Advisory Firm Background and Principal Owner Covestor Limited (“Covestor Ltd” or “Covestor”) doing business as (“dba”) Interactive Advisors, Interactive Advisers, Interactive Brokers Asset Management, IB Asset Management, and IBKR Asset Management, an investment adviser registered with the United States Securities and Exchange Commission (“SEC”), is a private limited company incorporated in the United Kingdom and established on May 15, 2006. Covestor Ltd is not registered to conduct investment advisory business in any jurisdiction outside the United States. Covestor Ltd is incorporated as a private limited company, but is not registered to provide investment management or advice in the United Kingdom or anywhere outside of the United States.
Covestor Ltd is owned by Covestor Inc., a privately held firm whose principal owner is Interactive Brokers Group, Inc.
Interactive Brokers Group, Inc., together with its subsidiaries (the “Interactive Brokers Group”), is an automated global electronic broker. Interactive Brokers Group, Inc. is a Delaware corporation whose common stock is publicly traded on Nasdaq. Additional information about Interactive Brokers Group is available athttps://www.interactivebrokers.com Our registration does not imply any level of skill or training. The oral and written communications we provide to you, including this brochure, are for you to evaluate us and our services, determine whether the advisory services we offer are right for you, and disclose the potential conflicts of interest associated with our services.
Covestor primarily conducts its advisory business over the Internet or through privately offered pooled investment vehicles under one of the above-mentioned business names, which are different from its legal name. The Firm’s website is located at https://interactiveadvisors.com. For brevity and convenience, Covestor will be referred to as “Interactive Advisors” throughout this brochure.
Advisory Services Interactive Advisors provides: (a) online investment advisory services to retail clients through investments in portfolios (“clients”); and (b) investment advisory and fund management services to private funds (“Fund Clients”).
Online Investment Platform - General Overview Interactive Advisors offers an online investment platform through which its clients can invest in two types of portfolios: (1) trading strategies managed by third-party portfolio managers (“Manager Portfolios”) and (2) proprietary investment portfolios designed and managed by Interactive Advisors itself (“Interactive Advisors Portfolios”). Interactive Advisors allows clients to invest in these strategies by simultaneously mirroring or replicating the activity in a Manager- or Interactive Advisors-owned and managed account underlying the specific Portfolio into investing clients’ accounts.
Our services to clients are generally limited to the discretionary management of their assets and do not include financial planning or any other services, but we may provide clients free of charge certain software-based financial planning tools or features. Interactive Advisors offers a software tool, the Goal Tracker, which allows logged-in clients to estimate the likelihood of achieving goals they specify within a set period of time using an asset allocation strategy. This tool uses various assumptions and its output has various limitations discussed in this white paper on our website: https://interactiveadvisors.com/learn-more/goal-tracker. Additional information on the assumptions, limitations and risks associated with the Goal Tracker tool is available in Item 8.
Principal considerations for potential investors Interactive Advisors’ platform is a primarily online investment platform designed for investors who want to have access to a wide variety of investment choices (including but not limited to Smart Beta, asset allocation, index tracking, model ETF portfolios, Socially Responsible Investing and various actively-managed investment strategies) and investors who generally Informational Brochure - March 17, 20234 / 82 have a longer time horizon. Before opening an account with Interactive Advisors, clients should consider among other things: the costs and potential benefits of investing in such a platform that charges a management fee in addition to commissions charged separately by our affiliated broker-dealer, Interactive Brokers LLC (“IB LLC”); the need and desire for professional money management services; whether the client is comfortable granting investment discretion to an investment adviser like Interactive Advisors; the client’s objectives, risk tolerance, time horizon, and financial circumstances; whether the client prefers a primarily in-person rather than digital (online) and telephonic client experience; and whether the client can receive documents electronically. Before investing with Interactive Advisors or any other investment adviser, clients should consider paying off their high-interest debt and using workplace savings options.
Distinction from traditional advisory services Clients interested in using Interactive Advisors’ services should be aware of the fact that Interactive Advisors provides its investment services primarily online, although it does make client support staff available for consultation as needed by Clients on servicing and investment management issues. Clients should be able and willing to conduct most of their interactions with Interactive Advisors using electronic methods. In the Investment Management Agreement they execute with Interactive Advisors, Clients agree to receive all documents, notices, and updates electronically by email or through their access to the Firm’s website accompanied by an email notice.
Platform Limitations While we have designed our platform to be broadly applicable to many clients, it may not be appropriate for you if you: ●desire more frequent account reviews for trading opportunities; ●have a very short or a very long investment horizon, a high tolerance for market risk, or a desire to invest significantly in alternative asset classes; or ●have especially complex investment objectives and needs as your current investments consist of illiquid securities, annuities, and/or extremely low basis securities.
Because our platform is an online advisory service, it is not appropriate for you if you have limited or no access to technology.
Should you determine that our platform is appropriate for you notwithstanding the above considerations, you must keep in mind that it is meant to be a component of your overall investment strategy and not your sole investment strategy. The platform’s projections and decisions are limited in scope to the risk questions we ask you through the website before allowing you to invest with us and the information that you supply to us. As the platform does not provide comprehensive financial planning, there may be additional relevant information or other financial circumstances that the platform does not consider (e.g., your debt load or other financial obligations) that could inform your investment decisions. We urge you to carefully consider the platform’s costs and benefits before opening an advisory account and beginning to invest.
