COMPLIANCE POLICY MANUAL

Transcription

1 COMPLIANCE POLICY MANUAL March 2015

2 INVESTMENT ADVISORS CORP. COMPLIANCE POLICY MANUAL Table of Contents Policies Page Number 1. Management Oversight Code of Ethics and Personal Trading Policy Record Keeping Policy Privacy Policy Client Relations Insider Trading Policy Trading and Brokerage Policy Portfolio Management Proxy Voting Policy Custody and Possession of Client Assets Client Disclosures Policy Communications Policy Fees Policy Solicitors Policy Whistleblower Policy.. 32 Appendices Appendix A: Definitions Used in Policy Manual Appendix B: Record Keeping Requirements Appendix C: Privacy Notice Appendix D: Trade Error Corrections /2016 2

3 1. Management Oversight INVESTMENT ADVISORS CORP. (IAC or Firm) has adopted the following Policies and Procedures to encourage compliance with the requirements of a Registered Investment Adviser under the Investment Advisers Act of 1940 (Advisers Act). The Firm s employees and Investment Adviser Representatives (IARs) are expected to be familiar with and to follow the Firm s Policies. Failure to follow these Policies may result in discipline or sanctions, including employment or registration termination. Supplemental information to these Policies and Procedures is incorporated as appendices and in the Firm s Written Supervisory Procedures. Definitions of terms used within this Policy Manual may be found in Appendix A. The Advisers Act imposes a fiduciary duty on investment advisers. As a fiduciary, IAC has a duty of utmost good faith to act solely in the best interests of each of our clients. This fiduciary duty is the core principle underlying this Policy Manual, and represents the expected basis of all of our dealings with our clients. The IAC Oversight Committee will be responsible for general supervision of the Firm. The Oversight Committee will meet on a regular basis, but no less frequently than annually, to review and address compliance, supervisory and management issues of the Firm. The Oversight Committee will also review the results of an annual review of the Firm s Compliance Program. Barbara Bennett ( CCO ) is responsible for day-to-day compliance matters of the Firm. Where mentioned, Compliance is responsible to the CCO. Beth Stokes (CFO) is responsible for compliance with financial matters and financial record keeping for the Firm. Any IAC employee or IAR with questions or concerns regarding this Policy Manual or compliance matters should consult Compliance. 2. Code of Ethics and Personal Trading Policy 2.1 Code of Ethics As a fiduciary, IAC has a duty of utmost good faith to act solely in the best interests of each of our clients. Our clients entrust us with their funds, which in turn places a high standard on our conduct and integrity. Our fiduciary duty compels all employees and IARs to act with the utmost integrity in all of our dealings. This fiduciary duty is the core principle underlying this Code of Ethics and Personal Trading Policy, and represents the expected basis of all of our dealings with our clients. All employees and IARs are also required to comply with all applicable Federal and State securities laws. 05/2016 3

4 A. Standards of Conduct This Code of Ethics consists of the following core principles: IAC subscribes to the Best Practices Policy as adopted by the Securities Industry Association Board. To abide by the highest professional standards is an obligation we incurred when we chose to earn our living by managing other people s money. Anything less would be inconsistent with the trust our clients have placed in us. (1) Service a. Investors will be treated in a fair, ethical, and respectful manner in all interactions with the Firm and its employees and affiliates. b. Investors have the right to competent and courteous service, and advice at a fair price. (2) Transactions and Reporting a. Investors have the right to clear and accurate descriptions of their transactions. b. Investors have the right to know commissions, fees and charges associated with their accounts. c. The investor s Statement provides a timely and accurate account and transaction information and should reflect all positions held. d. The investors are provided with our Firm s Policies and practices for protecting the privacy of nonpublic, personal information. (3) Investment Advice a. Investors should expect their IAR s assistance in helping them clarify their investment goals and risk tolerance. b. Investors should expect their IAR s assistance in setting realistic expectations about the long term performance and associated risk of different securities. c. Investors should be provided with responsible investment recommendations or management based on their objectives, time horizon, risk tolerance, and other factors they disclose. (4) Problem Resolution a. Investors have the right to fair consideration and a prompt response from IAC should a problem with their account arise. b. Investors have the right to raise and resolve a complaint and IAC should provide their clients with information about the process upon request. c. Investors should be apprised of their alternatives should IAC be unable to resolve a dispute to the investor s satisfaction. 05/2016 4

