Calton & Associates
Calton & Associates, Inc. (“Calton”) is a privately owned corporation registered as a Registered
Investment Adviser with the United States Securities and Exchange Commission (“SEC”), and also
as a broker/dealer with the SEC and Financial Industry Regulatory Authority (“FINRA”). Calton is
licensed to conduct business as a broker/dealer and Registered Investment Adviser in all 50 states,
the District of Columbia, Puerto Rico, and the US Virgin Islands.
Wrap Fee Programs
Calton offers the Innovation Managed Advisory Program (“I-MAP”) and Premier Managed Advisory
Program ("P-MAP") with the option to be charged under a wrap fee program. Calton is the sponsor and
manager of the I-MAP and P-MAP wrap fee programs.
These wrap programs provide clients with access to an account with portfolio and asset management
services for a single investment advisory fee that includes management fees, charges and securities
transaction costs. Calton and its IAR receive a portion of the wrap fee for the investment advisory
services provided under the Investment Advisory Agreement. The overall cost the client will pay for
participating in a wrap fee program may be higher or lower than the cost a client may pay by
separately purchasing and selling the types of securities in a commission-based brokerage account
that are made available in the wrap program. Additional administrative fees of up to $40 per quarter
may be charged in both wrap, and non-wrap, investment advisory fee-based programs.
To compare the costs of the wrap fee programs with non-wrap fee portfolio management services, the
client should consider the frequency of trading activity in his or her account versus a commission-
based brokerage account. Calton and/or its IARs recommending a wrap fee program account versus a
commission-based brokerage account may have a conflict of interest as Calton and/or its IAR may
receive higher compensation for recommending the wrap account.
Calton is the manager and sponsor to the Premier Managed Advisory Program (“P-MAP”) and
Innovation Managed Advisory Program (“I-MAP”) programs. Clients’ accounts in P-MAP and I-MAP are
managed by Calton and clients are charged a calculated investment advisory fee, subject to an
investment advisory fee minimum, that includes both management services and securities transaction
costs. P-MAP and I-MAP are offered to prospective and existing investment advisory clients and are
designed to make asset management services available to clients under a single program "wrap fee".
Depending upon the number of transactions executed in the client’s account, the overall cost to the
client to participate in the P-MAP and I-MAP programs may be higher or lower than the client may pay
by separately purchasing the types of securities available in P-MAP and I-MAP programs.
Prior to becoming a client under P-MAP or I-MAP programs, the client will be required to enter into an
Investment Advisory Agreement with Calton that describes the terms and conditions of the
agreements, the scope of the services to be provided, and the investment advisory fees to be paid to
Calton.
Premier Managed Advisory Program (P-MAP)
P-MAP offers asset allocation into multiple investment ”sleeves”. Sleeves are portfolios that allow the
portfolio manager(s) to focus on a particular asset class or strategy. Sleeves can include stocks,
bonds, mutual funds and Exchange Traded Funds (“ETFs”). Sleeves are coordinated into the client’s
portfolio to help achieve the client’s investment objectives. P-MAP sleeves have been developed by
Calton’s portfolio manager and/or by third-party money managers (“TPMMs”). Calton will make the
investment decisions for the client under P-MAP by combining different percentages of sleeves into the
client’s portfolio.
The client’s relationship with Calton begins with the client providing information so that Calton can
understand and assess the client’s financial situation, investment objectives, investment experience,
risk tolerance, investment time horizon, and other relevant information. The client’s information is
needed to help Calton to determine the program and in selecting asset allocation strategies based on
the client’s specific needs and best interests. Calton will combine different sleeves in different
proportions to meet a range of the client’s investment objectives including the following:
Capital Preservation:
A portfolio with an investment objective of capital preservation will invest predominantly in the fixed
income bonds sleeve. This portfolio seeks to preserve the client’s capital and minimize potential losses
and is focused towards clients who want more protection from potential losses than a portfolio
investment in stocks.
Conservative:
A portfolio with an investment objective of conservative is designed for clients whose primary
investment objective is to help reduce the fluctuation risk of their portfolio assets, including clients that
are nearing retirement or have a lower tolerance for risk, but may desire some exposure to stocks in
order to provide the potential for growth of their portfolio assets.
Conservative Growth:
A portfolio with an investment objective of conservative growth is designed for clients who want the
potential for some growth of assets. The majority of the client’s portfolio assets will be allocated to the
bond fixed income sleeve with more exposure to stocks than the conservative sleeve.
Moderate:
A portfolio with an investment objective of moderate is designed to seek capital preservation and
growth as equal investment objectives. The moderate portfolio is designed for clients who want the
potential for higher returns from stocks over the long term, but with the objective of mitigating large
fluctuations that can occur in the short term.
