ERISA Section 408(b)(2)
About the regulation:
In accordance with Section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and its corresponding regulations,1 ERISA plan service providers such as E*TRADE Securities LLC ("ETS"), a registered broker-dealer, and E*TRADE Capital Management, LLC (“ETCM”), a Registered Investment Adviser, are required to describe the services provided to an ERISA plan. ETS and ETCM are also required to provide a plan sponsor/fiduciary with certain information about the fees charged to the plan by ETS and/or ETCM, as applicable, as well as any indirect compensation ETS, ETCM, and/or its affiliates (collectively, "E*TRADE") receive in connection with the services provided to retirement plans governed by Title I of ERISA.1 You can access additional information about this disclosure by visiting the Department of Labor's Section 408(b)(2) Fact Sheet. We encourage you to review this with your plan advisor, tax attorney, and/or plan administrator, and keep a copy in your plan file.
Please note, however, that although we are providing you with disclosures regarding services available to ERISA retirement plans, actual compensation will be determined by the accounts, services and/or investment utilized by the plan. This is due to the fact that Section 408(b)(2) requires prospective disclosure when, in many instances, we do not know the specific services and investments that will be selected by you, as plan fiduciary/sponsor, or the underlying plan participants in the future. Your brokerage agreement(s) and/or advisory contract/agreement(s) provide more detail about the specific services/fees that apply to you. Please review those agreements for more information.
About your account: Services provided and fees charged
Your account is not subject to fees other than those charged to ETS brokerage accounts, unless enrolled in an ETCM account, a discretionary wrap fee program offering (“Advisory Account”). Plans enrolled in an Advisory Account are charged an asset-based fee outlined in the Advisory Agreement for the investment advisory and other services, as described below. ETS brokerage accounts receive standard ETS brokerage account maintenance services. Fees are negotiable and depend on such considerations as the following: the aggregate assets contained in all of your ETS and ETCM accounts; the amount of time you have had the aforementioned accounts; the total amount of business that you conduct with ETS, ETCM, and their affiliates; and other factors.
Services provided to the plan:
The services1 provided by E*TRADE to the plan may include the following:
- Brokerage: ETS will execute purchase and sale orders for securities on behalf of your account in accordance with your instructions and offers a variety of educational tools and resources as well as certain types of investment recommendations. Please review the Relationship Summary for more information.
- Investment Advisory: ETCM offers wrap fee programs whereby clients generally pay a single asset-based annual fee for discretionary investment advisory services from ETCM and brokerage, custodial, and other related services through ETS (“Advisory Fee”). Please read the E*TRADE Wrap Fee Programs Brochure for more information on the advisory fee, rebalancing methodologies, portfolio management, affiliations, and services offered.
- Custody: These ETS services generally include safekeeping of your assets, processing account transactions (such as receipts, disbursements, and trades), posting income to the account, and issuing periodic account statements.
- Cash Management: You can earn interest with your uninvested cash at E*TRADE. We offer several cash management programs. Depending on your selection, available cash is either held in your brokerage account or swept to a bank sweep program or money market fund (money market funds are not available to new accounts other than Advisory Accounts).
- Options: ETS will process options orders for your account and exercise options pursuant to your instructions (not applicable to plans enrolled in an Advisory Account).
- Prospectus Delivery and Customer Communications: ETS & ETCM utilize third-party vendors to provide their clients with copies of prospectuses and other shareholder communications relating to their investments in ETS and ETCM accounts. These vendors are not parties to any agreements between ETS and its customers.
- No plan recordkeeping: Our services do not include recordkeeping.2
For further information about our services, please review the ETS and ETCM Relationship Summary found at etrade.com/formcrs, the ETS Relationship Guide found at etrade.com/relationshipguide, the E*TRADE Customer Agreement found at etrade.com/custagree, and the Characteristics and Risks of Standardized Options that can be found at etrade.com/optionsagree. Please read the E*TRADE Wrap Fee Programs Brochure for more information on the Advisory Fee, rebalancing methodologies, portfolio management, affiliations, and services offered to ETCM accounts. All of the latest disclosure documents referenced herein can be found at the Disclosure Library.
