Klaas Financial Asset Advisors, LLC (Klaas) is the sponsor of the Klaas
Investment Portfolios (KIP) Wrap Fee Program (Program). Klaas is
located in Loves Park, Illinois and Fitchburg, Wisconsin. The firm’s
shareholders are Craig J. Klaas, Maleeah L. Wernsing-Cuevas, Kyle A.
Kite, Eric J. Schwartz, and Joshua E. Stirling.
Klaas is registered as an investment adviser with the U.S. Securities
and Exchange Commission (SEC).
This Wrap Fee Program Brochure describes the services offered under
the Program. In addition to the services outlined here, we also provide
non-discretionary financial planning and consulting services, and
retirement plan consulting. Further information regarding these
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services can be found in our Disclosure Brochure, which is available
upon request, or which can be found by visiting our website at
www.klaasfinancial.com. The current brochure may be found under
Downloads on the Resources tab.
The Program includes Financial Planning Services and Discretionary
Portfolio Management Services, as described below. Clients who wish
to participate in the Program will enter into an agreement with Klaas
(KIP Client Agreement).
Financial Planning Services
As part of the Program, we provide financial planning services.
Through discussions, interviews, and questionnaires, we will gather
sufficient information to develop a financial plan and investment
recommendations. The items covered in your financial plan are based
on your financial circumstances and needs. The financial plan may
consider such items as the following:
Your personal financial circumstances, such as assets and
liabilities, net worth, cash flow, spending analysis, budgeting,
family situations, and personal obligations.
Payment of past, present, and future debts, such as loans,
education expenses, health expenses.
Your current and future tax liabilities, and an analysis of how to
mitigate tax liabilities with your investments.
Your attitudes towards investments, including your risk tolerance,
financial goals, and investment objectives.
Your cash needs in the event of your disability, incapacity, or
death, including the income needs of your dependents, and
estate planning.
Your current retirement assets, potential future savings, planned
retirement age, income needs and spending in retirement.
Other specific financial concerns you may have.
We base our investment recommendations on the information that
you provide to us. Inaccurate or incomplete information may result in
an inaccurate or incomplete investment recommendations. We must
make certain assumptions with respect to interest and inflation rates,
past trends, and future projections of the performance of the market
and economy. Changes to your personal financial circumstances,
goals, or objectives may cause our investment recommendations to
change. We recommend you notify us promptly of any changes so that
your strategy can be updated if necessary.
Although the financial plan may consider your tax situation or estate
plan, we do not provide tax or legal advice. We recommend you work
closely with your attorney, accountant, or other investment
professionals in implementing your plan. We are happy to work with
your professionals to coordinate your financial plan with your estate
planning and tax planning.
In some cases, your financial plan may recommend an insurance
product. Some of our Investment Adviser Representatives are also
licensed insurance agents. If you choose to purchase a recommended
insurance product through your Investment Adviser Representative,
he or she will earn a commission. You may choose to purchase any
insurance products through any licensed agent.
Discretionary Portfolio Management Services
In addition, we provide discretionary portfolio management services.
Based on the information gathered in the financial planning process,
we assist you in selecting one or more of the investment strategies
available through the Program (Program Strategies). Other relevant
information that may be considered may include (but is not limited to)
your preference for certain types of investments, the amount of your
assets, the projected risk and return of your portfolio, and the
management fees charged.
We may use one or more Program Strategies and allocate assets into,
between, or among the Program Strategies. Klaas has established a
Portfolio Management Group (Klaas PMG) consisting of qualified
investment professionals dedicated to portfolio management,
research, and trade administration functions. The Program Strategies
may be developed by and managed by the Klaas PMG, or by third-
party asset managers or separate account managers (Asset
Managers) selected by Klaas PMG.
Klaas has the discretion to determine which Program Strategies are
available in the Program. Klaas has the discretion to change the
Program Strategies available through the Program, to change the
selection of any Program Strategy, to add one or more additional
Program Strategies to those previously selected, and to reallocate
assets among Program Strategies at any time. Klaas also has the
discretion to hire, replace, or terminate Asset Managers as it deems
necessary at any time.
A variety of investment products and vehicles may be used, including,
but not limited to, exchange-traded funds (ETFs), mutual funds, equity
and fixed-income instruments. When appropriate based on a client’s
financial circumstances, Klaas may recommend a Program Strategy
that includes an investment-only Managed Variable Annuity (MVA).
