ERISA Section 408(b)(2)
About the Regulation
In accordance with Section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (“ERISA”) and its corresponding regulations,1 service providers such as E*TRADE Securities LLC ("ETS") and E*TRADE Capital Management, LLC (“ETCM”) are required to describe the services provided to an ERISA plan. ETS is also required to provide a plan sponsor/fiduciary with certain information about the fees charged to the plan by ETS, as well as any indirect compensation ETS, ETCM, and/or its affiliates (collectively, "E*TRADE") receives in connection with the services provided to retirement plans governed by Title I of ERISA.2 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.
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 Wrap Fee Program (discretionary managed account). Plans receive standard ETS brokerage account maintenance services.
Services Provided to the Plan:
The services 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.
- Wrap Fee Program: ETCM also offers Wrap Fee Programs whereby clients pay a single fee for both discretionary investment advisory services from ETCM and brokerage services through ETS. For more information on the discretionary services, please see ETCM’s Firm Brochure or Form ADV Part 2A, Appendix I (“Wrap Fee Programs Brochure”).
- One-time, non-discretionary advice: ETCM provides one-time non-discretionary investment advice to users of ETCM’s interactive online tools—currently, My Virtual Advisor, available at www.etrade.com and Virtual Advisor, available only through E*TRADE Mobile (collectively, “ETCM Interactive Online Tools”).
- Custody: These 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 Sweep: ETS & ETCM offers customers various options for the investment of available cash balances, which can include FDIC-insured bank deposit accounts opened at affiliated and/or unaffiliated banks, certain money market funds, and/or a cash balance program.
- Options: ETS will process options orders for your account and exercise options pursuant to your instructions.
- Prospectus Delivery and Customer Communications: ETS & ETCM utilizes third-party vendors to provide its clients with copies of prospectuses and other shareholder communications relating to their investments in ETS and Wrap Fee Program accounts. These vendors are not parties to any agreements between ETS and its customers.
For further information about our services, please review the ETS Customer Agreement that can be found at etrade.com/custagree and the Characteristics and Risks of Standardized Options that can be found at etrade.com/optionsagree. For more information on the ETCM Wrap Fee Programs, please see ETCM’s Firm Brochure or Wrap Fee Programs Brochure.
Services Provided by Outside Vendors:
Your plan may also receive services from other service providers, such as a third-party administrator, record-keeper, 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.
Unless you are otherwise informed, ETS does not act as a fiduciary to your account under ERISA and does not provide fiduciary services to the plan. Our services do not include recordkeeping.4
In the case of one-time, non-discretionary advice provided through ETCM Interactive Online Tools, ETCM acts as a fiduciary for the recommendations received.
If your account is invested in a Wrap Fee Program, ETCM acknowledges that it is a “fiduciary” as that term is defined under ERISA. ETCM accepts appointment as “investment manager” as that term is defined under ERISA with respect to the plan’s assets in the Wrap Fee Program. Please see your Advisory Agreement for additional information.
Direct and Indirect Compensation:
Brokerage: ETS may receive transaction–based compensation in the form of commissions for effecting securities transactions (i.e. the purchase and sale of stocks, bonds, ETF shares, closed-end fund shares, and traded options). In the case of one-time, non-discretionary advice provided through ETCM Interactive Online Tools, ETS, an affiliate of ETCM provides services for which it will be compensated. The commission rates applicable to your brokerage account will vary by type and are described in the fee schedule that can be found at https://us.etrade.com/investing-trading/pricing-rates. For ETS accounts, commission charges for transactions will be established based on a number of factors such as trading activity, type of security, transaction size, market conditions, and overall relationship. The amount of commission charged on any particular trade will be disclosed on your trade confirmation or account statement.
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 may also receive direct compensation through imposition of a transaction fee for the purchase or redemption of shares of mutual funds that do not impose a sales load.
Indirect Compensation: E*TRADE may receive compensation from sources other than directly from your 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, may be 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 may receive compensation through other revenue-sharing arrangements. The amounts received vary and may range from 0.25% to 0.4%.
- Commission-Free Exchange-Traded Fund Purchases: ETS has also contracted to receive certain compensation in connection with the purchase of exchange-traded funds that are offered commission-free through ETS. This additional compensation is paid by an affiliate of the exchange-traded fund for distribution service provided by ETS. The compensation ETS receives as a result of these relationships is paid based on a percentage of assets that can range from 0 to 0.15% per annum. The list of ETS's current commission-free exchange-traded funds can be found here.
- Cash Sweep Options: ETS has also contracted to receive certain compensation in connection with the investment options offered for cash sweep for your account. With respect to the money market funds offered by ETS, an affiliate of the fund pays ETS compensation based on a percentage of assets, which can range from 0% to 0.92% per annum. If your account is enrolled in the E*TRADE Financial Extended Sweep Deposit Account (ESDA) or the International Sweep Deposit Account (ISDA), uninvested cash balances will be periodically swept into deposits of certain ETS-affiliated and/or unaffiliated FDIC-insured banks. For more information regarding these programs and their applicable terms, please refer to the Account Agreement for E*TRADE Financial Bank Sweep Accounts available at etrade.com/esdaagreement. ETS is also paid a brokerage and servicing fee, on average range between 0.90% to 1.75% of assets per annum, by E*TRADE Bank and/or E*TRADE Savings Bank (“affiliated banks”), depending on whether one or both of these affiliated banks is participating as a Program Bank. The fees may be recalculated as frequently as monthly and may vary during the course of the year. The annual fees from unaffiliated banks is equal to the spread or difference between (i) the total monthly rate paid by the unaffiliated banks, and (ii) the interest paid to customers on their ESDA balances. Unaffiliated banks determine the amount of the total monthly payment that will be made on ESDA Program deposit account balances. For reference you can find the language here.
- 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 may receive 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.
ETCM Investment Advice: There is no direct fee between clients and ETCM for one-time non-discretionary investment advice provided through ETCM Interactive Online Tools. ETCM receives an annual fixed fee which can range between $400,000 and $500,000 from ETS for the advice services provided by ETCM through both Interactive Online Tools and Wrap Fee Programs. The amount of compensation ETCM receives from ETS is not based on the number of advice recommendations made or by investment(s) selected by clients or recommended by ETCM for purchase by clients.
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's 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 has policies and procedures relating to gifts and entertainment activities in response to numerous laws and regulations.
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.
1Please 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.
2The disclosures herein describe services and products that ETS 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 or solicitation of any product, service, or security. 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 reserves 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.
3If 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).
4Recordkeeping 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.