Services provided by outside vendors:
Your plan may also receive services from other service providers, such as a third-party administrator, recordkeeper, investment manager, or investment consultant, none of which are included in this disclosure document. For service fees and other related fees and expenses associated with the services provided by other service providers, please refer to the disclosure documents provided by that service provider or contact them directly.
When ETS provides "investment advice" regarding a plan, it is a "fiduciary" as those terms are defined under ERISA. When ETS provides investment education, takes orders on an unsolicited basis or otherwise does not provide "investment advice", ETS will not be considered a "fiduciary" under ERISA.
If your account is invested in an Advisory Account, ETCM acknowledges that it is a “fiduciary” as that term is defined under ERISA3. ETCM accepts appointment as “investment manager” as that term is defined under 3(83) of ERISA with respect to the plan’s assets in the Advisory Account. Please see your Advisory Agreement for additional information.
Direct and indirect compensation:
E*TRADE earns compensation in connection with this plan. If the plan covers more than 100 participants and you need the information necessary in order to complete the plan’s annual Form 5500, contact us at 877-921-2434.
ETCM Advisory Accounts:
Direct Compensation: As of March 16, 2022, qualified retirement plans may only open Core Portfolios accounts. ETCM receives an Advisory Fee and otherwise acts as a level fee fiduciary to the plan. Depending on which ETCM offering the plan is enrolled in and the market value of the account, the Advisory Fee ranges from 0.30% to 1.25% of assets under management. The on-going fee is assessed monthly, using the previous month end account balance. Please read the E*TRADE Wrap Fee Programs Brochure for more information on the Advisory Fee and services offered.
Indirect Compensation: Licensed professionals for ETCM and ETS receive different types of compensation for their services to investment advisory accounts but are no longer compensated for the sale of ETCM advisory accounts. Representatives servicing Core Portfolios accounts receive a salary and discretionary bonus. Representatives servicing other ETCM advisory accounts are eligible for different levels of compensation based on assets, referrals to affiliates of ETCM and other activity. Please read the E*TRADE Wrap Fee Programs Brochure for more information on the Advisory Fee and services offered.
Affiliated Funds: If Plan assets are invested in a fund managed by an affiliate, ETCM will, to the extent necessary, comply with ERISA Prohibited Transaction Exemption 77-4, ERISA Prohibited Transaction Exemption 84-24, or another available exemption. To the extent required under any such exemption or applicable law, the Advisory Fee on any Plan account will not be charged with respect to assets invested in any Affiliated Funds or will be reduced by the amount of the fund management fees, shareholder servicing and distribution fees ETCM or its affiliates may receive in connection with the Plan’s assets investment in such affiliated managed fund. Please see the Advisory Agreement for ETCM. ETCM does pay an affiliate a portion of the Advisory Fees it receives for model portfolios provided by the affiliate for use in an ETCM product.
Brokerage accounts only: In many cases, ETS will not charge you a fee to buy or sell US-listed stocks, ETFs, or mutual funds when you use our online platform. There are exceptions, such as over-the-counter (OTC) stock trades, option contracts, foreign stock trades, large block trades requiring special handling, futures trades, fixed income trades, trades placed through a representative, and stock plan account trades. Additionally, ETS charges a fee for online secondary trades of bonds (other than US Treasuries). Additional regulatory and exchange fees also apply depending on the transaction as noted in etrade.com/fees. The amount of commission charged on any particular trade is disclosed on your trade confirmation and account statement.
For brokerage accounts, fees are established based on a number of factors such as trading activity, type of security, transaction size, market conditions, and overall relationship.
The types of compensation received for such services are described in further detail below.
Direct compensation: In addition to the fees described above (except for margin rates, futures commissions, paper statement fees, and alternative investment fees that are not applicable to these types of ERISA plan accounts), E*TRADE may also receive direct compensation in the form of sales loads for the purchase and sale of certain mutual fund shares purchased for the plan. The rates of these sales loads, if applicable, are specified in the mutual fund's prospectus, as well as on the Mutual Funds Snapshot page at etrade.com. A front-end sales load or commission reduces the amount available to purchase fund shares; a majority or the entire sales load listed in the fund's prospectus goes to ETS for selling the shares. Sales loads can be as high as 5.75% of the transaction amount. For more information regarding these fees, please see a fund's current prospectus.
