ADV Part 2A Brochure Brokerage Account Service Fees Business Continuity

Purpose

The purpose of this document is to provide our customers with information about the actions we will take if an emergency or other event substantially disrupts our normal business operations either for the firm as a whole, or one or more of our offices. We have described a number of different scenarios below to give you a general understanding of the policies and procedures that we will employ in the event of business disruptions of different lengths and severity, such as a fire in one of our offices, a hurricane or flood that forces the evacuation of a city or county, or a terrorist attack that disrupts business for weeks throughout an entire region.

ProEquities’ mission is to ensure the continuous delivery of service to our customers while maintaining compliance with applicable regulatory requirements.

Contacting Us

You may contact ProEquities by phone (800-288-3035), email, or at our web site. If you cannot access us by any of these means you should contact your registered representative for instructions.

The ProEquities business continuity plan is subject to modification at any time. Updated plans will be promptly posted on our web site. You may also obtain an updated plan by requesting a written copy of the plan by mail, at 2801 Highway 280 South, Birmingham, AL 35223.

Scenario Responses

The following activities will cause ProEquities to declare a business continuity event and activate the plan.

Business Disruption Event Estimated Length Of Time For Recovery Actions ProEquities Will Take
A disruption that affects only ProEquities’ ability to conduct business, such as a failure of our computer systems One hour or less Associates will be able to place trades via phone directly to our clearing firm, Pershing
One of our buildings must be evacuated or is unavailable as a result of a specific building-related issue Four to eight hours to re-locate associates to alternate facility Associates in that building will be relocated locally and will service customers from that location
An event occurs that forces the evacuation of a business district, or prevents people from having access to the area Four to twelve hours to re-locate associates to alternate facility Associates in the affected area will be relocated locally and will be able to service customers from that location
An event occurs that affects an entire city One day to re-locate affected associates to an alternate regional location Associates in the affected area will be relocated and will be able to service customers from that location
An event occurs that affects an entire regional area, such as a county or multiple counties. Two days or more to relocate associates to another area Relocate associates to another region or to a mobile office unit

Assumptions

Our ability to take the actions described in this notice will depend on a number of factors, some of which may be beyond our control:

  • Availability of critical infrastructure (such as electricity, water, heat, ventilation, telecommunications, air conditioning, U.S. Mail or overnight delivery service, etc.) for as long as the alternate facility is needed
  • Availability of adequate staffing
  • Accessibility of roads or public transportation available to allow ProEquities associates to reach alternate location
  • Availability of our clearing firm, Pershing LLC
  • Accessibility and operation of alternate offices, customer sites and other facilities to be used by displaced ProEquities associates
Disclosures Relating to Retirement Plans and Individual Retirement Accounts FINRA's Broker-Dealer Recruitment Disclosure Investor's Rights

ProEquities believes that the needs of the investor should always come first. As an investor, you have important rights, including the right to high quality products and services from the securities firm you choose.

At the same time, investors need to shoulder certain responsibilities themselves — for example, to plan carefully to meet their investment goals and to stay informed about the risks and rewards of their investments.

Your Rights As An Investor

As an investor, you have the right:

Quality Service
• To be treated in a fair, ethical, and respectful manner in all interactions with a securities firm and its employees and affiliates.
• To receive competent and courteous service and advice (if provided by your firm) at a fair price.
• To select your own representative or request a different one if you are not satisfied.
• To move your account to another representative or a new investment firm whenever you wish in a simple, efficient manner.

Full, Clear Reporting
• To clear, accurate, easy-to-understand descriptions of all your transactions, statements, and other communications from your investment firm.
• To be informed clearly about all the costs associated with your account and the costs related to individual transactions, including commissions, sales charges (or loads), and other fees.
• To accurate and timely regular statements of your account, including detailed transactional information.
• To be provided with clear descriptions of your firm's policies and practices for protecting the privacy of non-public, personal information.

Responsible Investment Advice
• To be provided with responsible investment recommendations based on your personal objectives, time horizon, risk tolerance, and other factors, as disclosed by you.
• To be apprised of significant conflicts of interest identified in a financial relationship between an investor and his or her broker-dealer or account representative.
• To expect that your investment firm will provide professional assistance to help you clarify your investment goals and risk tolerance.
• To be able to rely on your firm's assistance also in setting realistic expectations about the long-term performance and associated risks of various securities. The firm will present you with reasonable investment alternatives designed to meet those expectations, and disclose the comparative risks, benefits, and costs.

Prompt, Fair Resolution Of Problems
• To fair consideration and a prompt response from your investment firm, if any problem with your account ever arises.
• To a clearly defined process for raising and resolving a complaint. Your firm will provide you with full information about this process, particularly about how you can elevate an issue to the appropriate level of the firm's management to gain satisfaction.
• To be apprised of alternatives if your investment firm is unable to resolve a dispute to your satisfaction.