5 B. Protection of Material Nonpublic Information As more fully discussed within our Privacy Policy, employees and IARs are expected to exercise diligence and care in maintaining and protecting our client s nonpublic, confidential information. Employees or IARs are also expected to not divulge information regarding IAC s securities recommendations or client securities holdings to any individual outside of the Firm, except: (1) As necessary to complete transactions or account opening and changes (i.e., communications with brokers and custodians); (2) As necessary to maintain or service a client or their account (i.e., communications with a client s accountant); (3) With various service providers providing administrative functions for IAC (i.e., our technology service provider) only after the Firm has entered into a contractual agreement that prohibits the service provider from disclosing or using confidential information except as necessary to carry out its assigned responsibilities and only for that purpose; or (4) As permitted by law. C. Personal Conduct As noted above, employees and IARs are expected to conduct themselves with the utmost integrity and to avoid any actual or perceived conflict with our clients. In this spirit, the following are required of employees and IARs: (1) Acceptance of Gifts Employees or IARs are prohibited from receiving any gift, gratuity, hospitality or other offering of more than de minimis ($100.00) value from any person or entity doing business with IAC. This Gift Policy generally excludes items or events where the employee or IAR has reason to believe there is a legitimate business purpose. (2) Service as Director for an Outside Company Any employee or IAR wishing to serve as director for an outside company (public or private) must first obtain the approval of the CCO. The CCO will determine whether such service is consistent with the interests of the Firm and our clients. (3) Outside Business Interests Any employee or IAR wishing to engage in business activities outside of IAC s business must first obtain approval from the CCO and, if requested, provide periodic reports to the CCO summarizing those outside business activities. (4) Employee or IAR Acknowledgement 05/2016 5

6 2.2 Personal Trading Policy All employees or IARs must acknowledge they have read and they understand and agree to comply with this Code of Ethics and Personal Trading Policy. Every employee, IAR or other person with potential access to nonpublic information will acknowledge reading and agree to abide by the Firm s Policies regarding insider trading and the Firm s Code of Ethics. A. Matters to Consider Before an Employee or IAR Places a Trade (1) Whether the amount or nature of the transaction will affect the price or market for the security; (2) Whether the employee or IAR will benefit from purchases or sales being made for any client; (3) Whether the transaction is likely to harm any client; and (4) Whether there is an appearance or suggestion of impropriety. B. Personal Trading Restrictions (1) General Employees or IARs are expected to purchase or sell a security for their personal accounts only after trading of that same security has been completed in the client accounts, if suitable for the account. Personal accounts also include all accounts for family members living within the employee s or IAR s household and accounts over which the employee or IAR has authority even though the account owner does not live within the same household as the employee or IAR: a. Any employee or IAR contemplating a trade to the contrary must consult with the CCO before conducting his or her personal trade; and b. It is the employee s or IAR s responsibility to know which securities are being traded by the Firm. The employee or IAR may consult with the CCO or CEO to determine whether a security is an appropriate purchase by the employee or IAR. (2) Initial Public Offerings and Private Placements To avoid any potential conflicts of interest, IAC permits its representatives to engage in the purchase or sale of IPO s or DPP s on behalf of either their clients or themselves, ONLY with very limited exceptions and prior approval from CCO, who will then obtain approval from CEO. IAC will modify its policies and procedures should IPO trading be permitted in the future. C. Reports of Personal Securities 05/2016 6

