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Investment Advisory and Broker-Dealer Services
It’s important for clients to understand the services that are most appropriate for them, given their goals and circumstances. Brokerage and investment advisory services are separate and distinct, and each is governed by different laws and separate contracts with you. While there are similarities between the brokerage and advisory services we provide, depending on the capacity in which we act, our contractual relationship and legal duties to you are subject to a number of important differences.
OUR SERVICES AS A BROKER-DEALER AND RELATIONSHIP WITH YOU
As a broker-dealer, our services are not limited to taking customer orders and executing securities transactions. In this capacity, we offer a variety of services relating to investments in securities, including investment research, trade execution and custody services. In a brokerage account, you pay us commissions and applicable fees each time we execute a transaction in your account.
Broker-dealers can also make recommendations about whether to buy, sell or hold securities. Such recommendations are considered part of their brokerage services, and they do not charge a separate fee for this advice. However, such recommendations must be suitable for you, in light of your particular financial circumstances, goals and tolerance for risk.
When we work with you in our capacity as broker-dealer, we generally do not make investment decisions for you or manage your accounts on a discretionary basis. We will typically buy or sell securities for brokerage clients based only on specific directions from you.
OUR RESPONSIBILITIES TO YOU AS A BROKER-DEALER
When we act as your broker, we are subject to the Securities Exchange Act of 1934, the Securities Act of 1933, the rules of self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA), the rules of the New York Stock Exchange and applicable laws and rules.
The standards for broker-dealers include the following:
- As your broker-dealer, we have a duty to deal fairly with you. Consistent with our duty of fairness, we are obligated to make sure that the prices you receive when we execute transactions for you are reasonable and fair in light of prevailing market conditions, and that the commissions and other fees we charge you are not excessive.
- We must have a reasonable basis for believing that any securities recommendations we make to you are suitable and appropriate for you, given your individual financial circumstances, needs and goals.
- We are permitted to trade with you for our own account (“principal trading”) or for an affiliate or another client, and we may earn a profit on those trades. When we engage in these trades, we disclose the capacity in which we acted on your confirmation, though we are not required to communicate this or obtain your consent in advance, or to inform you of the profit earned on the trades.
- When we act as your broker-dealer, we do not enter into a fiduciary relationship with you. Absent special circumstances, we are not held to the same legal standards that apply when providing investment advisory services. Our legal obligations to disclose detailed information to you about the nature and scope of our business, your Financial Advisor, fees, conflicts between our interests and your interests, and other matters are more limited than when we are providing investment advisory services to you.
OUR SERVICES AS AN INVESTMENT ADVISER AND RELATIONSHIP WITH YOU
In our capacity as an investment adviser, we offer clients a number of investment advisory programs, including discretionary account management, non-discretionary investment advisory programs, and advice on the selection of investment managers, mutual funds, exchange-traded funds and other securities offered through our investment advisory programs. These services are offered in programs where fees are typically calculated as a percentage of assets in the account.
When we act as your investment adviser, we generally will enter into a written agreement with you expressly acknowledging our investment advisory relationship with you and describing our obligations to you. At the beginning of our advisory relationship, we will give you our Form ADV brochure(s) and brochure supplement(s), which provide detailed information about, among other things, the program(s) you select; the advisory services we provide; our fees; your Financial Advisor; and conflicts between our interests and your interests.
JPMS offers the following non-discretionary and discretionary investment advisory programs: the Strategic Investment Services Program (“STRATIS”); the Investment Counseling Service Program (“ICS”); the Horizon Program; the Portfolio Manager Program (“PM”); the Portfolio Advisor Program (“PA”); and the Unified Managed Account Program (“UMA”).
How you are charged for brokerage and investment advisory accounts
In a brokerage account, you generally compensate JPMS and your Financial Advisor through fees incurred with each transaction. For example, you generally pay JPMS a commission for each equity transaction, a mark-up/mark-down for bond transactions and a sales charge for mutual fund transactions. Therefore, in a brokerage account, your total costs will generally increase or decrease as a result of the frequency of transactions in the account and the type of securities you purchase. Other costs will also apply to your account.
INVESTMENT ADVISORY ACCOUNTS
In an investment advisory account, you generally do not pay fees for each transaction, but instead compensate JPMS and your Financial Advisor through an annual fee, paid quarterly or monthly, based on the total value of the assets in your investment advisory account. The fee typically covers both the advisory and the brokerage services provided by JPMS that are described in the investment advisory agreement. Generally, the mutual fund share classes that are offered to clients in our advisory programs do not charge a front-end sales charge. In an investment advisory account, your total costs will generally not increase or decrease as a result of the frequency of transactions in the account.
BOTH BROKERAGE AND ADVISORY ACCOUNTS
In both brokerage and investment advisory accounts that include investment products such as mutual funds or ETFs, you will incur additional expenses, including investment management fees of the funds as well as operating expenses that are reflected in the funds’ share price. These expenses are not included in JPMS’s fees. Other fees and expenses in addition to those outlined above, or different fee arrangements, may apply in both brokerage and investment advisory accounts as described in agreements and disclosures provided to you.
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