Important Information About Procedures for Opening a New Account Online Security Disclosure Order Routing Practices

SEC RULE 606: ORDER ROUTING PRACTICES

ProEquities, Inc is required to make available quarterly reports of our routing practices. These reports identify the significant venues to which our customer's orders were routed for execution during the previous calendar quarter.

ProEquities transmits all equity orders to our clearing firm, Pershing, who may then route customer orders to various venues for execution. A written copy of this report is available by contacting your registered representative.

Our firm's quarterly report is available at: www.orderroutingdisclosure.com

In the box next to "enter broker-dealer's full name" type in: proequities inc

Municipal Securities Rulemaking Board Notice to Investors

ProEquities, Inc. (“ProEquities”) is registered with the U.S. Securities and Exchange Commission (“SEC”) and the Municipal Securities Rulemaking Board (“MSRB”). As such, ProEquities is subject to the regulations and rules on municipal securities activities established by the SEC and MSRB. For more information about the Municipal Securities Rulemaking Board please visit their website at www.msrb.org. Additionally, customers may access the MSRB Investor Brochure, which describes the protections that may be provided by the Municipal Securities Rulemaking Board rules and how to file a complaint with an appropriate regulatory authority, by accessing the following web page: http://msrb.org/msrb1/pdfs/MSRB-Investor-Brochure.pdf

Product Sponsor Compensation

February 2018

In the normal course of business, ProEquities, Inc. and its registered representatives and investment adviser representatives receive compensation and other payments related to the sale of securities and to the financial planning, financial advisory, and asset management services provided by ProEquities and its investment adviser representatives. The investment advisory services offered by ProEquities and its investment adviser representatives include "sub-advisory" arrangements with third-party money managers. For the investment management services that ProEquities provides, it may receive compensation and other payments in the form of:

  • Advisory fees from our customers based on the amount of assets under management by our Firm (or by third-party money managers) or upon the financial planning and/or advice services provided by our investment adviser representatives.
  • Cash payments from product sponsors as reimbursement for training and educational expenses incurred by our investment adviser representatives when attending educational meetings or conferences that are held by ProEquities or by the product sponsor.
  • Cash payments from product sponsors through the Firm to its registered representatives as reimbursement for product marketing efforts or attendance at due diligence meetings (in accordance with FINRA rules).

If a client enters into an advisory agreement with a third party money manager, ProEquities may receive payments from such third party money manager for the advisory services ProEquities performs under its investment advisory services agreement with the client based upon the amount of Assets under Management (AUM) that is held with a particular manager.

In addition to compensation that ProEquities receives for its advisory services provided to the client, ProEquities may receive compensation from the third party money manager based on any or all of the following: (i) the amount of assets invested with a particular third party manager in a given year; (ii) the amount of AUM that is held with a particular manager; (iii) a percentage of the total management fee charged by a manager; and (iv) a flat fee from the manager. These compensation arrangements are typically known as “revenue sharing.” In addition, ProEquities may receive greater compensation from certain third party money managers, compared with others, and that may give ProEquities incentive to choose one third party money manager over another.

Because ProEquities may receive revenue sharing from third party money managers, ProEquities has a financial interest in recommending that clients engage the investment advisory services of a third party money manager with whom ProEquities has an agreement. Clients should understand that entering into an advisory relationship with a third party money manager is voluntary, and that if the client chooses to do so, then ProEquities will have a financial interest in bringing together that relationship. However, all investments made by ProEquities clients, including those made with third party money managers, are evaluated by a supervising principal for suitability, based on the client’s individual needs and objectives.

ProEquities and its registered representatives sell a variety of securities, including mutual funds, options, money market instruments, variable products (variable annuities and variable life insurance), stocks, bonds, Section 529 college savings plans, and alternative investments (such as real estate investment trusts, oil and gas partnerships, Section 1031 exchange programs and similar programs). ProEquities may execute transactions in these securities and receive compensation and other payments in the form of:

  • Commissions from product sponsors based on transactions effected.
  • Recurring distribution fees from product sponsors based on assets held in an investment, commonly referred to as trail commissions or 12b-1 fees.
  • Cash payments from product sponsors to ProEquities for research and due diligence associated with securities offered for sale by the Firm.
  • Cash payments in the form of rebates and incentives from ProEquities' clearing firm, Pershing, to ProEquities for distribution assistance (including client asset levels maintained in certain money market sweep funds), and participation credits (monthly margin debit interest, free credit interest rebates and account inactivity fee rebates) on certain client account balances. ProEquities may also from time to time receive special incentives from Pershing for its participation in temporary marketing programs. Examples of prior programs include incentives to increase the number of incoming account transfers and retirement account openings. Because ProEquities receives rebates and incentives from Pershing as described above, ProEquities has a financial interest in recommending that you allocate a portion of your assets to certain money market sweep funds. ProEquities may also participate in temporary marketing programs for which it receives rebates and incentives from Pershing, and therefore may have a financial interest in recommending to you products or services included within the temporary marketing program. You should understand that you may choose to allocate your assets to money market sweep funds that do not produce a cash incentive for ProEquities and you may choose not to participate in any temporary marketing program.
  • Other cash payments from our "product partners" to ProEquities, as discussed in more detail below.