7 Employees or IARs are required to report security transactions and holdings for all accounts in which the employee or IAR has a direct or indirect beneficial ownership interest, unless monthly or quarterly account statements are automatically sent to the CCO. This includes personal securities information of any family member living within the same household as the employee or IAR. See Appendix A for the formal definition of beneficial ownership. Because employees or IARs provide IAC with access to their brokerage accounts and IAC can access those accounts within 30 days following quarter-end or the brokerage account statements are sent directly to IAC by the broker-dealer within 30 days following quarterend, the employee or IAR is not required to provide a separate quarterly report. Security holdings not required to be reported may be found at Acceptable Personal Trades below. D. Acceptable Personal Trades The following forms of securities may be freely held or traded by employees or IARs without regard to the Personal Trading Restrictions described above. For this reason, the following securities are considered safest from a regulatory perspective for an employee or IAR to purchase, sell or hold both from the Firm and the employee s or IAR s perspective. Employees or IARs are therefore encouraged to conduct their personal transactions within the following types of acceptable securities: (1) Shares of open-end mutual funds. Note that trades in closed-end mutual funds or exchange traded funds must follow the Personal Trading Restrictions requirements described above; (2) Shares of any money market fund; (3) Direct obligations of the United States Government; and (4) Money market instruments, including bankers acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high-quality shortterm debt. 2.3 Firm Review of Personal Transaction Reports The CCO will generally consider the following factors when reviewing reportable security holdings and transactions or when considering approvals by employees or IARs to purchase IPOs or private placements: A. Whether the investment opportunity should be directed to a client s account; B. Whether the amount or nature of the transaction affected the price or market for the security; C. Whether the employee or IAR benefited from purchases or sales being made for clients; D. Whether the transaction harmed any client; or E. Whether the transaction has the appearance of impropriety. The CEO will review the CCO s personal account statements. In no case should an employee or IAR review their own account statements. 2.4 Record Keeping Requirements 05/2016 7

8 IAC will keep the following records regarding this Code of Ethics and Personal Trading Policy: A. Historic copies of this Code of Ethics and Personal Trading Policy; B. Historic listings of all employees or IARs subject to this Code of Ethics and Personal Trading Policy; C. Employees or IARs written acknowledgements of receipt of the Code of Ethics and Personal Trading Policy; D. Violations of the Code of Ethics and Personal Trading Policy, and records of action taken as a result of the violations; E. All personal transaction reports made by employees or IARs and/or copies of brokerage confirmations and statements; and F. Written approvals of any IPOs and private placements, as well as documentation of the reasons IAC approved such transaction. 2.5 Code of Ethics and Personal Trading Policy Violations All employees or IARs are required to report promptly any violation of this Policy to the CCO (including the discovery of any violation committed by another employee or IAR). Examples of items that should be reported include but are not limited to: (i) noncompliance with federal securities laws; (ii) conduct that is harmful to clients; and (iii) purchasing securities contrary to the Personal Trading Policy. Such violations will be reported to the Oversight Committee on a timely basis. Employees or IARs are encouraged to report any violations or apparent violations, which will not be viewed negatively by Firm management even if the reportable event, upon review, is determined not to be a violation and the CCO or Oversight Committee determined the employee or IAR reported such apparent violation in good faith. Policy Sanctions Upon discovering a violation of this Policy, the CCO or CEO may impose any sanctions as deemed appropriate, including disgorgement of profits, reversal of the trade or suspension of trading privileges. For additional information on general sanctions for violation of the Firm s Policies, refer to our Sanctions Policy. 3. Record Keeping Policy The Firm is subject to extensive record keeping requirements. Most records must be maintained for a minimum of two years in IAC s home office and three additional years in an easily accessible place, for a total of five years. Certain records must be maintained for the life of IAC (see Appendix B for specific record keeping requirements of the Firm). 05/2016 8

9 4. Privacy Policy 4.1 Definitions For purposes of this Policy: A. Consumer is not necessarily a client but may be anyone who obtains financial products or services from IAC used primarily for personal, family or household purposes. Examples of consumer relationships include (i) a prospect with whom IAC is actively pursuing an investment relationship; or (ii) a prospect who provides IAC with nonpublic information (i.e., net worth information or potential portfolio size) after attending a seminar or community event or listening to a radio talk show at which an employee or IAR of IAC is a featured speaker. B. Client means (i) an individual with a specific and continuous relationship with IAC who obtains or has obtained a financial product or service from IAC used primarily for personal, family or household purposes; or (ii) that individual s designated representative. C. Confidential Information is personally identifiable private information (information not available from public sources such as the phone book or a web site) about the client or consumer, including information regarding name and address, age, social security number, assets, income, net worth, account balance, account number, bank account information, beneficiary information and investment activity (e.g., purchase and redemption history). 4.2 Overview IAC collects nonpublic information about clients and consumers. The Firm will not share nonpublic personal information about clients or consumers with third parties not affiliated with IAC, except as noted below. Specifically, IAC may share personal information as necessary: A. To complete transactions or account changes as directed by the client; B. To maintain or service a client s account; C. If requested to do so by a client; D. With contracted service providers providing administrative functions for IAC; and E. If IAC is required or permitted by law or regulatory authorities with jurisdiction over the Firm to do so. 4.3 Privacy Notices The following notice requirements apply to IAC s clients: A. Initial Privacy Notices The Firm will deliver an initial Privacy Notice (Appendix C) to a client before or at the time the client relationship is established that is, before the Firm begins to manage a client s 05/2016 9