Moderate Growth:
A portfolio with an investment objective of moderate growth is designed and weighted with a higher
percentage of the client’s portfolio invested in stock sleeves, but also with bonds in the fixed income
sleeve. It is designed for clients that have a medium to long term investment horizon.
Growth:
A portfolio with an investment objective of growth seeks growth of the client’s portfolio by
predominately using stock focused sleeves. The portfolio may hold smaller percentage of bonds in the
fixed income sleeve. The growth portfolio is designed for clients who are willing to accept greater risk
in exchange for the potential for higher returns provided by stocks over the long term.
Aggressive:
A portfolio with the primary investment objective of aggressive growth focuses on investing the client’s
assets in the stock sleeves. Bond fixed income is not an investment objective of the aggressive growth
portfolio. The aggressive portfolio is designed for clients who are willing to accept high risk in exchange
for the potential of higher returns provided by stocks. Clients in the aggressive portfolio should be
experienced investors able to potentially bear higher volatility and losses and have an investment time
horizon of more than five years.
Innovation Managed Advisory Program ("I-MAP")
Calton and its IARs will construct and directly manage a portfolio of stocks, bonds, mutual funds, and
Exchange Traded Funds ("ETFs"). The I-MAP program is offered as an all-inclusive wrap fee program
where all fees, charges and expenses and the investment advisory fee are “wrapped” under one fee
or as a non-wrap program where the commissions for transactions, fees, charges and expenses are
paid by the client in addition to the investment advisory fee.
Trading Authorization
P-MAP is offered as a discretionary program only. I-MAP is offered on either a discretionary or non-
discretionary basis. Calton may use third party tools and services and be charged to manage the P-
MAP program. Unless otherwise agreed to in writing separately, the fees by third parties are paid by
Calton and not the client.
The client authorizes Calton and its IAR to have discretionary authority to manage the client’s account
under the I-MAP and P-MAP programs. Calton and its IAR have the authority and responsibility to
formulate investment strategies on the client’s behalf. The discretionary authorization includes deciding
which securities to buy and sell, when to buy and sell, and in what amounts, in accordance with the
client’s investment program without obtaining prior consent or approval for each transaction from the
client. Discretionary authority is granted in the Investment Advisory Agreement signed by the client
with power of attorney, and/or trading authorization forms. The client may limit Calton’s discretionary
authority (for example, limiting the types of securities that can be purchased in the client’s account) by
providing Calton with written restrictions and guidelines, which will be deemed received after being
countersigned by Calton. The client may change or amend these limitations. Amendments must be
submitted in writing and will be deemed received after being countersigned by Calton. Calton will not
wire or transfer funds to third parties without the client’s prior written approval. If the client enters into
non-discretionary arrangements Calton will obtain the client’s approval prior to executing any
transactions in the account.
For clients entering into non-discretionary arrangements with Calton in the I-MAP program, Calton will
obtain approval prior to the execution of any transactions in the client’s account(s). The client has an
unrestricted right to decline to implement any investment advice provided by Calton and/or its IARs on
a non-discretionary basis.
Transaction Costs
Transaction costs are the costs associated with purchasing or selling securities. The P-MAP and I-
MAP transaction costs are included or “wrapped” into the investment advisory fee paid by the
client. Other administrative charges may be charged to the client’s account. Transaction costs do not
include custodian fees, related charges for mailgrams, extensions, debit interest, fees for trades
executed away from the custodian, and other administrative fees which are additional charges the
client pays. Third Party Money Managers (“TPMMs”) that are responsible for managing a part of or all
of the client’s account will receive a portion of the investment advisory fee paid to Calton. The
investment advisory fee paid depends on the specific TPMM.
Fees
Calton investment advisory fee for P-MAP and I-MAP is based on a percentage of assets under
management (“AUM”). The account management fee is payable quarterly in advance and is computed
as one-quarter of the annual investment advisory fee, based on the AUM on the last business day of
the previous calendar quarter. The total annual account fee (Wrap Fee) under P-MAP and I-MAP
includes the investment advisory, clearing, custody and trading fees. It also includes any investment
advisory fees paid to sub-advisors for managing sleeves. The total amount of the Wrap Fee is
negotiable between the IAR and the client subject to a maximum of 2.60% annually. In addition to the
Wrap Fee, the client may pay certain charges imposed by third parties in connection with investments
made through P-MAP and I-MAP.
These fees include, but are not limited to, the following:
1. Mutual fund or money market 12b-1 fees, transfer agent fees and distributor fees
2. Mutual fund and money market management fees and administrative expenses
3. Mutual fund transaction fees and certain deferred sales charges on previously
purchased mutual funds transferred into the account
4. Other transaction charges and service fees
5. IRA and qualified retirement plan custodian fees
6. Other charges that may be required by law
Calton may receive a portion of these fees. Calton reserves the right to charge an administrative fee of
$40 per quarter per account.