Markups of Certain Costs Charged by Third Party Service Providers. ProEquities’ clearing firm, Pershing, as well as other third party service providers, may assess certain incidental charges associated with account services, including but not limited to annual check writing and debit card fees on Corestone accounts, wire fees, check stop payment fees, returned check fees, ACH return fees, security transfer and redemption fees, reorganization processing fees, trade confirmation fees, outgoing account transfer fees, margin extension fees, margin debit interest, IRA annual maintenance fees, IRA termination fees, amounts charged to produce year­end statements and account reports, paper surcharge fees foreign security transaction fees, initial document review and ongoing annual service fees for special products, including but not limited to limited partnerships, mail courier fees, bank charges and/or transactions charges related to processing. These charges are assessed against the customer’s account and may consist of both charges that ProEquities pays to the clearing firm or third parties as well as additional charges that ProEquities assesses for these account services. ProEquities may also mark up any other charges passed through by its clearing firm or other third parties but not specifically identified above.

Product Sponsors. The product sponsor of a mutual fund, variable contract or alternative investment generally funds all or some portion of the commissions and distribution fees for the investment through fees and expense charges that are associated with that investment. These fees and expense charges are described in the prospectus, private placement memorandum, or other disclosure documents for that investment. Fees based on assets under management and for financial planning services are disclosed in the client’s investment advisory and financial planning agreements with ProEquities.

Product Partners. ProEquities has also entered into marketing arrangements with a number of mutual fund, variable contract and alternative investment product sponsors and third-party money managers. These “product partners” are sometimes invited to attend or participate in educational meetings and conferences for ProEquities registered representatives and investment adviser representatives, and may be featured more prominently on the ProEquities website or other communications than other product sponsors. As a result, these product partners may have greater access to our registered representatives and investment adviser representatives than other product sponsors.

As of the date of this disclosure, the Firm's product partners include:

The Firm’s product partners include:
BlackstoneOwl Rock
BluerockProtective Live
Brighthouse (MetLife)
Prudential
Brinker CapitalResource Real Estate
CLSSammons
Efficient Market Advisors
SmartStop
Envestnet
TransAmerica
ForlinesTriloma
Franklin Square
US Energy
Hines Real Estate Securities
Voya
Jackson National

Loring Ward
Martin
Mutual of Omaha




ProEquities may add or eliminate product partners from time-to-time without prior notice.

Product partner marketing arrangements include provisions for cash payments to ProEquities. The cash payments may be based on a fixed amount per year, on a percentage of the amount that ProEquities customers have invested with the product partner, or both.

ProEquities registered representatives and investment adviser representatives do not receive additional compensation for selling securities offered by a particular product sponsor, whether it is a product partner or not. Furthermore, they are not required to achieve a sales quota with respect to investments or services offered by any product sponsor. ProEquities also has a policy against accepting reimbursement through brokerage transactions directed to the Firm by product sponsors.

The Firm believes that, in general, the product partners offer investment and advisory products and services of a high quality. However, ProEquities does not guarantee that these products and services will perform better than others that may be available, and encourages its registered representatives, IARs and customers to consider any product sponsor or third-party money manager whose products and services might be suitable for the customer.

Registered representatives and IARs of the Firm who are associated with Everence may be eligible for incentives provided through Everence Trust (such as eligibility for deferred compensation and health benefit programs and matching certain charitable contributions made by the representative) based on their sales of Praxis Mutual Funds and other products (such as insurance) that are offered by Everence or its affiliates.

SEC Share Class Selection Disclosure Initiative

Introduction

In 2018, the United States Securities and Exchange Commission (“SEC”) announced a program (the Share Class Selection Disclosure Initiative or “SCSDI”) whereby investment advisory firms could work with the SEC to self-report instances in which their customers were invested in high-fee share classes when lower-fee options were available in the same fund (“affected investors”). ProEquities and numerous other investment advisory firms voluntarily elected to participate in the SEC’s SCSDI. The purpose of this letter is to provide information on: (a) the circumstances leading to ProEquities’ determination to participate in the SCSDI; and (b) the corrective actions being undertaken.