Interactive Advisors’ risk scoring methodology Interactive Advisors analyzes each strategy on the platform to determine a risk score for the associated Portfolio. Interactive Advisors then assigns a risk score between 1 (least risky) and 5 (most risky) to each Portfolio. The purpose of the risk score is to ensure that the Portfolio risk is in line with client expectations and meets Interactive Advisors’ fiduciary obligation to recommend suitable investments for clients.
To ensure that Interactive Advisors clients have access only to Portfolios that are suitable for their ability to take on risk and risk tolerance, Interactive Advisors profiles clients using a risk questionnaire to ascertain their risk tolerance, using the same scale of 1 to 5. The risk assessment/suitability questionnaire takes into consideration clients’ financial situation, annual net income, estimated liquid net worth, age, investing knowledge, investment horizon, tolerance for stock market drops, and attitude towards the trade-off between risk and return in connection with Interactive Advisors investments. Interactive Advisors calculates risk scores for clients based on clients’ answers to this questionnaire. In determining the risk score of clients investing in an Interactive Advisors portfolio through their existing investment advisor, Interactive Advisors will take into account the answers the client’s existing advisor provides in response to the Interactive Advisors risk questionnaire Informational Brochure - March 17, 20235 / 82 based on a separate authorization provided by the client to the advisor (discussed in Item 7). Advisors also have the option to use a general risk scoring tool offered by our affiliate IB LLC to design their own risk questionnaire and risk scoring formula and generate risk scores for their clients. To ensure consistency between the risk scores generated by its own risk assessment questionnaire and the IB LLC risk scoring tool, for purposes of investments with Interactive Advisors, the IB LLC tool uses a risk questionnaire framework and formula that Interactive Advisors’ Investment Management Team has deemed equivalent to its own risk scoring framework.
Interactive Advisors matches up clients’ assigned risk scores with Portfolio risk scores in accordance with a proprietary risk scoring methodology, i.e.,clients may only invest in Portfolios with a risk score equal to or lower than their risk score.
Based on the risk score assigned by Interactive Advisors, clients may invest in one or more of the Portfolios or strategies that have risk scores equal to or lower than the client either on their own or with the assistance of Interactive Advisors’ client service representatives (who are appropriately registered as Investment Adviser Representatives). Interactive Advisors does not take into account a client’s personal tax situation when recommending and managing portfolios. Interactive Advisors recommends that clients consult with their tax advisor on such matters.
Clients can update their responses to the risk assessment questionnaire on Interactive Advisors’ website at any time to reflect changes in their personal circumstances (e.g., financial situation, investment objectives, and risk tolerance). Changes to these responses could (but do not necessarily have to) result in a change in a client’s risk score and thus the Portfolios that the client may be able to invest in. If a client’s updated risk score is lower than the risk score of any of his then existing portfolio investments, Interactive Advisors will prompt the client to invest in portfolios with risk scores consistent with the client’s new risk score and Interactive Advisors will divest the client from the higher-risk-score portfolios after 30 days. Interactive Advisors provides detailed definitions of all portfolio and client risk scores in the Learn more section of its website, under the Risk scores tab (https://interactiveadvisors.com/learn-more/risk-scores).
Interactive Advisors clients are and remain responsible at all times for advising Interactive Advisors of any changes in their financial situation, investment objectives, risk tolerance and investment restrictions. Annually, Interactive Advisors will contact clients to determine whether there have been any changes in their financial situation or investment objectives and whether clients want to impose new or revise existing restrictions on the trading in their accounts. Also, at least quarterly, Interactive Advisors will notify clients in writing to contact it if there have been any changes in their financial situation or investment objectives or they wish to impose any restrictions on the trading in their account. Clients will generally receive periodic statements and trade confirmations setting forth all transactions in their accounts, all contributions and withdrawals, all fees and expenses charged, and the value of their account at the beginning and end of the period (including any fractional share holdings and transactions) from Interactive Advisors’ affiliated broker-dealer, IB LLC. Interactive Advisors’ client service representatives are available to discuss and explain investment decisions made for their Interactive Advisors Portfolio investments and may be contacted by telephone at 1-866-825-3005 and by email [email protected].
Interactive Advisors provides clients with individual, password-protected, login credentials to its website, https://interactiveadvisors.com/where clients can view their holdings and account history as well as get access to account-related documents, and revise their answers to the risk assessment questionnaire to reflect changes in their circumstances.
Interactive Advisors’ co-trading technology Once an Interactive Advisors client invests in a specific strategy, Interactive Advisors simultaneously mirrors or replicates into investing clients’ accounts the activity in the Portfolio Manager or Interactive Advisors-owned and traded account underlying that Portfolio. clients and Portfolio Managers have to enter into agreements with Interactive Advisors and with Interactive Advisors’ affiliated broker-dealer Interactive Brokers LLC (“Broker-Dealer” or “Custodian” or “IB LLC”) and have to open brokerage accounts with IB LLC.
A central piece of Interactive Advisors’ trading process is the aggregation of all Portfolio Manager or Interactive Advisors trades (depending on whether the Portfolio is a Manager or Interactive Advisors Portfolio) and investing client orders into a single order. To ensure pricing and execution fairness and to prevent any potential front-running by Portfolio Managers or Informational Brochure - March 17, 20236 / 82 Interactive Advisors of client trades following them, Interactive Advisors places a single order that combines the Portfolio Manager’s (or Interactive Advisors’) order with the number of shares that need to be transacted in order to replicate the Manager’s or Interactive Advisors’ strategy into all investing clients’ accounts, a process referenced as “co-trading”.