The MVA is an insurance product offered by a licensed insurance
carrier that includes an investment component. In addition, when
appropriate based on a client’s financial circumstances, Klaas may
offer a Managed Outside Account (MOA). The MOA is an account
held by a custodian with which Klaas does not have a direct
relationship, such as an employer-sponsored qualified retirement
plan account (e.g., 401(k), 403(b), or 457(b) account). Klaas uses an
order management system to implement asset allocation or
rebalancing transactions on behalf of Client in the MOA. Klaas
regularly reviews the current holdings and investment options
available in the MOA, and monitors, rebalances and implements
transactions that Klaas deems appropriate based on Client’s
investment objectives. To do so, it is necessary for Client to grant
access to the MOA through the third-party order management system,
and authorize Klaas to connect with, view, and manage the MOA.
Client agrees to take steps as necessary to initiate and maintain
connection with the order management system, such as updating
login credentials. Investment options available in MOAs may be
limited by the custodian, or in the case of employer-sponsored
qualified retirement plans, by the plan sponsor.
For our Clients who wish to make charitable contributions, we offer a
Managed Charitable Program (MCP). Through MCP, clients may
participate in a third-party charitable program which offers charitable
accounts such as donor advised funds, endowments, and foundations.
These third-party charitable programs are charitable trusts as
described in Section 501(c)(3) and Section 509(a)(1) of the Internal
Revenue Code. Clients may make irrevocable charitable contributions
of assets to the charitable program. We help to facilitate the transfer
of Client’s funds. The Client may receive an income tax benefit for the
tax year in which the contribution is made. Clients may appoint us to
manage the funds in their charitable program on a discretionary basis,
consistent with the specific investment policies and guidelines of the
third-party charitable program. Once the contribution is made to the
charitable program, the Client no longer has ownership of the funds.
Contributions are irrevocable and non-refundable. The Client may
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make recommendations to the sponsor of the charitable program on
qualified charitable organizations to receive funds, and the amount of
funds to be distributed. Clients may also authorize us to communicate
these recommendations to the charitable program sponsor on
Client’s behalf. However, the sponsor reviews each recommendation
and has the discretion to approve or reject any grant. Grants may only
be given to charitable organizations organized under Section
501(c)(3) of the Internal Revenue Code.
Please note that client assets are primarily managed by Klaas PMG.
Asset Managers, MVAs, MOAs, and accounts within the MCP are only
used in limited circumstances and only where appropriate based on
the unique financial circumstances of each client.
We rely upon you to notify us of any changes in your objectives, goals
and risk tolerances, as well as any other material changes in your
personal circumstances (such as your employment, marital status,
financial condition, etc.). In addition, notify us if you wish to impose
any reasonable restrictions on the management of your account.
Please notify us promptly of any changes, as these changes may
require changes in the Program Strategies employed.
Brokerage Practices
Program assets are maintained with a qualified custodian. We do not
have physical custody of your assets, but we are deemed to have
custody when you authorize us to deduct advisory fees directly from
your account. You will receive account statements from the custodian
on at least a quarterly basis. We recommend you carefully review
those statements to verify the transactions are consistent with your
investment goals and objectives.
We do not have the discretion to select the broker-dealer or custodian
used for your accounts, although we may suggest broker-dealers and
custodians and assist with new account paperwork. Because of our
established relationship, we will generally recommend Fidelity
Institutional Wealth Services (Fidelity) to you for custody and
brokerage services. Fidelity, a member FINRA/SIPC, is an unaffiliated
SEC-registered broker-dealer. Fidelity provides brokerage and
custody through its affiliates, National Financial Services, LLC, or
Fidelity Brokerage Services, LLC, which are also SEC-registered
broker-dealers and members FINRA/SIPC. You may direct us in writing
to use a particular custodian to execute some or all of the transactions
for your account. If you do so, you may be responsible for negotiating
the terms and arrangements for the account with that custodian. We
may not be able to negotiate commissions, obtain volume discounts,
or best execution with custodians with which we do not have an
existing relationship. A difference in transaction fees and expenses
may also exist between those charged to clients who direct us to use
a particular custodian and other clients who do not. In addition, some
Asset Managers may require the use of certain custodians. Please refer
to the Brokerage Practices sections of their respective disclosure
brochures for more information. Because our compensation in
connection with the Program may vary depending on the broker-
dealer or custodian selected, we may have a conflict of interest in
recommending Fidelity.
In addition to brokerage and custody services, Fidelity provides
access to investments generally available to institutional investors;
research; software; and, educational opportunities. Fidelity also
makes available or arranges for discounts on compliance, marketing,
research, technology, and practice management products or services
provided to us by third party vendors. Thus, we receive economic
benefits as a result of our relationship
with Fidelity, because we do not
have to produce or purchase the products and services listed above.