ProEquities’ Determination to Participate in the SCSDI

The intent of the SCSDI is to identify instances where advisors did not make required disclosures in connection with the recommendation and sale of mutual fund share classes that paid the advisor fees pursuant to Rule 12b-1 of the Investment Company Act (“12b-1 fees.”) 12b-1 fees, which can range from .25% to 1.00%, are built into a fund’s operating expenses and are used to pay for shareholder servicing costs. The fund company collects 12b-1 fees and pays them to the investment advisory professional (“advisor”) who recommended the fund. The advisor’s receipt of 12b-1 fees is in addition to the separate fee charged by the advisor for managing the customer’s account.

Advisors can often offer multiple share classes of mutual funds for the same fund, including share classes that do and do not impose 12b-1 fees. An advisor’s recommendation of a higher-fee share class that paid the advisor a 12b-1 fee created a conflict of interest that was not clearly disclosed. This was a conflict because, by investing in higher-fee share classes, investors either paid more in expenses or received a lower rate of return than they would have received if they had invested in lower-fee share classes.

Corrective Actions Undertaken

ProEquities voluntarily elected to participate in the SEC’s SCSDI to address past conflicts of interest issues related to the payment 12b-1 fees. The SCSDI review period was from January 2014 through June 25, 2018, however, ProEquities stopped paying advisors 12b-1fees for advisory accounts in October 2016, with the exception of a small number of accounts. Although ProEquities stopped paying advisors the 12b-1 fees, many customers continued to pay the 12b-1 fees until moved to a lower-fee share class, as discussed below.

ProEquities also agreed to distribute approximately $1.852 million to affected investors (“Distribution Fund”). The Distribution Fund consists of the 12b-1 fees attributable to the affected investors ($1,638,191.06) plus prejudgment interest ($214,192.04). ProEquities will deposit the Distribution Funds into an escrow account and make distributions to affected investors over the next several months in accordance with SEC requirements.
As part of the agreement with the SEC, ProEquities agreed to complete the following activities within 30 days:

1. Review and correct as necessary all relevant disclosure documents concerning mutual fund share class selection and Rule 12b-1 fees.
2. Evaluate whether to move existing clients to a lower-cost share class and move clients as necessary.
3. Evaluate, update (if necessary), and review the effectiveness of internal policies and procedures so that they are reasonably designed to prevent subsequent violations regarding mutual fund share class selection.
4. Notify affected investors of the settlement terms.

If you are a current ProEquities client, you will receive a refund via check in the next several months. A separate communication will detail the amount of the refund. If you are no longer a current ProEquities client and the amount of the refund exceeds $10, you also will receive a refund via check in the next several months. If you are no longer a current ProEquities client and the amount of the refund is less than $10, you will NOT receive a refund.

If you have any questions regarding the SCSDI, please contact your ProEquities advisor or ProEquities Client Services at 1-800-288-3035. You may review the Order at this link:

https://www.sec.gov/litigation/admin/2019/ia-5125.pdf

Social Media Step-Out Trading Disclosure

Costs Associated with “Step-out Trading” in Fee-Based Investment Advisory Programs

When you choose to participate in an advisory relationship with ProEquities, you have the option of investing through a fee-based investment advisory program. In a fee-based investment advisory program managed by a third-party manager, you generally pay an ongoing investment advisory fee based on the value of the assets held in your account and will not incur brokerage costs for each transaction, except as otherwise disclosed in the program’s Form ADV, Part 2A.

While the ongoing investment advisory fee is the primary expense of these types of accounts, you may incur other fees and expenses as disclosed in the program’s Form ADV, Part 2A. One category of expenses you may incur is expenses associated with “step-out trading”. Step-out trading occurs when your trades are executed through broker-dealers whose commissions or other fees are not included within your investment advisory fee and, as a result, you incur additional commissions or fees.

Each third-party manager is free to consider its associated broker-dealers’ or clearing firms’ trading capabilities versus other broker-dealers’ trading capabilities as part of its duty to obtain best-execution for your trades. Periodically, the third-party manager may believe they are able to obtain better execution using step-out trades. Additional brokerage costs are reflected in the net purchase or sale price for step-out trades but are not disclosed separately in the trade confirmation.

ProEquities does not evaluate whether a third-party manager is meeting its best-execution obligations to clients when trading away, as it is not a party to such transactions and is not able to negotiate the price nor transaction-related charge(s) between the third-party manager and the executing broker or dealer. ProEquities does not discourage or restrict a third-party manager’s ability to trade away. Clients participating in accounts managed by a third-party manager should review the third-party manager’s Form ADV Disclosure Brochure carefully prior to deciding to do business with any third-party manager. To further assist you in understanding the additional costs you may incur as a result of step-out trades, a list of the third-party managers’ strategies and the associated costs for the most recent calendar year are provided in the following chart.

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