DISCLOSURE: REVENUE SHARING

Information on Revenue Sharing, Commonwealth's Mutual Fund and Insurance Programs, and Related Compensation

MUTUAL FUNDS

Through our national network of advisors, Commonwealth offers a broad selection of more than 13,000 mutual funds. Companies for some of the mutual funds we sell participate in activities that are designed to help facilitate the distribution of their products by making our advisors, we believe, more knowledgeable about those companies' funds, such as marketing activities and educational programs (including, but not limited to, attendance by fund representatives at Commonwealth conferences, one-on-one marketing, and due diligence presentations to our advisors).

In return for assistance in facilitating the activities described above, Commonwealth receives additional compensation, called revenue sharing, from these funds. These revenue sharing payments are in addition to commissions, annual service fees (known as 12b-1 fees), and other fees and expenses disclosed in a fund's prospectus fee table. These revenue sharing payments, however, are paid out of the investment adviser's or other fund affiliate's assets—not from the fund's assets—and, therefore, would not appear as an item in a fund's expense table. No portion of these revenue sharing payments to Commonwealth is made by means of brokerage commissions generated by the fund.

It is important to understand that none of the revenue sharing payments received by Commonwealth is paid or directed to any advisor who sells these funds. Commonwealth advisors do not receive a greater or lesser commission for sales of mutual funds for which Commonwealth receives revenue sharing payments. Because Commonwealth's advisors receive no direct increase or change in compensation from selling shares of one fund over another, we do not believe that they are subject to a conflict of interest based on the amount of compensation each advisor receives when recommending one fund's shares over another's. The marketing and educational activities paid for with revenue sharing, however, could lead our advisors to focus more on those funds that make revenue sharing payments to Commonwealth—as opposed to funds that do not make such payments—when recommending mutual fund investments to their clients.

Commonwealth does not maintain a "preferred" list of mutual fund families based on participation in revenue sharing that it promotes (exclusively on our website or through our advisors), but offers a selection of many funds.

The mutual fund families that participate in the revenue sharing programs described above are:

  • AllianceBernstein
  • Allianz Global Investors
  • American Funds
  • BlackRock
  • Columbia Funds
  • DWS Investments
  • Eaton Vance
  • Federated
  • Fidelity Advisor
  • Franklin Templeton
  • Goldman Sachs
  • Hartford
  • Invesco
  • Ivy
  • John Hancock
  • J.P. Morgan
  • Legg Mason
  • Lord Abbett
  • MainStay
  • MFS
  • Natixis Global
  • Nuveen Investments
  • Oppenheimer
  • Pioneer
  • PIMCO
  • Principal
  • Prudential Investments
  • Putnam
  • Thornburg
  • Virtus Investment Partners
  • Wells Fargo

While the revenue sharing arrangements with each fund family may vary, each fund family may pay either a) up to 30 basis points (0.30%) of the gross amount of each sale; b) up to 10 basis points (0.10%) of the gross amount of each sale, plus up to 10 basis points (0.10%) annually of the assets held at the fund family; or c) up to 13 basis points (0.13%) annually of the assets held in the fund family. For example, on a $10,000 transaction with a participating fund family, Commonwealth would receive either a one-time $30 payment; a one-time $10 payment, plus a $13 annual payment for the period during which the assets remain at that fund family; or a $13 annual payment for the period during which the assets remain at that fund family.

Participating fund families may also be subject to certain minimum payments each year in conjunction with the program if minimum amounts of sales or assets are not met, and they may also make additional payments to Commonwealth for attendance at various educational meetings hosted by Commonwealth throughout the year.

Some of the mutual funds we sell may also offset certain transaction costs that would otherwise be borne by an advisor for those clients who choose to custody their assets with our clearing firm, National Financial Services LLC (NFS)—a wholly owned subsidiary of Fidelity Investments. These transaction charges are usually $15 per transaction in connection with each purchase of a mutual fund by a client, depending on the account and/or transaction type. We believe that this offset does not compromise the advice your advisor gives you.

