities]. As a result, we have an incentive to execute transactions for your account at Schwab.
Our wrap fee does not cover all fees and costs. The fees not included in the wrap fee include charges
imposed directly by a mutual fund, index fund, or exchange traded fund which shall be disclosed in the
fund’s prospectus (i.e., fund management fees and other fund expenses), mark-ups and mark-downs,
spreads paid to market makers, fees (such as a commission or markup) for trades executed away from
[Schwab/Custodian] at another broker-dealer, wire transfer fees and other fees and taxes on brokerage
accounts and securities transactions.
SMI may have the ability, through arrangements between SMI and third parties, to advise or manage
Client’s 401(k), 403(b), 529, Donor Advised Fund and/or health savings account(s) held at financial
institutions other than Custodian where SMI cannot directly access such accounts (hereafter and
collectively, “Held Away Accounts”).
Fees will be calculated
monthly, based on the average daily value of the Account(s) or Held Away Account(s)
assets (securities, cash and cash equivalents) under management as valued by the Custodian, when
available, or otherwise in good faith, and paid monthly. The monthly fee is determined by multiplying the
month's average daily value by the annual management fee divided by 12.
Since the advisory fee is applied to the Account(s) or Held Away Account(s) month’s average daily balance
under management, and since some of days in the first month may have no assets under management, the
Initial Advisory Fee is appropriately pro-rated, and it is due at the end of the month in which this
Agreement was executed. Subsequent Advisory Fees will be assessed at the end of each month and paid on
or around the first business day of the following month. Additional deposits of funds and/or securities will
be subject to the same billing procedures. This includes deposits of stocks, bonds, mutual funds, and any
other securities approved by SMI for investment in this type of account.
In the event of termination, the final Advisory Fee for the Account(s) or Held Away Account(s) will be
calculated, with appropriate proration, as of the day that SMI receives notification of the termination.
In limited circumstances, mutual funds sponsored and managed by SMI (the “SMI Funds”) will be invested
into the Account. SMI earns fees in connection with the services it provides to the SMI Funds (the “SMI
Funds’ Internal Expenses”), and such SMI Funds’ Internal Expenses will generally be higher than the Advisory
Fee. The SMI Mutual Funds will only be implemented into the Account in the following limited
circumstances:
A. The Account is comprised of less than an amount of assets sufficient to support the full
implementation of the SMI Strategies, and the Account is subject to an Advisory Fee of 1% per
annum; or
B. Upon the specific direction of Client in writing (e.g., so as to avoid triggering an undue tax obligation
or for reasons otherwise in furtherance of SMI’s fiduciary duty to Client).
With respect to the limited circumstance described in Paragraph A, above, SMI will offset any SMI Funds’
management fees it receives against the 1% PMA Advisory Fee shown above.
With respect to the limited circumstance described in Paragraph B, above, the Advisory Fee will not be
charged on the assets that are invested in the SMI Funds.
In the event that SMI uses an ETF managed by SMI in the PMAs, the PMA fee charged on the assets in the
ETF will be the normal PMA fee minus the SMI ETF’s fee. Example: If a Client’s PMA account is normally
charged 0.85% and the account has $100,000 in the SMI ETF, then the $100,000 would be charged a PMA
fee of (0.85% - 0.79%).
For Held Away Accounts, SMI will deduct the applicable Advisory Fee from Client’s taxable account, which is
advised by SMI and held at a custodian, on a pro rata basis based upon the value of such Held Away Account
as reported to SMI by the custodian, recordkeeper or platform provider. If SMI does not advise Client with
respect to any taxable account (or if such account is not held at the custodian), SMI will not be able to
deduct the Advisory Fee and Client will be responsible for paying the Advisory Fee directly to SMI.