Calton will send an invoice for the payment of its investment advisory fee or will deduct the investment
advisory fee directly from the client’s account through the qualified custodian holding and maintaining
the account. Calton will deduct its investment advisory fee only when the client has given written
authorization permitting the investment advisory fees to be paid directly from the client’s account. The
qualified custodian will deliver an account statement
to the client at least quarterly. The account
statements will show all disbursements of investment advisory fees from the account. Clients should
review all statements for accuracy.
Termination of the Investment Advisory Agreement
Either party may terminate the Investment Advisory Agreement upon 30 days written notice to the
other party. The management fee will be pro-rated for the billing period upon notice of cancellation.
Calton will refund any unearned fees to the client.
Wrap Fee Program Disclosures
1. The client should be aware that participating in a wrap fee program may cost more or less than
the cost of purchasing investment advisory, brokerage, and custodial services separately and/or
from other advisers or broker/dealers.
2. Calton and its IARs receive compensation as a result of the client ‘s participation in the wrap-
fee program. This compensation may be more than the amount Calton and its IARs would
receive if the client paid separately for investment advice, brokerage, and other services.
Therefore, a conflict of interest exists because Calton and its IARs have a financial incentive to
recommend the P-MAP program.
3. P-MAP may create a potential conflict of interest between the client and Calton. The client
should be aware that Calton may have purchased or sold securities in the client’s account,
because Calton paid the transaction costs associated with trades directed to the custodian.
Additional Fees and Expenses
As part of Calton’s investment advisory services to clients, Calton may invest, or recommend that
clients invest in mutual funds and Exchange Traded Funds (“ETFs”). The fees that the client pays to
Calton for investment advisory services are separate and distinct from the fees and expenses charged
by mutual funds or ETFs which are described in detail in each mutual fund's prospectus to their
shareholders. Mutual fund fees will generally include a management fee and other fund expenses.
Brokerage Practices
While clients are free to choose any broker-dealer or other financial institution to open and hold the
securities in their accounts and execute transactions, Calton uses the services of certain clearing firm
and custodians to conduct its commission brokerage transactions and investment advisory
transactions. Calton clears its brokerage transactions through Hilltop Securities, Inc. (“HTS”) and
National Financial Securities (“NFS”) who maintain brokerage and investment advisory accounts on
behalf of Calton and its clients. Calton also uses Charles Schwab (Schwab) as a custodian for its
investment advisory clients. Therefore, Calton and/or its IARs will primarily recommend the client to
open an account through HTS, NFS, or Schwab to maintain an investment advisory relationship with
Calton or its IARs. The clearing and custodian relationships Calton has with HTS, NFS, and Schwab
create a conflict of interest, as Calton and its IARs may receive incentives, including sharing in the
expenses and fees charged to the client for recommending that the client maintain Calton accounts
and the client may pay higher commissions, charges, fees and/or trading costs than may be available
at other broker/dealers, clearing firms or custodians.
If the client desires to execute transactions through another broker/dealer, Calton will review the
transactions for best execution. Price is not the sole factor Calton considers when evaluating for best
execution. Calton also considers the broker/dealer's ability to provide professional services,
competitive commission rates, volume discounts, execution price negotiations, and other services. In
recognition of the value of research services and additional brokerage products and services the
recommended broker-dealer or custodian provides, the client may pay higher commissions and/or
trading costs than those that may be available elsewhere.
If the client engages the services of a TPMM investment adviser, participates in a Separate Account
Money Manager program, or participates in the Separate Account Management Platform as described
under the “Advisory Services” heading above, the client will be required to use the brokerage and/or
custodial services of firms used by the Separate Account Manager, Separate Account Management
Platform, or the TPMM investment adviser.
Research and Other Benefits
Calton may receive benefits from recommending certain broker-dealer and/or custodians. These
benefits do not depend on the amount of transactions Calton directs to the broker-dealer and/or
custodian. These benefits may include:
1. A dedicated trading desk that services our clients, a dedicated service group and an account
services manager dedicated to our accounts,
2. access to a real time order matching system,
3. ability to block client trades, electronic download of trades, balances and positions in the
broker- dealer/custodian's portfolio management software,
4. access to an electronic interface with broker-dealer and/or custodian's software, duplicate and
batched client statements, confirmations and year-end summaries, and
5. the ability to have investment advisory fees directly debited and deducted from client accounts
(in accordance with federal and state requirements.)
Calton participates in the institutional advisor program (the "Program") offered by Schwab
Institutional. Schwab Institutional is a division of Charles Schwab & Co. Inc., member FINRA and
SIPC and the National Futures Association. Schwab is not affiliated with Calton. Schwab offers
services to independent Registered Investment Advisers, which include custody of securities, trade
execution, clearance and settlement of transactions. Calton receives benefits from Schwab.