Interactive Advisors then allocates the share to the Portfolio Manager (or Interactive Advisors) and clients’ accounts on a pro rata basis at the average share price with transaction costs shared pro rata.
Interactive Advisors’ trading rules and client-specified investment restrictions Interactive Advisorsdoes not automatically replicate all tradesin the Portfolio Managers’ or Interactive Advisors’ accounts. For instance, clients may specify that certain securities not be traded in their accounts, and Interactive Advisors will block trading in these securities even if a Manager (or Interactive Advisors) in whose Portfolio the client invests trades that security. Clients may also decide to apply various Socially Responsible Investing exclusion lists (initially compiled and periodically updated by Interactive Advisors) to their portfolio investments in order to have their portfolio investments avoid certain issuer practices (e.g., animal testing; business ethics controversies; corporate political spending and lobbying; energy intensive; fossil fuels; greenhouse emissions; hazardous waste; high water usage; tobacco, alcohol and gambling; and weapons and gun manufacturers). Additionally, Interactive Advisors may also disallow certain portfolio trades altogether or simply block them from replication or mirroring into client accounts based on its trading rules. For instance, Interactive Advisors does not allow Manager or Interactive Advisors Portfolios to trade certain securities, including those with a market capitalization of less than $50 million or an average daily volume of less than $100,000. Trades that violate any of Interactive Advisors’ trading rules are blocked from replication in client accounts.
No guaranteed availability of Portfolios For various reasons, Interactive Advisors may not be able to continue offering a specific portfolio. For instance, Interactive Advisors may need to close a Manager Portfolio because the Portfolio Manager has decided to no longer make his trading data available and terminate his participation on the platform. Portfolio Managers can close a Portfolio upon providing a 30-day notice to Interactive Advisors at any time. When a closure occurs, Interactive Advisors will attempt to provide clients with a selection of Portfolios with similar strategies wherever possible. Interactive Advisors may need to close one of the Interactive Advisors Portfolios because it can no longer obtain the data from a third-party data provider (which may have terminated the relevant data licensing agreement) or for another reason. Should that occur, Interactive Advisors will inform clients investing in such portfolios that the portfolio is no longer available and clients need to invest in different portfolios or convert their existing investments in such portfolios into cash. Interactive Advisors will provide clients with as much advance notice as practicable under these circumstances but no less than 30 days. Clients should be aware that in certain cases Interactive Advisors depends on the Portfolio Managers or a third-party data provider to provide it with advance notice of such decisions and, in order to protect clients’ interests, some portfolio divestments may need to occur before the expiration of the 30-day period if the third-party provider decides to stop managing the portfolio before the end of that notice period.
Interactive Advisors cannot ensure that a comparable portfolio will be available, and, whether or not alternative portfolios exist on the platform or elsewhere.
Clients are under no obligation to maintain an account with Interactive Advisors or, if they maintain an account, to invest in any Portfolios. Please note that, after the closure of a portfolio, clients can choose to maintain the integer investments in that closing portfolio in an IB LLC brokerage account distinct from the one managed by Interactive Advisors or an external brokerage account outside of IB LLC, but clients will be responsible for managing those investments themselves, including periodically rebalancing the assets. Fractional holdings in a closed portfolio cannot be transferred and must be sold. Please note that, if you choose to remain invested with Interactive Advisors after the closure of a portfolio, you will incur transaction fees in connection with liquidating your investment in a closed portfolio and investing in a new portfolio. You may also incur federal and state tax liabilities if liquidation results in long and/or short-term gains.
Informational Brochure - March 17, 20237 / 82 Manager Portfolios Manager Portfolios generally simultaneously replicate (mirror) the trading by third-party Portfolio Managers. Interactive Advisors assigns risks scores to the Portfolio Manager strategies on its platform and allows Interactive Advisors clients with commensurate risk scores to invest in those strategies.
Managers on the Interactive Advisors platform may be either registered investment advisors or advisors exempt from registration. Registered Portfolio Managers must be federal or state-registered investment advisers, including hedge fund managers. While Non-Registered Portfolio Managers may be hedge fund managers exempt from registration, Interactive Advisors only allows such Non-Registered Portfolio Managers meeting certain trading experience and portfolio size criteria to participate. Portfolio Managers participating on the Interactive Advisors platform represent to Interactive Advisors that they are appropriately registered or licensed or exempt from such licensing or registration requirements in light of the business they conduct both on and outside the Interactive Advisors platform. Portfolio Managers registered as investment advisers with the SEC or a U.S. state also confirm to Interactive Advisors they are in good standing, will provide their current Form ADV 2A and 2B filing to Interactive Advisors, and they and their access persons comply with all applicable regulatory requirements. Portfolio Managers must also notify Interactive Advisors of changes in their registration or regulatory status.At this time, only registered Portfolio Managers participate on the Interactive Advisors platform.
Portfolio Managers share their personal investment history by providing Interactive Advisors with access to their trade data in an IB LLC brokerage account in real-time through a data feed. Portfolio Managers deploy their investment strategy by trading in that IB LLC brokerage account, which is owned by the Portfolio Managers or their investment advisory firms.
