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BUSINESS CONTINUITY PLAN DISCLOSURE STATEMENT
Independent Financial Group, LLC has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions are unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, we are providing you with this information on our business continuity plan.Contacting Us. If after a significant business disruption, you cannot contact your representative as you usually do at his or her branch office, you should call our firm’s home office at (858) 436-3180 or go to our website at www.ifgsd.com. In the event that you are unable to contact either your representative or the firm’s home office due to a significant business interruption, you can contact our clearing firm, Pershing, LLC. During a significant business disruption, Pershing may be contacted directly to process limited trade-related transactions, cash disbursements, and security transfers. Instructions to Pershing must be in writing and transmitted via facsimile or postal service as follows: Pershing LLC, P.O. Box 2065, Jersey City, New Jersey 07303-2065, Fax: (201) 413-5368. For additional information about how to request funds and securities when we cannot be contacted due to a significant business interruption, please call (201) 413-3635 for recorded instructions. If you cannot access the instructions from the previously noted telephone number, Pershing may be contacted at (213) 624-6100 extension 500 as an alternate telephone number for recorded instructions.In cases where you cannot contact your representative and your accounts are held directly with a product sponsor, please utilize the sponsor company’s contact information located on your account statement.Our Business Continuity Plan. We plan to respond by safeguarding our employees and property, making a financial and operational assessment, protecting the firm’s books and records, and allowing our customers to transact business. Our business continuity plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption and addresses the following: data back-up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory reporting; and assuring our customers prompt access to their funds and securities if we are unable to continue our business.Independent Financial Group, LLC implements redundancies by maintaining multiple backup files in different geographical locations as part of our business continuity program. Additionally, Pershing, LLC, backs up our important records in a geographically separate area. While every emergency situation poses unique problems based on external factors, such as time of day and the severity of the disruption, we have been advised by our clearing firm that its objective is to restore its own operations and be able to complete existing transactions and accept new transactions and payments within the same business day. Your orders and requests for funds and securities could be delayed during this period.Varying Disruptions. Significant business disruptions can vary in their scope, such as those involving only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we will transfer our operations to a local site when needed and expect to recover and resume business within 24 hours. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area and recover and resume business within 48 hours. In either situation, we plan to continue in business, transfer operations to our clearing firm if necessary, and notify you through our website www.ifgsd.com or our customer emergency number, (858) 436-3180, as to how to contact us. Please be aware that we cannot guarantee that we will be successful in achieving recovery in the times noted above. If the significant business disruption is so severe that it prevents us from remaining in business, we will assure our customer’s prompt access to their funds and securities.For More Information. If you have questions about our business continuity planning, you can contact us at [email protected].
SEC ORDER EXECUTION AND ROUTING DISCLOSURE
U.S. Securities and Exchange Commission (“SEC”) Rule 606 (formerly11Ac1-6) requires all brokerage firms to publicly disclose their order routing practices. Disclosure is to describe routing of “non-directed orders,” that is, orders that customers have not specifically asked to have sent to a particular venue for execution. With respect to Independent Financial Group, LLC’s relationships with trading venues, Independent Financial Group, LLC directs all trades in over-the-counter (OTC), listed stock, and options to our clearing firm, Pershing, LLC, for execution. Independent Financial Group, LLC does not receive compensation for directing this order flow to Pershing. The designated market makers to whom orders are automatically routed are selected by Pershing based on the consistently high quality of their executions in one or more market segments and their history of seeking price improvements. Pershing regularly reviews reports for quality of execution purposes. To view the most recent quarterly report, go to www.orderroutingdisclosure.com. Enter the firm name exactly as it appears below and click on “GO”: Independent Financial Group LLC
POTENTIAL CONFLICTS OF INTEREST
Independent Financial Group, LLC (“Independent Financial Group”) offers a wide range of mutual fund, variable annuity, variable life insurance, direct participation programs (“DPPs”), real estate investment trusts (“REITS”), equities, fixed income and third-party money management services through both our clearing firm, Pershing, LLC and through direct selling agreements with the sponsoring companies. The purpose of this disclosure document is to provide information regarding the costs associated with investing in these products, how the representative is compensated when clients purchase these products and how Independent Financial Group is compensated by the sponsor companies.Independent Financial Group holds the fundamental belief that each investor with the guidance of their representatives has the right to choose the investments that provide the greatest chance of achieving their financial goals. As such, we do not offer proprietary products and do not maintain a list of preferred investment companies. We do, however, have the responsibility to disclose fees and potential conflicts of interest in order for the client to make an informed decision before investing in certain products. Therefore, a description of customary sales charges, compensation, additional support and compensation associated with these investments is provided below.
