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 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.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 Personalized Investments 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.
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.
- ETCM Personalized Investments: 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 Sweep: Plans currently have various choices for the investment of available cash balances (depending on when the account was opened), which can include FDIC-insured bank deposit accounts opened at affiliated banks certain money market mutual funds, and/or a cash balance program.
- Options: ETS will process options orders for your account and exercise options pursuant to your instructions (not applicable to plans participating in an ETCM Personalized Investments 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 Personalized Investments 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. 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 Personalized Investment Accounts.
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.
When providing discretionary investment advice to a brokerage account covered by ERISA, ETCM is acting in the capacity of a “fiduciary” as defined by ERISA. 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. 3
If your account is invested in an Advisory Account, 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 3(83) ERISA with respect to the plan’s assets in the ETCM Personalized Investments 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 Investment Advisory accounts:
Direct Compensation: ETCM receives an Advisory Fee and otherwise acts as a level fee fiduciary to the plan. Depending on which ETCM Personalized Investments 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, calculated as the daily weighted average market value of assets. Plans utilizing Fixed Income Portfolios may also incur additional fees and expenses in the form of commissions, markups, markdowns or “spreads”, and costs not covered by the Advisory Fee which are included in the bond prices for Fixed Income Portfolios investments. Please read the E*TRADE Wrap Fee Programs Brochure for more information on the Advisory Fee and services offered.
Indirect Compensation: Investment adviser representatives for ETCM and ETS receive different types and levels of compensation for the sale of investment advisory services offered by ETCM and the ongoing relationship management of those accounts. ETS receives a gross percentage of the investment advisory fees received by ETCM for services ETS provides to ETCM.
Brokerage accounts only: ETS receives 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 options) (unless transactions are commission-free such as commission-free ETFs or no-load, no-transaction-fee mutual funds where ETS receives indirect compensation). The commission rates applicable to your brokerage account will vary by type and are described in the fee schedule that can be found at etrade.com/pricing. For brokerage accounts, commission charges for transactions are 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 is disclosed on your trade confirmation and 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 the 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 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 0.4%.
Commission-free exchange-traded fund purchases: ETS has contracted to receive certain compensation in connection with the purchase of exchange-traded funds that are offered commission-free through ETS. This 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 ranging from 0 to 0.15% per annum. The list of ETS current commission-free exchange-traded funds can be found here.
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 is not required to borrow your securities and may borrow from other parties, in its sole discretion.
All Accounts (Both Brokerage and Advisory):
Cash sweep options: ETS has contracted to receive certain compensation in connection with the investment choices offered for cash sweep for your account. If a plan is utilizing a money market mutual fund offered by ETS as sweep (not available to new 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% to 0.92% per annum. If your account is enrolled in the E*TRADE 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 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. For reference you can find the E*TRADE Financial RSDA Program Customer Agreement 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 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.
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.
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. 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. 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 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 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.
3. Record-keeping 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.