Portfolio Managers license their portfolio holdings and trading record (“Historical Trade Data”) to Interactive Advisors for publication and analysis. Historical Trade Data provided by Portfolio Managers may be related to the Portfolio Manager’s trading in client, model (based on aggregate performance of all client assets invested in a given strategy) and/or proprietary accounts. Some Portfolio Managers also provide additional content including their investment strategy, profile, portfolio market reports and analysis. (Collectively, this additional content along with Historical Trade Data are referred to as “Manager Content.”) Managers may run multiple Portfolios on the Interactive Advisors platform.All Manager Content represents the opinions of that Manager, should not be construed as personalized investment advice to you or any other Interactive Advisors client, and is subject to change without notice. Interactive Advisors generally offers the following services to its clients in connection with Portfolio Manager Portfolios on the platform: ●It screens, selects, and assesses the riskiness of Manager Portfolios; ●It assesses the risk tolerance of clients by assigning them a risk score based on responses to a risk assessment questionnaire; ●It allows clients to invest (by following the trading) in a Manager Portfolio that is in line with (i.e., a risk score equal to or lower than) their assigned risk score; ●It replicates the trades in the Portfolio Manager account into the accounts of investing clients, while retaining the discretion to block certain manager trades that violate Interactive Advisors’ present trading rules or are subject to investment restrictions specified by clients; ●It corrects any discrepancies between the expected positions in client accounts based on their portfolio investments and the actual positions in client accounts after the replication process by executing small trades in client accounts; and ●It reevaluates the risk scores assigned to Portfolio Manager strategies (at least annually) and prompts clients to review their answers to the risk assessment questionnaire (at least quarterly) to ensure clients are invested in strategies suitable for their risk appetite and ability to withstand investment losses. Annually Interactive Advisors attempts to contact all direct clients to determine whether there have been any changes in their financial situation or Informational Brochure - March 17, 20238 / 82 investment objectives warranting a revision of their prior answers to the risk assessment questionnaire and whether they want to impose new or revise existing restrictions on the trading of their account.
Interactive Advisors’ clients do not invest directly with the Portfolio Managers and the Managers do not have discretionary trading authority over Interactive Advisors client accounts. The Portfolio Managers simply license their trade data to Interactive Advisors, which then allows its clients to have Interactive Advisors mirror the same strategy and trading decisions in their accounts if the Portfolio is in line with their risk score. Portfolio Managers implement their trading philosophy and strategy without knowing the identity of Interactive Advisors’ clients or taking into account Interactive Advisors clients’ individualized circumstances. Interactive Advisors’ offering of Manager Portfolios to its clients does not imply that these strategies have been tested elsewhere, or have been successful for the Portfolio Manager’s clients or the Portfolio Manager himself. Information on Manager Portfolios, their strategies, applicable fees, and minimum investment amounts may be found on the individual portfolio pages on thehttps://interactiveadvisors.comwebsite, accessible from the portfolio webpage: https://interactiveadvisors.com/portfolios Interactive Advisors Portfolios In addition to Manager Portfolios, Interactive Advisors allows its clients to invest in certain portfolios that Interactive Advisors itself constructs and manages. These portfolios (referred throughout this Brochure as “Interactive Advisors Portfolios”) are proprietary investment portfolios designed and managed by Interactive Advisors itself. At this time, these in-house-constructed portfolios include the Smart Beta Portfolios, the Asset Allocation Portfolio, the Index-Tracking Portfolios, the model ETF portfolios (e.g., the WisdomTree, State Street/SSGA, Franklin Templeton (formerly Legg Mason), and Global X ETF Portfolios), and the Socially Responsible Investing Portfolios. Interactive Advisors may launch additional in-house portfolios in the future and will update this disclosure as needed to discuss their features and associated risks.
To provide the Interactive Advisors Portfolios, Interactive Advisors initially funds and trades a fixed amount of its funds in separate proprietary brokerage accounts associated with each portfolio. Interactive Advisors reserves the discretion to add additional funds to the initial investment amounts in order to manage these Firm-owned accounts with a higher investment amount and more efficiently manage investments in these portfolios. Interactive Advisors then replicates the trading in these proprietary brokerage accounts in the accounts of clients investing in that specific portfolio in order to implement its mirroring procedures. Subsequently, any periodic (e.g., annually, quarterly, monthly or more frequent) rebalancing trades placed by Interactive Advisors in these portfolios are proportionally replicated in client accounts investing in one or more of these portfolios via Interactive Advisors’ co-trading technology.
Prior to investing in any of the Interactive Advisors Portfolios discussed below, clients are prompted and required to review and acknowledge a separate portfolio-line-specific risk disclosure specifically laying out the risks and conflicts of interest, the applicable fees and commissions, and the brokerage arrangements associated with investments in each portfolio line. This disclosure document titled “Client Disclosures for Investments in Specific Interactive Advisors PortfolioLines”isavailableontheFormsandAgreementswebpage: https://interactiveadvisors.com/forms-and-agreements Smart Beta Portfolios At this time, Interactive Advisors offers 15 Smart Beta Portfolios, briefly discussed below. In the future, Interactive Advisors may construct and offer to its clients other Smart Beta portfolios. Each Smart Beta portfolio seeks, as its investment objective, to achieve total returns that exceed the total returns of certain market-capitalization-weighted indices, such as the S&P 500, by relying on systematic rules-based investment strategies that do not use conventional market capitalization weights. They are designed to provide systematic exposure to a fundamental factor or combination of factors, and employ alternative weighting schemes based on measures such as value, growth, quality, and dividend yield.
Informational Brochure - March 17, 20239 / 82 In July 2019, Interactive Advisors launched ESG equivalents for 5 of the Smart Beta portfolios discussed inItem 8of this Brochure.