10 account. The Firm may deliver the Privacy Notice within a reasonable period of time after the client relationship is established if the client agrees to receive the Notice at a later time. B. Annual Privacy Notices The Firm will deliver our Privacy Notice (Appendix C) to clients on an annual basis; defined as every 12 months. The Firm is not required to deliver annual privacy notices to former clients. C. Revised Privacy Notices The Firm will not disclose nonpublic personal information about a client to a non-affiliated third party other than as described in this Policy or as permitted by Regulation S-P, unless: (1) The Firm has provided the client with a revised Notice describing the new policy; (2) The Firm has provided the client with an opt out Notice; (3) The Firm has provided the client a reasonable opportunity to opt out of the disclosure before IAC discloses the information to the non-affiliated third party, or (4) The client specifically authorizes the disclosure. IAC is not required to send privacy notices or to provide opt-out elections to consumers unless the Firm intends to share the consumer s nonpublic personal information with a non-affiliated third party. 4.4 Safeguarding of Client Records and Information IAC will maintain administrative, technical and physical safeguards reasonably designed to ensure the security and confidentiality of client records and information. The Firm will: A. Require new employees or IARs to review and acknowledge the Firm s Compliance Policy Manual, which includes this Privacy Notice as Appendix C; B. Prohibit an employee or IAR from providing client information over the telephone, in person or in response to an message unless the employee or IAR has identified the other person as the client, a fiduciary representative of the client, an authorized agent of the client, or a party that needs the information to complete a transaction for the client (i.e., broker-dealers, custodians or administrative service providers). Information that may be used to verify should be at least three of the following items: First and Last name, Social Security Number, Account Number, Date of Birth, Physical Address, Phone number, Beneficiary name(s), Employer Name, Rep/Adviser name; C. Limit access to confidential information about clients to those employees or IARs who need to know such information; D. Maintain appropriate security measures for our computer and information systems, including the use of passwords and firewalls; E. Use a shredding machine, locks and other appropriate physical security measures to safeguard client information stored in paper format; or 05/

11 F. Engage a third-party service provider only after the Firm has entered into a contractual agreement that prohibits the service provider from disclosing or using confidential personal information except as necessary to carry out its assigned responsibilities, and only for that purpose. G. Periodic reminders will be sent regarding security measures, as this topic will be considered part of Rep/Adviser audits. 5. Client Relations 5.1 Rules of General Conduct Federal and state laws and regulations governing advisers contain no clear guidelines on client relations, such as the know your customer Rule adopted by the FINRA for broker dealers. Section 206 of the Advisers Act makes it unlawful for any investment adviser to employ any device, scheme or artifice to defraud any client or prospective client or to engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client. 5.2 Recommendations IAC and its Associated Persons must have a reasonable basis for recommending an investment transaction. Before making a recommendation each Associated Person must: A. Review and understand the client s financial situation, objectives, risk tolerance, and other factors; B Follow an investment strategy with respect to that client which is appropriate for the client in the light of the information obtained; C. Communicate to the client the basis for the recommendation; D. Where the account is non-discretionary, obtain the client s instructions. Recommendations made by Associated Persons will be periodically reviewed by that person s supervisor to ensure that such recommendations are consistent with the best interests and/or instructions of the client. If any inconsistencies are noted, the supervisor will work directly with the Associated Person to determine whether there was an oversight, mistake, or reason for the particular recommendation or action in the clients account. If remedial action is necessary, the supervisor will inform the Chief Compliance Officer of the situation and make a recommendation for resolution, which the Chief Compliance Officer may accept or reject. The Chief Compliance Officer will ensure that appropriate documentation of any remedial actions taken is noted in the client file and the Associated Person s personnel file as applicable. 5.3 Fiduciary Standard of Care As a registered investment adviser IAC has acquired and must observe toward its clients a fiduciary standard of care. This duty is akin to the Prudent Man Rule applicable to a trustee, 05/