These services are not contingent upon us committing any specific
amount of business to the custodians in trading commissions. Klaas
does not enter into any soft dollar arrangements with custodians and
broker- dealers through which we receive research or other services
based on commissions generated in your account or the number
transactions effected in your account.
Our recommendation of specific custodians may be based in part on
the economic benefit to us and not solely on the nature, cost or quality
of custody and brokerage services provided to you and our other
clients. This creates a conflict of interest for us. We nonetheless strive
to act in your best interests at all times.
Custodians may not charge separately for holding our client accounts,
but may be compensated by you through other transaction-related
fees with the securities transactions they execute for your account.
Commissions and other fees for transactions executed through the
custodians we recommend may be higher than commissions and
other fees available if you use another custodian firm to execute
transactions and maintain custody of your account. We believe,
however, that the overall level of services and support provided to our
clients by our recommended custodians outweighs the benefit of
possibly lower transactions cost which may be available under other
brokerage arrangements.
Many of the services described above may be used to benefit all or a
substantial number of our accounts, including accounts not
maintained through our recommended custodians. We do not
attempt to allocate these benefits to specific clients.
Aggregation of Client Trades
Klaas PMG may aggregate trades in a single order (a block trade).
Aggregated trading allows for the purchase or sale of a security for
the accounts of multiple clients in a single transaction.
Block orders are generally completed or filled on the same day the
trade is placed. If a block order is filled (full or partial fill) at several
prices through multiple trades, an average price will be calculated for
all trades executed, and all participants in the block trade will receive
the average price. The objective of the aggregated orders will be to
allocate the executions in a manner deemed equitable to the accounts
involved. While the occurrence of partial fills (i.e., a block order which
is not fully executed within the same day) is rare, all partial fills shall be
allocated to client accounts on a pro rata basis.
We may aggregate trades when operationally efficient, or when we
reasonably believe the combination of the transactions provides
better prices for clients than had individual transactions been placed
for clients. We are not obligated to include all or any client transaction
in an aggregated block trade. Trading practices, including trade
aggregation practices, of Asset Managers (if applicable) are disclosed
in their respective disclosure brochures.
Klaas PMG has established procedures to reasonably ensure trade
execution will not favor or discriminate against any client or group of
clients, and trades executed for the accounts of our Investment
Adviser Representatives or employees will not be favored over
transactions for client accounts.
Fees and Compensation
The fee for the program (Program Fee) is a percentage of assets
under management in the Program (including cash and cash
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equivalents, and MVAs, MOAs, and accounts within the MCP, if
applicable), charged on a quarterly basis, in arrears, subject to a
minimum fee of $1,500 annually. Our standard fee schedule is as set
forth in the table below.
Assets Under Management Annual Fee
$0 up to $250,000 1.25%
Over $250,000 up to $500,000 1.15%
Over $500,000 up to $1,000,000 1.00%
Over $1,000,000 up to $2,000,000 0.90%
Over $2,000,000 up to $3,000,000 0.80%
Over $3,000,000 up to $5,000,000 0.75%
Over $5,000,000 up to $7,500,000 0.70%
Over $7,500,000 up to $10,000,000 0.65%
Over $10,000,000 0.60%
Our standard fee schedule may change over time, and some clients
are subject to legacy fee schedules which may be higher or lower than
our current fee schedule. In addition, we reserve the right to reduce
or waive fees under certain circumstances at our discretion.
Your Program Fee may vary depending on several factors, such as the
Program Strategies used, the size of your accounts, and the overall
complexity of your financial situation. All fees are discussed with you
at the time of the engagement, and are described in the KIP Client
Agreement and Terms and Conditions, as amended from time to time.
New accounts in the Program are charged a prorated fee for the first
quarter which is based on the number of days in the quarter from the
date the account is funded to the end of the quarter.
Any party at any time upon written notice may terminate the KIP Client
Agreement. Program Fee payments will be assessed and due upon
notification of the account termination or closure date. Program Fees
will be calculated based on the account valuation provided by the
custodian of the assets managed. Fees will be prorated based on the
number of calendar days in the quarter prior to account termination
and/or closure.
The Program Fee is a single wrap fee, and covers the financial
planning and consulting services provided by Klaas, the portfolio
management services provided by Klaas PMG (or Asset Manager, if
applicable), and brokerage and custodial fees. Klaas will generally pay
the broker-dealer a transaction charge for each trade in the account.