Additional information on the Smart Beta Portfolio construction process, actual trading results of the Firm-owned accounts managing these portfolios, and other information on the general features of these portfolios may be found in this white paper:https://interactiveadvisors.com/learn-more/smart-beta(also accessible from the Learn more tab on our webpage) and on the individual portfolio pages (accessible from the webpage:https://interactiveadvisors.com/portfolios).
Asset Allocation Portfolio Upon clients’ taking the risk assessment

questionnaire and obtaining a risk score, Interactive Advisors recommends the most suitable Asset Allocation Portfolio. Clients may accept or disregard this recommendation and proceed to select their own portfolio investments based on their risk scores. Aside from the Asset Allocation Portfolio, Interactive Advisors recommends no other portfolios on its platform at this time, allowing clients to select portfolios on their own as long as in line with their risk score. Interactive Advisors does not recommend any portfolios (including the Asset Allocation Portfolio) to clients residing in India selecting to invest on the platform pursuant to business arrangements with certain Indian broker dealers The Asset Allocation Portfolio generally invests in 10-14 Exchange Traded Funds (“ETFs”). Interactive Advisors generally selects the ETFs in each Asset Allocation Portfolio to best represent the target asset class while having relatively low management fees and being relatively liquid.
Information on the general features of the Asset Allocation Portfolio may be found in this white paper: https://interactiveadvisors.com/learn-more/asset-allocation(also accessible from the Learn more tab on the webpage: https://interactiveadvisors.com).
Thecustom Asset Allocation Portfolio featureallows Clients investing in the Asset Allocation Portfolio to adjust up or down the default ETF allocation in their Asset Allocation Portfolio investment(s), subject to limitations based on the risk tolerance they indicated to us. The standard Asset Allocation Portfolio uses preset weights for each sub-asset class/ETF corresponding to Client’s risk score and account type (i.e., regular brokerage versus IRA account). In general, a Client may increase or reduce an allocation to a particular sub-asset class/individual ETF by up to 3% and may eliminate allocations to certain sub-asset classes/individual ETFs if our allocation model for his risk tolerance level permits. Clients may also apply an “industry tilt” to their portfolio by allocating assets to industry/sector-specific ETFs. Depending on their risk score, clients may allocate 1%-3% of their portfolio to each available sector-specific ETF. Clients may only allocate assets to the ETFs that Interactive Advisors has selected for inclusion in the Asset Allocation Portfolio program. Each ETF Interactive Advisors makes available for the Asset Allocation Portfolio is subject to unique risks. For additional details on the risks associated with a particular ETF, please consult the prospectus and risk disclosures for that ETF. Interactive Advisors has and retains the discretion to choose which specific ETFs to purchase or sell and the timing of the trade in clients’ custom Asset Allocation Portfolio investment(s). Interactive Advisors also reserves the right to initially select and subsequently change the available industry sectors and the specific ETFs corresponding to each industry sector. All specific ETFs used in a custom Asset Allocation Portfolio are subject to change at Interactive Advisors’ discretion based on its evaluation of liquidity, cost of ownership (i.e., expense ratio associated with the ETF) and coverage (i.e., adequate exposure to the specific sub-asset class/industry tilt the ETF seeks to represent) without notice to clients choosing to utilize the custom Asset Allocation Portfolio functionality. If a client customizes his Asset Allocation Portfolio investment, he may alter the investment characteristics of the portfolio, including the expected return, risk, diversification and tax efficiency of the portfolio. The allocation clients select is their ultimate responsibility and the performance of their customized Asset Allocation Portfolio investment may be worse or better than the performance of Interactive Advisors’ recommended standard Asset Allocation Portfolio. Additionally, clients’ selection and allocation of ETFs in their custom Asset Allocation Portfolio may result in higher costs to them than they would incur in Interactive Advisors’ standard Asset Allocation Portfolio for their risk score. Interactive Advisors reserves the right to modify the customized Asset Allocation Portfolio feature, including by changing or limiting the availability or weighting of certain investments or groups of investments if it determines such action to be in clients’ best interests.
Informational Brochure - March 17, 202310 / 82 Clients interested in using our custom Asset Allocation Portfolio feature are asked to carefully read the disclosure language in Disclosures for Investments in Specific Portfolio Lines (which they receive at the time of investing in one of the Asset AllocationPortfolios;availablehere: https://cdn.interactiveadvisors.com/22110402/documents/clients/disclosures-for-investments-in-specific-portfolio-lines-21-j un-2022.pdf) and consider their personal circumstances before deciding whether to use our custom Asset Allocation Portfolio feature.
Optional Tax Loss Harvesting Functionality for Clients Investing in the Asset Allocation Portfolio Interactive Advisors offers clients invested in the taxable Asset Allocation Portfolio the option to use tax loss harvesting (“TLH”) as a value-added strategy. Tax loss harvesting is a strategy of selling securities in your portfolio that have decreased in value, to generate capital losses to potentially decrease your taxes while using the proceeds from the sales to purchase similar (but not identical) securities, to maintain the expected risk and return characteristics of the portfolio. Capital losses may be used to offset capital gains and/or up to $3,000 per year on income. Tax loss harvesting rules pertain to individual investors who are US taxpayers or US persons. They may or may not apply to other types of investors. Clients may opt in or out of TLH at any time on their client dashboard. There is no additional fee for activating the TLH functionality. Clients remain responsible for the annual account management fees associated with their Asset Allocation Portfolio investments.
Clients who are not invested in any of our Asset Allocation Portfolio cannot use our TLH functionality.