Additionally, NFS offers a "No Transaction Fee" program with more than 2,600 no-load mutual funds. Participating mutual fund sponsors pay a fee to NFS to participate in this program, and a portion of this fee is shared with Commonwealth. None of these additional payments is paid to any advisors who sell these funds.

Variable insurance programs

Commonwealth also offers hundreds of variable insurance options and assists insurance sponsors with conducting marketing activities and educational programs designed to increase the distribution of these products. Commonwealth also receives revenue sharing payments from certain insurance sponsors. None of these additional payments, however, is paid or directed to any advisor who sells these products. In addition, Commonwealth advisors do not receive a greater or lesser commission for sales of variable insurance products from which Commonwealth receives revenue sharing payments.

Because Commonwealth's advisors receive no direct increase or change in compensation from selling one product over another, we do not believe that they are subject to a conflict of interest based on the amount of compensation each advisor receives when recommending one product over another. The marketing and educational activities paid for with revenue sharing, however, could lead our advisors to focus more on those insurance products that make revenue sharing payments to Commonwealth—as opposed to insurance sponsors that do not make such payments—when recommending insurance products to their clients.

While the revenue sharing arrangements with each insurance company may vary, each insurance company may pay either a) up to 30 basis points (0.30%) of the gross amount of each sale; or b) up to 10 basis points (0.10%) of the gross amount of each sale, plus up to 5 basis points (0.05%) annually of the assets held at the insurance company. For example, on a $10,000 transaction with a participating insurance company, Commonwealth would receive a one-time $30 payment, or a one-time $10 payment, plus a $5 annual payment for the period during which the assets remain at that insurance company.

Participating insurance companies may also be subject to certain minimum payments each year in conjunction with the program if minimum amounts of sales or assets are not met, and they may also make additional payments to Commonwealth for attendance at various educational meetings hosted by Commonwealth throughout the year.

The following variable insurance companies participate in this revenue sharing program:

  • Allianz Life
  • AXA Distributors
  • Global Atlantic
  • Great West
  • Jackson National Life
  • Jefferson National
  • Lincoln National
  • MetLife Investors
  • Minnesota Life
  • Nationwide
  • Pacific Life
  • Protective Life
  • Prudential
  • Transamerica
VARIABLE UNIVERSAL LIFE, UNIVERSAL LIFE, AND LONG-TERM CARE INSURANCE PROGRAMS

Commonwealth also offers variable universal life (VUL), universal life (UL), and long-term care (LTC) insurance products and assists insurance sponsors with conducting marketing activities and educational programs designed to increase the distribution of these products. Commonwealth, in addition to receiving commissions on the sale of these insurance products, receives payments from certain insurance sponsors for marketing, training, and distribution support. None of these additional payments, however, is paid or directed to any advisor/insurance agent who sells these products. In addition, Commonwealth advisors/insurance agents do not receive a greater or lesser commission for sales of these insurance products from which Commonwealth receives revenue sharing payments.

Because Commonwealth's advisors/insurance agents receive no direct increase or change in compensation from selling one product over another, we do not believe that they are subject to a conflict of interest based on the amount of compensation each advisor/agent receives when recommending one life insurance product over another. The marketing, educational, and distribution activities paid for with revenue sharing, however, could lead our advisors/insurance agents to focus more on those insurance products that make revenue sharing payments to Commonwealth-as opposed to insurance sponsors that do not make such payments-when recommending insurance products to their clients.

While the arrangements with each insurance company may vary, each VUL and UL insurance company may pay a percentage of target premiums as described below, and each LTC carrier may pay a percentage of the gross amount of each sale based on annual production.

The following insurance companies may pay between 10% and 25% of target UL or VUL premiums:

  • Midland National Life Insurance – UL and VUL
  • Pacific Life – UL and VUL
  • Penn Mutual – UL and VUL

The following insurance companies may pay up to 20% of LTC premiums:

  • Genworth
529 COLLEGE SAVINGS PLANS

Commonwealth also offers several 529 college savings plans to our brokerage customers through their advisors. 529 plan assets are included in the amount of total mutual fund assets upon which revenue sharing is paid, but are not separately accounted for by Commonwealth and the product sponsors. As with the mutual funds, none of these additional payments, however, is paid or directed to any advisor who sells these plans. In addition, Commonwealth advisors do not receive a greater or lesser commission for sales of 529 plans from which Commonwealth receives revenue sharing payments.