ETS charges a per-bond fee for online secondary trade with certain minimum and maximum charges. There is no fee for US Treasury auction and secondary trades online. There is separate pricing for trades made with the assistance of the ETS Fixed Income Sales Desk.
Indirect compensation: E*TRADE receives compensation from sources other than directly from your ETS brokerage account in connection with the services provided by E*TRADE. Such sources of indirect compensation include:
Mutual fund investments (including investments in money market mutual funds): ETS has contracted to receive other compensation in connection with the purchase and/or the ongoing maintenance of positions in certain mutual fund shares in your brokerage account. This additional compensation may be paid by the mutual fund, its investment adviser, or one of its affiliates. The types of compensation are as follows:
- Rule 12(b)-1 Plan fees: A mutual fund may have adopted a Rule 12b-1 Plan. Under the terms of the plan, fees are charged against the assets of the mutual fund on a continuing basis to compensate broker-dealers, such as ETS, for providing certain distribution and shareholder services. These fees, if applicable, are described in the mutual fund's prospectus on the Fee Table under “annual fund operating expenses” and generally range from 0 to 1% per annum of the investment. ETS generally receives 0.25% per annum.
- Administrative/Shareholder servicing/Networking fees: These fees are either position based or charged against the assets of the mutual fund on a continuing basis to compensate broker-dealers, such as ETS, for providing certain shareholder services, such as maintaining call centers, keeping shareholder records, and responding to shareholder requests. These fees, if applicable, are described in a mutual fund's prospectus and Statement of Additional Information on the Fee Table as “other expenses”. Where applicable, these fees are generally paid to ETS monthly, based on a percentage of assets, which can range from 0% to 0.10% per annum, or based on the number of positions, which can range from $0 to $20 per annum. For information about revenue sharing paid by a mutual fund, please review the fund's prospectus that can be found at etrade.com/mutualfunds.
- Shareholder servicing fees: ETS receives compensation through other revenue-sharing arrangements. The amounts received vary and may range from 0.15% to 0.40%.
Affiliated funds: ETS and/or its affiliates earn more money from purchases of affiliated funds than from purchases of other unaffiliated funds. Those funds may charge the fees mentioned above and an affiliate that manages the fund will also be paid the investment advisory fee charged by the fund. Those fees are paid to the fund’s affiliates and may be paid to other service providers to the funds, but the remainder is retained by the affiliate to cover its own expenses or as profit. ETS identifies affiliated funds with an icon on its website.
Accounts using Fully Paid Lending: ETS will receive compensation in connection with the use of your borrowed securities, including in connection with lending such securities to other parties for use in connection with settling short sales. ETS may lend your shares to one or more of its affiliates, including Morgan Stanley & Co LLC, and may receive remuneration from, or share profits with, such affiliates, which may create an actual or perceived conflict of interest. ETS is not required to borrow your securities and may borrow from other parties, in its sole discretion.
All Accounts (Both Brokerage and Advisory):
Cash management options: ETS has contracted to receive certain compensation in connection with the investment choices offered for cash management for your account. If a plan is utilizing a money market mutual fund offered by ETS as an option (not available to new brokerage accounts opened as of May 11, 2018), an affiliate of the fund pays ETS compensation based on a percentage of assets, which range from 0.03% to 0.90% per annum. If your account is enrolled in the Retirement Sweep Deposit Account (“RSDA”), ETS is paid a brokerage and servicing fee, on average range between 0.90% to 1.75% of assets per annum, by Morgan Stanley Private Bank, National Association or Morgan Stanley Bank, N.A. (“affiliated banks”), depending on whether one or both of these affiliated banks is participating as a Program Bank receiving deposits in the cash management program. The fees may be recalculated as frequently as monthly and may vary during the course of the year. For reference you can find the RSDA Program Customer Agreement.
Float income: In general, under ERISA, a service provider may retain the benefit of the use of any funds on hand that are incidental to the normal operation of the plan and that constitute earnings on funds that are (i) awaiting investment or (ii) transferred to a disbursement account for distribution from the plan. ETS may derive benefit from float in connection with providing services to your plan under certain circumstances. Float may be earned by ETS until investment or disbursement instructions have been received and the transactions have been executed and settled against your account. In the case of amounts transferred to a disbursement account, float may be earned until the time a check is presented for payment. In general, the amount of float earned is equivalent to the effective Federal Funds rate on the date earned.