TLH is conducted quarterly, during the regular quarterly rebalances for the Asset Allocation Portfolio. Our TLH algorithm gives more weight to short-term losses than long-term losses since the IRS treats short-term capital gains differently than long-term ones and typically taxes them at a higher rate. The implementation of our TLH algorithm assumes you do not hold or trade the ETFs held in your Asset Allocation Portfolio investments in any other account. If the loss is deemed sufficiently large, the algorithm will direct selling of the ETF and replacing it with a different but historically correlated ETF. When determining whether to harvest a loss and replace an ETF, the TLH algorithm takes into account factors including the size of the unrealized loss and wash sale avoidance considerations. Replacement ETFs are selected based on correlation to original ETF, expense ratio, liquidity and the underlying index of the ETF.
If the weighted losses exceed a certain loss threshold and if the ETF has not been purchased over the previous 30 days, all the holdings in that ETF in the Asset Allocation Portfolio investment will be sold and the proceeds will be used to buy the replacement ETF. We may revise the TLH algorithm in the future to accommodate partial replacements. During periods of high trading volatility, Interactive Advisors reserves the discretion to cancel or postpone the replacement trades.
Interested clients should carefully review the disclosure document presented to them before they may turn on this functionality(alsoavailablehere: https://cdn.interactiveadvisors.com/22110402/documents/clients/tax-loss-harvesting-disclosure-07-sep-2022.pdf)and consider their personal circumstances (e.g., tax situation) before activating TLH in their IA account(s). For additional details on the operation of TLH, including our list of replacement ETFs, you should read our white paper at: https://interactiveadvisors.com/learn-more/tax-loss-harvesting. Clients are solely responsible for determining whether to activate TLH and whether it is suitable in their circumstances.
Socially Responsible Investing Portfolios Interactive Advisors offers 18 Socially Responsible Investing Portfolios, launched in the period from April 2019 to July 2020, briefly discussed below. In the future, Interactive Advisors may construct and offer to its clients other Socially Responsible Investing portfolios. Each Socially Responsible Investing portfolio seeks, as its investment objective, to invest in a basket of stocks with favorable Socially Responsible Investing characteristics and criteria laid out in the Research section of each portfolio page by relying on systematic rules-based investment strategies that do not use conventional market Informational Brochure - March 17, 202311 / 82 capitalization weights. In addition to financial criteria, these portfolios are constructed using Socially Responsible Investing criteria when selecting investments.
Additional information on the Socially Responsible Investing Portfolio construction process, actual trading results of the Firm-owned accounts managing these portfolios, and other information on the general features of these portfolios may be found in this white paper:https://interactiveadvisors.com/esgand on the individual portfolio pages (accessible from the webpage:https://interactiveadvisors.com/portfolios).
Index Tracking Portfolios At this time, Interactive Advisors offers 14 Index Tracking Portfolios. Each Index Tracking Portfolio is designed to follow certain predefined rules so that the portfolio can track the specified basket of underlying investments of the reference index.
Each of the Index Tracking Portfolios aims to track the performance of the underlying basket of the index, and is a form of passive investing. Interactive Advisors constructs and manages the Index Tracking Portfolios based on data provided by the FTSE International Limited (“FTSE”) and the Frank Russell Company (“Russell”) under licensing agreements. The goal of these portfolios is to allow investors to track the performance of certain specified portions of the US Stock market as represented by the reference index. While based on data provided by the above two index providers, who calculate the reference indices, the Index Tracking Portfolios are not in any way sponsored, endorsed, sold, promoted, or recommended by these two index providers. Additionally, while these portfolios aim to track each corresponding reference index as closely as possible and mimic the performance of that index, Interactive Advisors cannot make any guarantee that these portfolios will succeed in doing so. Information on the general features of the Index Tracking portfolios may be found on the individual portfolio pages, accessible through the webpage:https://interactiveadvisors.com/portfolios(or through the Portfolios linkson the home page).
WisdomTree ETF Portfolios At this time, Interactive Advisors offers four WisdomTree ETF Portfolios. These portfolios are proprietary investment portfolios constructed and managed by Interactive Advisors based on data provided by WisdomTree Asset Management, Inc. (“WisdomTree”) pursuant to a model portfolio licensing agreement. These portfolios are based on WisdomTree’s Model Portfolios, implementing an index-centric approach seeking to add value through both asset allocation and ETF selection relative to composite cap-weighted benchmarks. While strategic in nature, these model portfolios also reflect tactical tilts based on market conditions. These portfolios are almost entirely composed of ETFs owned and managed by WisdomTree and its affiliates (“WisdomTree ETFs”). WisdomTree primarily uses WisdomTree ETFs in these portfolios unless there is no WisdomTree ETF consistent with the desired asset allocation or model portfolio strategy. There may be similar ETFs with higher ratings, lower fees and expenses, substantially better performance or more attractive yield/risk profiles in the market.
Because WisdomTree and its affiliates earn fees for advisory, administrative and other services from most of the ETFs selected for these portfolios (and thus benefit from investments made in these portfolios), WisdomTree has an incentive to favor its own ETFs and to include higher cost ETFs in these portfolios. Additional information on the ETFs included in each of these portfolios, including their investment objectives, risks, charges and expenses, can be found in the prospectus for eachETFherehttps://www.wisdomtree.com/resource-library/prospectus-regulatory-reports(and https://www.ishares.com/us/library/financial-legal-tax) or can be obtained by calling 1-866-909-9473. While WisdomTree manages the model portfolios (deciding on their ETF composition, weighting, periodic reweighting and reallocation), it does not have discretionary authority over and cannot place trades in Interactive Advisors client accounts. Interactive Advisors is responsible for placing trades in client accounts invested in portfolios corresponding to each model portfolio and allowing investments in a specific portfolio deemed suitable for each client based on the client’s responses to a risk questionnaire.