Thus, Klaas will earn more compensation if fewer transactions are
executed for the accounts. Broker-dealers may waive transaction fees
for some types of investments or based on other circumstances (for
example, if you enroll in electronic statements for your account). Some
investment options (such as mutual funds, ETFs, or investments in
MVA subaccounts) may be available with no transaction fees. We
potentially have an incentive to choose investments with lower or no
transaction fees. However, as a fiduciary, we are required to act in your
best interest and have an obligation to manage your portfolio in a
prudent matter, regardless of the transaction charges assessed in your
account.
The Program Strategies make significant use of ETFs to gain exposure
to various asset classes while attempting to minimize costs. Over 2,000
ETF products are available with differing methods and characteristics,
including passive, hybrid, and actively managed ETFs. When
evaluating ETFs for use in the Program Strategies, selection criteria
include characteristics such as assets under management, ETF
liquidity, how closely the ETF tracks its underlying index, and other
criteria depending on the specific asset class and implementation
approach of the ETF. The selection criteria help pare down the large
universe when selecting ETFs for use in the Program Strategies.
Fidelity has made available a subset of more than 500 ETFs for
purchase commission-free. Because we bear the transaction costs in
the Program, we have an incentive to select ETFs with no transaction
fee, which is a potential conflict of interest. However, we seek to
mitigate this conflict of interest by applying selection criteria other
than transaction costs to filter the ETF universe. We use both
transaction fee and commission-free ETFs in the Program Strategies.
The Program Fee does not cover:
Fees associated with MVAs, MOAs and accounts within the MCP,
such as Brokerage commissions or other charges resulting from
transactions not effected through the broker- dealer named in
your KIP Client Agreement.
Administrative fees charged by the third-party charitable
program sponsor for accounts within MCP, which is based on the
percentage of assets under management, as outlined in the
agreement between you and the sponsor of the third-party
charitable program.
Any internal management operating fees or expenses imposed
or incurred by a mutual fund or other pooled investment vehicle.
Any additional custodial services contracted for directly by the
client with the custodian.
Mark-ups and mark-downs or dealer spreads broker-dealers may
receive when acting as principal in certain transactions.
Variable annuity account fees imposed by insurance carriers.
Certain costs or charges that may be imported by the broker-
dealer or custodian named in your KIP Client Agreement or third
parties, including costs associated with exchanging foreign
currencies, odd- lot differentials, IRA fees, transfer taxes,
exchange fees, wire transfer fees, postage fees, and other fees or
taxes required by law.
Further, to the extent that cash used for investment through Program
comes from redemptions of the client’s mutual fund or other
investments outside of Program, there may be tax consequences or
additional cost from sales charges previously paid and redemption
fees incurred. Such redemption fees would be in addition to the
Program Fee on those assets.
In most cases, multiple share classes of the same mutual fund are
available for purchase. Some share classes of a fund charge higher
internal expenses, whereas other share classes of a fund charge lower
internal expenses. Institutional and advisory share classes typically
have lower expense ratios and are less costly for a client to hold than
Class A shares and other share classes that may be eligible for
purchase in an advisory account. Mutual funds that offer institutional
share classes, advisory share classes, and other share classes with
lower expense ratios are available to investors who meet specific
eligibility requirements that are described in the mutual fund’s
prospectus or its statement of additional information. These eligibility
requirements include, but may not be limited to, investments meeting
certain minimum dollar amounts and accounts the fund considers
qualified fee-based programs. It is also possible the lowest cost
mutual fund share class for a particular fund may not be offered
through the Program or available for purchase within specific types of
accounts. Clients should not assume they will be invested in the share
class with the lowest possible expense ratio or cost. The share class
available for client accounts may be restricted at the custodian or
within an account program.
The custodian will receive payments from certain mutual funds
(including money market funds) pursuant to a Rule 12(b)-1 distribution
Page 5 of 8 Rev. 03-04-2024
plan or other such plan as compensation for distribution or
administrative services and are distributed from the fund’s total assets.
These fee arrangements will be disclosed upon request of a client and
are available in the applicable fund’s prospectus. The fees received by
the custodian create a conflict of interest. In addition, the custodian
receives compensation in connection with cash held in the account.
The Program may cost a client more or less than purchasing such
services separately depending on the frequency of trading in the
Program accounts, commissions charged at other broker-dealers for
similar products, fees charged for like services by other advisers and
broker-dealers, the fee structure of the account and other factors.
As of December 31, 2023, within the KIP Wrap Fee Program, we
provided discretionary asset management on approximately
$569 million in client assets for more than 900 client households.
Discretionary asset management means we have the authorization to
make investment decisions on behalf of our clients.