Therefore, Calton and/or its IARs have a conflict of interest for recommending that their clients
maintain accounts with Schwab through its participation in the Program. Calton may recommend
Schwab to clients for custody and brokerage services. There is no direct link between Calton’s
participation in the program and the investment advice Calton and/or its IARs give to our clients, but
Calton and its IARs do receive economic benefits through its participation in the Schwab platform
program that are typically not available to Schwab retail investors.
These benefits include the following products and services (provided without cost or at a discount):
1. receipt of duplicate client statements and confirmations; research related products and tools;
2. consulting services;
3. access to a trading desk serving advisor participants;
4. access to block trading (which provides the ability to aggregate securities transactions for
execution and then allocate the appropriate shares to client accounts);
5. the ability to have advisory fees deducted directly from client accounts;
6. access to an electronic communications network for client order entry and account information;
7. access to mutual funds with no transaction fees and to certain institutional money managers;
and
8. discounts on compliance, marketing, research, technology, and practice management products
or services provided to Calton by third party vendors.
Schwab may also have paid for business consulting and professional services to the benefit of Calton
and/or its IARs. Some of the products and services made available by Schwab through the program
may benefit Calton and/or its IARs but may not benefit Calton’s clients’ accounts. These products or
services may assist Calton and its IARs in managing and administering client accounts, including
accounts not maintained at Schwab. Other services made available by Schwab are intended to help
Calton and its IARs manage and further develop its business enterprise. The benefits received by
Calton and/or its IARs through participation in the program do not depend on the amount of brokerage
transactions directed to Schwab. As part of its fiduciary duties to clients, Calton endeavors to place the
best interests of its clients first. Clients should be aware that the receipt of benefits by Calton and its
IARs creates a conflict of interest and may indirectly influence our choice of using Schwab for custody
and brokerage services for Calton’s clients.
Directed Brokerage
Depending on the particular asset management program that the client chooses the client may
instruct Calton to use one or more brokers for the execution of transactions in their accounts. Some
asset management programs require the client to use a particular broker/dealer in order to participate
in the program. If the client chooses to direct Calton to use a particular broker, the client should
understand that this might prevent Calton from aggregating trades with other client accounts. This
practice may also prevent Calton from obtaining favorable net price and execution, negotiating
commissions, obtaining volume discounts. Under these circumstances, the client may pay higher
commission charges than other clients. When directing brokerage business, the client should
consider whether the commission expenses, execution, clearance, and settlement capabilities
obtained through the broker are acceptable and competitive in comparison to those that Calton would
obtain.
Block Trading
Calton may combine multiple orders for shares of the same securities purchased for investment
advisory accounts it manages. This practice is referred to as "block trading". Calton will combine
orders for clients’ accounts held at the same custodian only. When block trading, Calton will distribute
a portion of the shares to participating accounts in a fair and equitable manner. The distribution of the
shares purchased is typically proportionate to the size of the account, but it is not based on account
performance or the amount or structure of management fees. Subject to Calton’s discretion regarding
market fluctuations and conditions, Calton, when combining orders, each participating account will
receive an average price per share for all transactions. Block trading does not reduce the clients’
transaction costs.
Accounts traded at different custodians will typically receive different prices. In situations where a block
order is only partially filled by the executing broker-dealer, Calton allocates the order to all participating
accounts on a pro rata basis.
Trade Errors
In the event a trading error occurs in a client’s account, Calton’s policy is to restore the account to the
position it should have been in had the trading error not occurred. Depending on the circumstances,
corrective actions may include canceling the trade, adjusting an allocation, and/or reimbursing the
account. If a trade error results in a profit, the trade error will be corrected in the trade error account of
the executing broker-dealer and the client does not keep the profit.
Calton is not responsible for account errors and/or losses that occur where Calton and/or its IARs
have used our best efforts to execute trades in a timely and efficient manner. If a trade or some
portion of a trade is not executed or an electronic system processing error occurs which results in the
account not being traded at the same time or at the same price as others, and the occurrence is not a
result of Calton’s failure to execute or follow its trade procedures, the resulting loss will not be
considered a trading error by Calton.
As disclosed in their prospectuses, mutual fund companies reserve the right to refuse to execute
trades if in the mutual fund company’s sole judgment, the trade(s) would jeopardize the value of the
mutual fund. Calton has no authority to change, alter, amend, or negotiate any provision in a mutual
fund prospectus. Calton is not responsible for trades that are not properly executed by any clearing
firm, custodian, mutual fund, or insurance company, when an order has been properly submitted by
Calton. Calton is not responsible for a unilateral adverse decision by a mutual fund or insurance
company to restrict and/or prohibit mutual fund asset management programs.
Aggregated orders may include transactions for registered investment companies, employee benefit
plans and private investment vehicles (e.g. limited partnerships or limited liability companies) in which
our principals or employees are among the investors; however, these accounts will not be given
preferential treatment.