UNDERSTANDING THE DIFFERENCE BETWEEN BROKERAGE AND INVESTMENT ADVISORY SERVICES
Independent Financial Group, LLC is registered both as a broker-dealer with FINRA and as an investment advisor with the SEC. There are several differences between brokerage and advisory services and it is important for you to understand that our brokerage and investment advisory services are separate and distinct. Depending on your needs and your investment objectives, you may have brokerage accounts, advisory accounts or both. We want you to be informed of the differences between these types of services so you can choose the services and accounts that are right for you.
As a broker-dealer, we facilitate the execution of securities transactions on your behalf. In addition to executing your orders, IFG provides various services through our registered representatives including investment education, research and recommendations whether to buy, hold or sell securities. There are no additional charges for these services since they are considered incidental to brokerage services we provide. We are held to the legal standards under applicable federal and state securities laws, and the rules of our self-regulatory organization, FINRA. Among other things, these regulations require broker-dealers to:
Execute your trades with diligence and competence and seek to provide best execution in light of prevailing market conditions;
Have reasonable grounds for believing that any security that we specifically present to you is suitable given your investment objectives, risk tolerance, financial and tax status and other financial information you have disclosed to us;
Treat you in a manner characterized by principles of fair dealing and high standards of honesty and integrity.
As a broker-dealer, your registered representative does not have the discretion to buy or sell securities for you without your approval. This means that you make the decision to buy, sell or hold securities before trades are placed. If your registered representative recommends that you buy, sell or hold a security, they must have a reasonable basis to believing their recommendation is suitable for you.
Charges for Brokerage Services
The costs for brokerage services are typically based on a transaction charge, often called a commission or a mark-up/mark-down for each trade you make in your account. Other costs and charges will also apply to your account and these costs and charges are outlined in your IFG Account Application and Agreement or as you are otherwise notified by the account custodian or clearing firm.
Investment Advisory Services
Under a Registered Investment Advisor (“RIA”), your Investment Advisor Representative (“IAR”) may provide a variety of investment advisory programs and services including financial planning, discretionary asset management and access to third party asset managers for a set fee. The fee typically covers the advisory services but may include brokerage charges in certain programs.When we act as an investment advisor, we have a fiduciary duty to act in your best interest and will enter into a written agreement with you that acknowledges our advisory relationship and our obligations to you. Investment advisory services are limited strictly to those accounts for which you have entered into an advisory agreement with IFG. The fact that IFG serves as investment adviser for some of your accounts does not mean that IFG is under any obligation to provide investment advisory services for other accounts you may have, either at IFG or with another financial institution.IFG will provide you with disclosure documents that describe the services offered, related program fees and any potential conflicts of interest inherent in the advisory relationship. In an advisory relationship, we also are obligated to:
Ensure that investment advisory services are suited to your specific investment objectives, needs, and circumstances;
Disclose potential conflicts of interest between our interests and yours;
Disclose whether and to what extent we (or our affiliates) receive additional compensation from you or a third party as a result of our relationship with you;
Not unfairly advantage one advisory client to the disadvantage of another.
Fees and Charges for Advisory Services
Your fees for investment advisory services are described in the client agreement for the applicable program. Typically, advisory fees will be based on a percentage of the assets held in your investment advisory account. This fee is expressed as an annual percentage (for example, 1%) of your account value and is charged on a quarterly basis calculated in arrears or in advance. The fee may or may not include brokerage transaction charges. Each of our investment advisory services has an agreement and disclosure document that explains its fees and charges in detail.
Under a wrap account, IARs invest and manage investments that could include individual securities or funds in a fee-based account. IFG’s wrap accounts provide investment guidance, portfolio management, and brokerage services for an annual fee based on a percentage of the account assets. Clients may prefer an annual account fee over commissions because they may feel more comfortable knowing IARs will have no incentive to trade frequently to generating commissions (since the account is charged a fee on the account balance versus transactional commissions) and have a vested interest in increasing the overall asset size of the account.Before investing in a wrap account, it is important that IARs and their clients consider investment strategy, asset allocation needs, and trading frequency. Bond investors and investors with a buy-and-hold approach may not stand to benefit from wrap accounts because the annual wrap fee may be higher than any one-time commissions they would otherwise pay. For active stock investors, however, the ability to make unlimited trades for a set fee instead of on a per-trade commission basis could result in large savings.
Acting as Both Broker-Dealer and Investment Advisor
You may have several accounts with IFG where we act as investment advisor, broker-dealer or both at the same time. It is important that you understand that does not mean that brokerage relationships are advisory relationships. We encourage you to ask questions so you so you completely understand what capacity we are acting as well as the difference between brokerage and advisory services.