Payment for order flow: ETS receives compensation in connection with routing orders to the marketplace for execution, subject to its obligations to seek best execution. Such compensation may be received from unaffiliated broker-dealers or from securities exchanges. In all cases, ETS seeks best execution in routing orders. For a description of the compensation earned by ETS in connection with routing orders, and ETS's procedures in routing orders, please refer to “Order-Routing Practices” available in the Account Agreements & Disclosures section of etrade.com/forms.
Gifts, gratuities, and non-monetary compensation: From time to time, employees of ETS acting as either a representative of the broker-dealer or as an investment adviser representative for ETCM, may receive compensation such as gifts, sponsorships, subsidized conference costs, and entertainment from vendors with whom they may engage in business dealings on behalf of clients, including ERISA plans. However, given the nature of ETS businesses, ETS reasonably believes that any such gifts, sponsorships, and entertainment received by its (“or its affiliates”) employees are received in the context of a general business relationship and should not be viewed as attributable or allocable to any transactions engaged in on behalf of their clients, including ERISA plans. ETS and ETCM have policies and procedures relating to gifts and entertainment activities in response to numerous laws and regulations.
Client educational events: E*TRADE is also compensated by unaffiliated third parties to host informational sessions, webinars, and other events for customers and/or Financial Consultants to educate them about market trends and the products they buy and sell. These may include webinars, events at E*TRADE branches, booths at conferences, and video recordings made available on etrade.com. These fund companies typically pay E*TRADE an administrative sponsorship fee to assist with the production of these educational events and resources. None of the materials or statements associated with such events are to be construed as investment offers or recommendations. The fees paid to E*TRADE Securities can be up to $20,000 per event but can also be waived. Financial consultants are not compensated for these events.
Retirement account related fees and other account related fees: ETS charges a fee of $25 for early withdrawals taken before age 59 ½, excess contribution removals, and recharacterizations, although the fee may be waived. There are also certain account activity fees which are detailed under “Other Fees” at etrade.com/pricing.
Note: The payments and level of vendor support are not dependent on, or related to, the level of assets invested by any ERISA plan in or with the products or services of the particular vendor. Certain compensation formulas and other information (e.g., mutual fund 12b-1 distribution payments) in this report were obtained from third-party sources that are believed to be reliable. There is no guarantee as to the accuracy or completeness of this information. Further, as the information is provided as a of a specific date it may not reflect the compensation throughout the entirety of the investment in the product.
If applicable, mutual fund and/or ETF investments are subject to the underlying expenses (reflected in the Total Annual Fund Operating Expenses (expense ratio) of these funds as described in the Fee Table within the fund’s prospectus).
1. E*TRADE and its affiliates do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by E*TRADE. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
Please note that if your plan is not subject to Title I of ERISA, these disclosure requirements do not apply. ERISA, in general, applies only to qualified plans that cover one or more "common law" employees in addition to the owners of the business sponsoring the plan (or their spouses). If a retirement plan covers only owners of the business (where the owners and/or their spouses are the only participants in the plan), the plan is NOT generally subject to Title I of ERISA. This also includes a partner in a partnership and his or her spouse.
2. Recordkeeping is referred to herein as the records for the individual participant accounts within a plan, such as contribution, investment, distribution activity, beneficiary information, and vested status.
3. Section 3(21) of ERISA and the regulations thereunder. The disclosures herein describe services and products that ETS and/or ETCM may make available to your account. The products and services referenced herein may not be suitable for all clients or plans and may be subject to certain restrictions. This 408(b)(2) disclosure document is not intended as, and shall not be deemed to be, an offer, solicitation, or recommendation of any product, service, security, account type, or investment strategy. Moreover, the disclosures contained herein are intended to comply with the regulations under Section 408(b)(2) of ERISA and the guidance and interpretations thereof as of the date of this disclosure document. Nevertheless, certain services or transactions referenced or discussed herein or otherwise provided with respect to your account may not require an exemption or be covered by an exemption other than Section 408(b)(2) of ERISA. ETS and ETCM reserve the right to modify this disclosure document at any time, including conforming the disclosures herein to any subsequent related guidance or interpretation of the applicable regulations.