The Schedule of PMA Fees charged by SMI is inclusive of transaction charges that would otherwise be
charged to the Client by the custodian of the Account(s). Clients will pay any transaction charges incurred
by the Held Away Account(s). Additionally, charges such as margin interest, transfer costs, and custodial
fees are not included in the Advisory Fee. Client understands that SMI’s investment adviser representatives,
in connection with their performance of services, shall be entitled to and may share in the Advisory Fees.
Client may also incur certain charges imposed by third parties other than SMI in connection with
investments made through the Account(s) or Held Away Account(s), including but not limited to SEC fees,
short-term redemption penalties, no-load mutual fund 12b-1 distribution fees (trail commissions), certain
deferred sales charges on previously purchased mutual funds and IRA and Qualified Retirement Plan fees.
Advisory Fees do not include certain charges such as 12b-1 fees paid by mutual funds held in Client's
Account(s) or Held Away Account(s). The amount of a mutual fund's 12b-1 fees is reflected on the funds’
prospectuses and/or financial statements. Notwithstanding the foregoing, no 12b-1 fees will be received by
SMI’s affiliates with respect to any assets in an Account(s) or Held Away Account(s) of a Client which is an
employee benefit plan subject to ERISA or an IRA or other Account(s) subject to the prohibited transaction
rules of the Internal Revenue Code (“IRC”).
The PMA Fee schedule in effect for Client's Account(s) or Held Away Account(s) shall continue until thirty
(30) days after SMI has notified the Client in writing of any change in the amount of the Fees or charges
applicable to the Client's Account(s) or Held Away Account(s). At such time the new Fees or charges will
become effective unless the Client notifies SMI in writing that the Account(s) or Held Away Account(s) is to
be closed.
Client accounts will hold a variety of securities including, but not limited to, shares of investment
companies, including open-end and closed-end mutual funds, exchange-traded funds (“ETFs”), potentially
money market funds and cash. Investment companies incur internal expenses and pay advisory fees to their
investment advisors, which reduce the net asset value of the funds’ shares. Additionally, we charge our
clients an advisory fee based on the value of their total portfolio, which may include investment company
holdings. Therefore to the extent a client’s account is invested in investment companies, the client may pay
two levels of advisory fees for the management of the client’s assets, both directly to SMI and indirectly
through the management fees assessed by the investment companies in the client’s account. We do intend
to invest in such securities because they are an integral part of the strategies and in our judgment, the
potential benefits of such underlying investments justify the payment of any associated fees and
expenses. Complete details of these internal fees and expenses are explained in the prospectus for each
investment. You are strongly encouraged to read these documents before making or authorizing any
investments. We are available to answer any questions you have about fees and expenses.
Other Account Fees
SMI is a “fee only” investment advisor, and other than its advisory fees described above, neither the firm
nor its employees receive or accept any direct or indirect compensation related to investments that are
purchased or sold for Client Accounts. This means that Clients will not be sold products or services that
create additional fees or compensation to benefit SMI or its employees or its affiliates other than those
described in this Brochure.
In addition to SMI’s fees (described previously), clients will also incur in the course of SMI’s investment
management of their account(s):
• Costs associated with securities transactions, such as brokerage commissions, mark-ups, mark-
downs, odd-lot differentials, SEC fees, short-term redemption penalties and other transaction costs;
• transfer taxes, wire transfer and electronic fund fees and other fees and taxes on brokerage
accounts and securities transactions; and
• Fees charged by brokers, banks or other qualified custodians for custody services.
Client accounts that purchase securities issued by investment companies, including open-end and closed-
end mutual funds, exchange-traded funds (“ETFs”) and money market funds, may incur sales charges or
service fees to third parties in connection with such purchases, including deferred sales charges. Further,
such investment companies may also charge internal management fees, which are disclosed in the
applicable fund’s prospectus.
These third-party fees and costs are in addition to SMI’s fees. SMI does not receive any portion of these fees
and costs. Item 12 further describes the factors that SMI considers in selecting or recommending broker-
dealers for client transactions and determining the reasonableness of their compensation (e.g., commissions).