Deciding Between and Advisory or Brokerage Relationship
Below are some questions that you may ask yourself when deciding on the type of account to open with your IFG advisor.
Do you want a financial advisor to manage your investment portfolio? If so, an advisory account may be appropriate.
Do you prefer to make investment decisions on your own and are just looking for an advisor to execute your orders? If so, a brokerage account may be appropriate.
Do you want your advisor to act as a fiduciary with a duty to provide you with ongoing investment services? If so, an advisory account may be the right choice.
Do you prefer only occasional advice and recommendations on particular investments? If so, a brokerage account may be the right choice.
What do you expect will be the amount and size of the holdings and transactions in your portfolio? If you plan to hold a number of securities and to have your account rebalanced on a frequent basis, an advisory account may be the right decision. However, if you plan to only hold a few securities and/or follow a buy-and-hold strategy for a long period of time without ongoing investment advice from an advisor, a brokerage account may be the right decision.
For More Information
Questions about the nature of your accounts or the services provided should be directed to your IFG representative.
DISCLOSURES RELATED TO EXCHANGE TRADED FUNDS (ETFs)
ETFs are typically structured as registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. Some ETFs that invest in commodities, currencies, commodity- or currency-based instruments, or volatility instruments are not registered as investment companies and are generally established as grantor trusts. Unlike traditional UITs or mutual funds, shares typically trade throughout the day on an exchange at prices established by the market.Like individual stocks, ETFs can be bought and sold throughout the trading day at the current market value, which continuously fluctuate and reflect the value of each ETF share at any particular time. Shares of ETFs are bought and sold on various stock exchanges.ETFs can track a wide variety of sector-specific, country-specific and broad-market indexes. ETFs may provide diversification to your overall portfolio because one share or one unit may represent multiple underlying stocks, bonds and/or other asset classes. Each ETF seeks to replicate the market performance of the underlying index that makes up its basket of securities. Although ETFs seek to mirror the performance of a particular index, the relationship between performance of the index or sector and the ETF is not exact because of the fees and trading costs associated with the ETF, as well as the difficulties in exactly mimicking an index.
Non-traditional ETFs may be “leveraged” or “inverse,” and function like traditional ETFs, but may offer leverage depending on the product’s investment objective. These ETFs, which are sometimes referred to as “geared,” “responsive” or “exotic,” generally rebalance daily, although some rebalance monthly. They are complex financial instruments designed to meet a stated investment objective although their performance can change significantly from their stated objective on a daily or monthly basis, depending upon the trading session.These non-traditional ETFs seek to deliver multiples of the performance of the index or benchmark they track. To accomplish their objectives, non-traditional ETFs involve investment strategies that utilize swaps, futures contracts and other derivative instruments. Both leveraged and inverse non-traditional ETFs are trading vehicles and are not suitable for investors who are interested in a buy-and-hold strategy, particularly in volatile markets.
Leveraged ETFs attempt to track a multiple of the daily (or monthly) returns of an index usually by using total return swaps. A leveraged ETF may be two times (2x) or three times (3x) leveraged, which means it attempts to provide two or three times the daily index return or loss, respectively. For instance, the double leveraged ETF seeks to provide a 2% gain on that daily return for each 1% increase in the market index return. Conversely, if the index drops 1%, your loss, in theory, would be 2% for that given day, assuming the ETF is rebalanced daily.
Some leveraged ETFs are inverse or “short” funds, meaning that they seek to deliver the opposite of the performance of the index or benchmark they track. An inverse ETF generally engages in trading strategies, such as short selling, or enters into total return swap agreements and futures contracts. An inverse ETF seeks to deliver the inverse (-1x) of the index’s performance, while a two times (-2x) or three times (-3x) leveraged inverse ETF seeks to deliver two or three times the opposite of the index’s performance, respectively.
Non-traditional ETFs are not suitable for most investors. The effects of mathematical compounding can grow significantly over time, leading to scenarios whereby performance over the long run can differ significantly from the performance (or inverse performance) of their underlying index or benchmark during the same period of time. Leveraged, inverse, and leveraged inverse ETFs may be more volatile and risky than traditional ETFs due to their exposure to leverage and derivatives, particularly total return swaps and futures. In addition, these instruments are typically designed to achieve their desired exposure on a daily (in a few cases, monthly) basis. Holding leveraged, inverse, and leveraged inverse ETFs for longer periods of time potentially increases their risk due to the effects of compounding and the inherent difficulty in market timing.
ADDITIONAL COMPENSATION DISCLOSURES
Compensation and Potential Conflicts of Interest.