Additional information about each of the WisdomTree ETF Portfolios may be viewed on the individual portfolio pages on ourwebsiteat:https://interactiveadvisors.com/wisdomtree?portfolio=wisdomtree-aggressive; https://interactiveadvisors.com/wisdomtree?portfolio=wisdomtree-endowment-moderately-aggressive; Informational Brochure - March 17, 202312 / 82 https://interactiveadvisors.com/wisdomtree?portfolio=wisdomtree-conservative; https://interactiveadvisors.com/wisdomtree?portfolio=wisdomtree-moderate. SSGA ETF Portfolios At this time, Interactive Advisors offers two State Street ETF Portfolios. These portfolios are proprietary investment portfolios constructed and managed by Interactive Advisors based on data provided by SSGA Funds Management, Inc.
(“SSGA”) pursuant to a model portfolio licensing agreement. These portfolios are based on SSGA’s Global Tactical Asset Allocation ETF Model Portfolios, implementing a tactical asset allocation decision-making process, which includes evaluation of global asset classes. These portfolios are almost entirely composed of ETFs owned and managed by SSGA and its affiliates (“SSGA ETFs”). There may be similar ETFs with higher ratings, lower fees and expenses, substantially better performance or more attractive yield/risk profiles in the market. Because SSGA and its affiliates earn fees for advisory, administrative and other services from most of the ETFs selected for these portfolios (and thus benefit from investments made in these portfolios), SSGA has an incentive to favor its own ETFs and to include higher cost ETFs in these portfolios.
Additional information on the ETFs included in each of these portfolios, including their investment objectives, risks, charges andexpenses,canbefoundintheprospectusforeachETFhere: https://us.spdrs.com/en/resources/materials/productLiteratureOverlay.seam While SSGA develops the model portfolios (deciding on their ETF composition, weighting, periodic reweighting and reallocation), it does not have discretionary authority over and cannot place trades in Interactive Advisors client accounts.
Interactive Advisors is responsible for placing trades in client accounts invested in portfolios corresponding to each model portfolio and allowing investments in a specific portfolio deemed suitable for each client based on the client’s responses to a risk questionnaire. Additional information about each of the SSGA ETF Portfolios may be viewed on the individual portfoliopagesonourwebsiteat:https://interactiveadvisors.com/ssga?portfolio=ssga-growthand https://interactiveadvisors.com/ssga?portfolio=ssga-moderate Franklin Templeton (Formerly Legg Mason) ETF Portfolios In December 2018, Interactive Advisors entered into a model portfolio licensing agreement with Legg Mason Private Portfolio Group, LLC. Pursuant to this agreement, Interactive Advisors launched a Global Growth and Income ETF portfolio in January2019. This portfolio is based on Franklin Templeton model ETF portfolio data. As is the case with the WisdomTree and SSGA ETF Portfolios, Franklin Templeton merely provides data to Interactive Advisors, does not have discretionary trading authority over and cannot place trades in Interactive Advisors client accounts. Information on the GrowthandIncomeETFPortfolioisavailableontheportfoliopageat: https://interactiveadvisors.com/franklin-templeton?portfolio=global-growth-income. Global X ETF Portfolios At this time, Interactive Advisors offers four Global X ETF Portfolios.
In June 2019, Interactive Advisors entered into a model portfolio licensing agreement with Global X Management Company LLC (“Global X”) and, pursuant to this agreement launched two portfolios: the China Sector ETF Model Portfolio and the Equity Thematic Disruptors Model Portfolio. As is the case with the WisdomTree, SSGA, and Franklin Templeton ETF portfolios, these two portfolios are based on Global X model ETF portfolio data and Global X merely provides data to Interactive Advisors and does not have discretionary trading authority over and cannot place trades in Interactive Advisors client accounts. Information on the Global X ETF Portfolios is available on the portfolio pages accessible from thewebpage here:https://interactiveadvisors.com/portfoliosIn April 2021, Interactive Advisors launched two new Global X ETF Portfolios:a Digital Innovation portfolio, and an Equity Sector and Themes portfolio.
Informational Brochure - March 17, 202313 / 82 The Global X China Sector ETF Model Portfolio (https://interactiveadvisors.com/global-x?portfolio=china-sector) provides exposure to China utilizing a segmented and processed approach with a tilt towards the growthier, “new” economy that is being driven by the shift to a consumer led economy. The portfolio is intended to be tilted toward the new, consumer-led economy and away from the more export-oriented sectors. This is a momentum-oriented strategy that takes into consideration the correlation between sectors as well as valuations, and seeks to take advantage of the dynamics within the Chinese market.
TheGlobalXEquityThematicDisruptorsETFModelPortfolio (https://interactiveadvisors.com/global-x?portfolio=thematic-disruptors) is a growth-focused equity allocation using Global X and third-party ETFs. The ETFs utilized are chosen to target structural themes that may be disrupting various segments and sectors in the broad market. The portfolio is constructed around these three key features: ●Growth potential- The ETFs used are chosen to target structural themes that may be disrupting various segments and sectors in the broad market.