NONPUBLICLY TRADED PRODUCTS

Commonwealth, through its advisors, also offers several nonpublicly traded products, including nonlisted real estate investment trusts (REITs), limited partnerships (LPs), business development companies (BDCs), closed-end funds, 1031 exchange programs; hedge funds and fund of funds; managed futures; tax credit programs; oil and gas programs; venture capital funds; and private equity funds. Consistent with prudent product approval practices, Commonwealth conducts or causes to be conducted a due diligence analysis of these products prior to making them available to the public through its advisors. In addition to receiving commissions on the sale of these products, Commonwealth receives due diligence and/or marketing allowance payments from certain sponsors.

While the arrangements with each sponsor may vary, each product sponsor may pay a due diligence or marketing allowance fee of either a) up to 70 basis points (0.70%) annually on assets held at the sponsor; or b) up to 200 basis points (2.00%) on the gross amount of each sale, depending on the product. None of these additional payments, however, is paid or directed to any advisor who sells these products. In addition, Commonwealth advisors do not receive a greater or lesser commission for sales of these products from which Commonwealth receives revenue sharing payments. Because Commonwealth's advisors receive no direct increase or change in compensation from selling one product over another, we do not believe that they are subject to a conflict of interest based on the amount of compensation each advisor receives when recommending one nonpublicly traded product over another.

INVESTMENT ADVISER/ASSET MANAGEMENT PROGRAMS

Commonwealth and/or its advisors may receive reimbursements, marketing and distribution allowances, due diligence fees, or other compensation based on deposits and/or assets under management directly from third-party asset manager program sponsors (collectively, "Program Sponsors") for the costs of marketing, distribution, business and client development, educational enhancement, and/or due diligence reviews incurred by Commonwealth and/or the advisor relating to the promotion or sale of the Program Sponsor's products or services.

Payments to Commonwealth Advisors. In addition to receiving asset-based fees in their capacity as an investment adviser or solicitor, Commonwealth advisors receive reimbursements or marketing allowances for marketing expenses and costs incurred by the advisor. Payments to Commonwealth Only. Consistent with prudent product approval practices, Commonwealth conducts or causes to be conducted a due diligence analysis of these Program Sponsors in making them available to the public through its advisors. Additionally, Commonwealth receives distribution allowances and other payments from certain Program Sponsors. While the arrangements Commonwealth has with each sponsor varies, a Program Sponsor may pay Commonwealth additional compensation for marketing expenses, distribution allowances, due diligence, or other compensation of up to 10 basis points (0.10%) annually on deposits or assets held at the Program Sponsor. These additional payments are retained by Commonwealth, and none of these additional payments is paid or directed to any Commonwealth advisor.

In addition, Commonwealth advisors do not receive a greater or lesser asset-based fee for providing investment advice or referrals of these Program Sponsors' services as a result of Commonwealth's receipt of these additional payments. Because Commonwealth's advisors receive no direct or indirect differential compensation for selecting one advisory program over another, we do not believe Commonwealth advisors are subject to a conflict of interest when selecting a particular asset management program that makes additional payments to Commonwealth over a program that does not.

In all cases, such reimbursements and marketing allowances will be paid to Commonwealth and/or the advisor from the Program Sponsor's own resources and not from client funds or assets. Such arrangements will have no impact on the fees being charged to clients by Commonwealth, the advisor, or the Program Sponsor. Depending upon the specific arrangement, payments may be based upon an annual, flat, or level fee arrangement. Program Sponsors may also opt to pay Commonwealth a quarterly fee based upon deposits or assets under management and/or some combination thereof on an annual basis based upon certain allowable assets.

Last Updated: 01/05/2017