IFG offers a wide range of mutual funds, variable annuities, variable life insurance, Direct Participation Programs (“DPPs”), Real Estate Investment Trusts (“REITS”), equities, fixed income and third-party money management services through both our clearing firm, Pershing, LLC and through direct selling agreements with the sponsoring companies. We strive to provide to you objective investment advice to assist you in reaching your goals however, inherent in any recommendation, the potential for conflicts of interest may exist. This conflict can come from the compensation our RRs may receive on specific investments or advisory services, or it may come from the compensation that we may receive from third party providers as a result of your purchase of products, advisory or retirement plan services. It is important for you to understand these conflicts of interest so that you may make an informed decision to allow us to serve your investment needs. The purpose of the following disclosure is to provide information regarding the costs associated with investing in these products, how the RR is compensated when clients purchase these products and how IFG is compensated by the sponsor companies.a) Mutual Funds. Before investing in mutual funds, it is important to understand their associated fees and expenses. Mutual funds have ongoing expenses that clients will pay as long as they hold the funds. Most funds pay a sales commission to the RR when the fund is purchased in addition to the annual costs that are associated with operating the fund. Annual operating expenses include management fees, 12b-1 fees (payments made in connection with marketing and distribution expenses which may include trailing compensation to RRs), the cost of shareholder mailings and other expenses. Investors should always consult the fund’s prospectus for specific details regarding fees, expenses and charges. Certain mutual fund companies pay IFG to support our Conference Programs 1. The following mutual fund companies have or are currently participating in the IFG Conference Program:
Sierra Mutual Funds
T. Rowe Price
b) Variable Products. IFG receives compensation in different ways from the purchase of variable annuities and variable life insurance products. Similar to mutual funds, IFG is paid by variable product companies based on the fees paid by the investor and a portion of that payment is paid to the RR. In addition to customary compensation from variable product companies that include commissions and ongoing payments (known as residuals or trails), IFG may receive additional compensation from certain variable product sponsors under a revenue-sharing agreement. RRs do not receive a greater or lesser commission from sales under this agreement, however, the marketing and educational activities paid for with these payments may lead RRs to focus on those funds when making recommendations. Although compensation may vary, IFG receives up to 25 basis points (0.25%) of the gross amount of each sale of a variable product. For example, a $10,000 transaction with a participating company could result in a one-time payment of $25 under this agreement. The following variable product sponsor(s) currently participate in the revenue sharing program:
Certain variable product companies pay IFG to support our Conference Program. The following variable product companies have or are currently participating in the IFG Conference Program:
Jackson National Prudential
Diversified Brokerage Services
c) Non-Variable Insurance. IFG receives compensation from product sponsors and/or their affiliates for marketing their insurance products to IFG RRs. IFG receives marketing and educational support payments of up to $60,000 on an annual basis from Field Marketing Organizations (FMOs) to assist training and educating IFG RRs. Such training and education of IFG RRs may include: conference calls, web-casts, advertising in IFG’s monthly and quarterly magazines, and participation at IFG Conferences including speaking opportunities (breakout sessions) and exhibit time (booths). Payments received through the IFG Marketing Support Program are not made in connection with any specific IFG retirement plan customer. IFG RRs do not receive any portion of these payments.The following FMOs current participate in the IFG Marketing Support Program:
Diversified Brokerage Services
d) Alternative Investments and Direct Participation Programs. We receive compensation from Alternative Investment (“AI”) and DPP sponsors (such as REITs, Limited Partnerships, Oil and Gas programs and Tenant-in-Common offerings) that includes commissions and due diligence/marketing allowances from the sponsor. Commissions are described in detail in the offering’s Private Placement Memorandum, vary depending upon the offering and range from 2.00% to 9.00%. Due diligence/marketing allowances typically range from 0.5% to 1.50% and in some cases, a portion may be shared with the RR. In addition, certain AI/DPP sponsors may pay IFG to support our Conference Program. The following AI/DPP sponsors have or are currently participating in the IFG Conference Program:
Black Creek group
Bluerock Real Estate
Inland real Estate Corp
Mewbourne Oil Co.