●Unconstrained approach- Thematic ETFs tend to transcend classic sector, industry, and geographic classifications, providing exposures with low overlap and correlations with other growth-oriented strategies.
●Structured approach- Sectors and themes can be selected and weighted in an effort to tilt towards higher growth opportunities.
TheGlobalXDigitalInnovationETFModelPortfolio (https://interactiveadvisors.com/global-x?portfolio=digital-innovation) is designed to provide exposure to structural themes that may be disrupting various segments and sectors in the broad economy with a focus on digitalization and technological disruption. The portfolio’s theme identification and weighting methodologies draw inspiration from EM Roger’s Diffusion of Innovation Theory, in which technological adoption follows an S-sharped curve. Themes are identified via internal research as technological adoption accelerates. The portfolio provides exposure to themes with a medium to high level of growth while targeting areas of increasing penetration in society. The portfolio looks to exit themes once adoption growth rates decline and penetration nears societal ubiquity.
TheGlobalXEquitySectorandThemesETFModelPortfolio (https://interactiveadvisors.com/global-x?portfolio=equity-sector-themes) is designed to blend a classical equity sector viewpoint strategy with structural themes that may be disrupting various segments and sectors of the broad market. The portfolio’s sector calls are sourced from the Global X CIO Model Portfolio Team. The team monitors economic data from all parts of the U.S. and global economies to conduct ongoing macroeconomic and fundamental analysis. Views are coalesced and result in each Global Industry Classification Standard sector being designated as over, under, or equal weight when compared to the S&P 500 Index. The thematic sleeve seeks to move beyond traditional sector investing, targeting portions of the economy rife with technological disruption. This forward-looking sleeve aims to position towards the growth-oriented segments across various portions of the economy to reduce thematic and concentration risks. The portfolio is typically split between 80% sector and 20% disruptive thematic exposure.
Interactive Advisors Multi-Manager Funds Interactive Advisors’ Fund Clients currently consist and are expected to consist of the Interactive Advisors Multi-Manager Funds, which Interactive Advisors launched on February 1, 2022. Interactive Advisors provides investment advisory services on a discretionary basis to three privately offered pooled investment vehicles in a master-feeder structure: Interactive Advisors Multi-Manager Onshore Fund, L.P, a Delaware limited partnership (the “Onshore Fund”); Interactive Advisors Multi-Manager Offshore Fund, L.P., a Cayman Islands exempted limited partnership (the “Offshore Fund”); and, Interactive Advisors Multi-Manager Master Fund, L.P., a Cayman Islands exempted limited partnership (the “Master Fund”) (each, a “Multi-Manager Fund” and collectively, the “Multi-Manager Funds”).
Informational Brochure - March 17, 202314 / 82 Interactive Advisors Clients and the Investment Management Agreement Clients must enter into one or more written agreements with Interactive Advisors setting forth the terms and conditions under which Interactive Advisors shall render its services (the “Investment Management Agreement” or “Client Agreement”) before they engage Interactive Advisors to provide its investment management services. This agreement provides Interactive Advisors with discretionary authority to initiate investment activities on behalf of the client over the client’s investment assets. A copy of Interactive Advisors’ form Client Agreement is available upon request, as well as via the Forms and Agreements page on our website in the Account Opening Agreements and Disclosures link (https://interactiveadvisors.com/forms-and-agreements). Pursuant to that agreement, Interactive Advisors uses its related custodian’s trading facilities to mirror or replicate trades in Manager or Interactive Advisors Portfolio accounts into the investing clients’ accounts. Interactive Advisors uses its affiliated broker-dealer, IB LLC, to execute all trades on its platform.
Unless otherwise agreed upon, clients are provided with transaction confirmation notices and regular summary account statements directly from IB LLC for their accounts (by mail, electronically on IB LLC’s website or through an IB LLC window embedded on the client dashboard athttps://interactiveadvisors.com/). Clients also receive online access to account activity reports from Interactive Advisors that include relevant account and/or market-related information such as an inventory of account holdings and account performance on a daily basis, and monthly updates of account balances and performance. However, Clients should review the information in their custodial statements for accuracy and compare that information to any report they receive from Interactive Advisors.
Interactive Advisors expects to execute an Investment Management Agreement with each of the Fund Clients. Investors in the Fund Clients (the “Fund Client Investors”) are provided with reports as further described in each Fund Client’s governing and offering documents.
Assets Under Management As of December 31, 2022 Interactive Advisors manages approximately $135 million in assets on a discretionary basis, including approximately $31 million in private fund assets. Interactive Advisors does not manage any assets on a non-discretionary basis at this time. Clients should be aware that a significant shareholder of Interactive Brokers Group, Inc.
is also a significant client of Interactive Advisors.
Termination of the Investment Management Agreement The agreement between Interactive Advisors and the client will continue in effect until terminated by either party pursuant to the terms of that agreement. Clients receive a copy of Interactive Advisors’ written disclosure statement or Informational Brochure (i.e., this document) at the time they execute the Client Agreement.
Interactive Advisors Website The content of the Interactive Advisors website at https://interactiveadvisors.com, including Manager Content, performance analysis and rankings is provided as general and impersonalized investment information and commentary, and does not constitute a specific recommendation or solicitation that anyone should purchase or sell any particular security, investment advisory service, or portfolio. Interactive Advisors relies on information provided to it by Portfolio Managers and certain third parties in publishing Manager Content for the websites, and also provides internally-generated content. Interactive Advisors obtains Manager Content from sources believed to be reliable, but makes no representation as to its accuracy or completeness.