SmartStop Asset Management
e) 529 Plans. Similar to mutual funds, IFG is paid by the fund family or distributor based on the fees paid by the investor. A portion of that payment goes to the RR. IFG does not have a revenue sharing program with any 529 Plan sponsors nor do we receive any additional fees (conference or marketing fees) other than those disclosed in the issuer’s offering statement.f) Money Market Funds. Brokerage accounts provide automatic daily cash sweep programs into client selected money market funds offered by Federated Financial Services Company and Dreyfus Insured Deposit Program. IFG receives compensation of up to 0.15% of the assets invested in Dreyfus Insured Deposits and up to 0.35% of the assets invested in Federated money market funds. RRs do not receive any portion of these payments.g) Banking Products. IFG provides bank products such as checking, savings, money market and CDs from Bank of the Internet. IFG receives up to 0.35% on assets in these products. RRs receive a portion of these payments. Bank of the Internet participated in our Conference Program by contributing $10,000 towards our National Conference.h) Retirement Plan Providers. Under IFG’s Marketing Support Program, IFG receives compensation from product sponsors and/or their affiliates for marketing their retirement plan products and platforms to IFG RRs. IFG receives marketing and educational support payments of up to $75,000 on an annual basis from retirement plan product sponsors to assist in the training and education of IFG RRs. Such training and education of IFG RRs may include: conference calls, web-casts, advertising in IFG’s monthly and quarterly magazines, and participation at IFG Conferences including speaking opportunities (breakout sessions) and exhibit time (booths). Payments received through the IFG Marketing Support Program are not made in connection with any specific IFG retirement plan customer. IFG RRs do not receive any portion of these payments.The following Retirement Plan product sponsors currently participate in the IFG Marketing Support Program:
T. Rowe Price
i) Investment Advisory Services. IFG’s registered investment advisor offers advisory services and portfolio management through various third-party money managers. IFG receives a percentage of advisory fees as a percentage of client assets invested with the third-party money managers. In addition to customary compensation based on customer assets, IFG may receive additional compensation from certain money managers under a revenue sharing agreement. IFG’s Investment Advisor Representatives (“IARs”) do not participate in revenue sharing under this agreement, however the marketing and educational activities paid for with these payments may lead IARs to focus on those funds when making recommendations. Although compensation varies, IFG receives up to 10 basis points (0.10%) of the gross amount of the account value. For example, a $10,000 transaction with a participating advisory firm could result in a one-time payment of $10 under this agreement. The following money managers currently participate in the revenue sharing program:
Dunham & Associates
Hanlon Investment Management
Ocean Park Asset Management
Weatherstonge Capital Management
Certain third-party advisors pay IFG to support our Conference Program. The following third-party money managers have or are currently participating in the IFG Conference Program:
Beacon Capital Management
Ocean Park Assset Management
Dunham & Associates
Hanlon Investment Management
Pacific Financial group
Capital Group American Funds
1Conference Programs: Independent Financial Group’s representatives have the ability to create investment portfolios from a variety of approved products and programs. Certain product sponsors contribute additional funds and resources to programs that support our marketing, education and training efforts, such as our national conference and other seminars or conferences conducted throughout the year (“Marketing Support Program”).The amounts that product sponsors pay to participate in the Conference Program is based on a tiered platform that ranges from $1,500 to $100,000 and according to the events and activities the sponsor chooses, may include: conference calls, web-casts, advertising in Independent Financial Group’s monthly and quarterly magazines, Elite Advisor Conference, Practice Management Forum, and National Conference; including speaking times (breakout sessions) and exhibits (booths).
Additional Training and Support.
In addition, product sponsors and other companies may also reimburse up to 100% of the cost of due diligence, training and education/joint marketing meetings for our RRs, as permitted by industry rules. Sales of any products by IFG RRs may qualify them for additional cash and non-cash compensation that includes support for their business activities, attendance at seminars, conferences and entertainment. It is important to know that although the product sponsors contribute these funds to IFG and may have greater access to our RRs’ the client does not pay more to purchase these products through IFG than they would through another broker-dealer. The payment of this additional compensation to IFG by these product sponsors may pose a financial incentive to promote certain products over other products, although we do not believe that these arrangements compromise the service the RR provides to the client.
INVESTOR EDUCATION AND INFORMATION
FINRA BrokerCheck is a resource tool to help investors check the professional background of current and former FINRA-registered securities firms and brokers. Features of FINRA BrokerCheck include; search capabilities for both brokers and broker-dealers, online reports on brokers and broker-dealers, information to help investors better understand the content, context and source of the information provided and links to additional resources and tools. The information made available through FINRA BrokerCheck is derived from the Central Registration Depository (CRD®), the securities industry online registration and licensing database, as reported on industry registration/licensing forms brokers, brokerage firms and regulators complete. More detailed information regarding FINRA BrokerCheck is contained in an investor brochure which is available via the FINRA website. Please refer to the FINRA’s website (www.finra.org) and/or FINRA BrokerCheck (www.finra.org/brokercheck) or Hotline Number (800) 289-9999 for more information about FINRA and its member organizations.