12 which requires exercising that degree of care with respect to the client s affairs that a prudent man would observe with respect to his own. This duty is particularly evident where the client has given discretionary authority over his or her account to IAC. Specifically, IAC and each employee or Associated Person must observe the following general principles: Avoid Self-Dealing Conduct which gives the appearance that IAC or any employee has preferred IAC and/or any affiliate or a personal interest over that of the client is to be avoided. There must be particular awareness of conflicts that can arise in the interrelation among IAC and any broker dealer and other affiliates. If in any doubt about a given course of action, consult the Chief Compliance Officer Consistency with Announced Strategies IAC and its personnel must be conscious of the requirement that is to review and evaluate our investment recommendations and decisions on behalf of our client so that they will at all times remain consistent with the strategies and guidelines by which the Firm has generally or specifically agreed to with those clients. IAC personnel should endeavor to follow the practice of asking and checking with the client in any cases where a proposed recommendation or decision may be perceived as inconsistent Follow Individual Client Guidelines Care must be taken to study and follow any particular guidelines agreed to with the client, including restrictions on types of securities to be included in the portfolio or strategies to be preferred or avoided. These guidelines and restrictions provided by the client should also be clarified by the IAR as to if they are per account and whether they to apply to accounts at a household level Disclosure Clients must be provided advance disclosure of investment strategies, fees, information about IAC s business and other data significant to clients and the decision to engage IAC s services Communication/Feedback Clients must be provided adequate opportunities to present their situation, evaluate recommendations, and express preferences including at least quarterly contact and a physical meeting no less than annually. 5.4 Discretionary/Managed Accounts Any account in which IAC or an employee has the power to execute transactions without the prior consent of the client is a discretionary account. A managed account is a discretionary 05/

13 account in which the adviser has formally undertaken the responsibility to manage toward stated objectives. Discretionary accounts require the adviser to exercise and demonstrate a higher standard of care than that applicable to accounts in which the client initiates/approves the investment decisions. Discretionary accounts are subject to the following rules: A. All such accounts should be listed on a separate roster; B. The individual(s) responsible for managing each such account should be clearly identified, along with a description of their responsibility; C. Discretionary account trades should be identified as such; D. ERISA discretionary accounts should be separately identified and periodically reviewed by the Chief Compliance Officer for compliance with ERISA requirements (see above). 5.5 Contacting Prospective Clients The process of establishing a good client relationship starts with the initial client contact. Several policies and procedures must be observed in this area. These include the policies set forth below in addition to those governing advertising and sales communications with existing and prospective clients set forth elsewhere in this Manual Federal Communications Commission Cold Calling Rule IAC does not generally permit its representatives to engage in cold calling. Persons wishing to engage in cold calling must first obtain clearance from their supervisor and/or the Chief Compliance Officer, who will establish guidelines. Any cold calling must comply with procedures mandated by the Federal Communications Commission (FCC). 5.6 Account Establishment An important part of the fiduciary process is the gathering of significant information about each client on a routine basis. The process then proceeds to an evaluation of the client s individual needs. From a compliance standpoint, the record should as a minimum show: A. The gathering of basic financial information; B. A detailed discussion with the client; C. Evaluation of whether services offered are appropriate for this client; D. Evaluation of how much of client assets are appropriate for management; E. Development of recommendations Investor Questionnaire and Client Agreement The Associated Person assigned to the customer s account must obtain certain basic information from the customer. The tool for doing this is the Investor Questionnaire. In addition the client will sign a Client Agreement. A relationship will not be established with the client unless all required documentation has been submitted and approved. The Associated Person should interview the customer to discuss the client s financial situation and the services provided by IAC. The Associated Person must provide the client with Form ADV 05/

14 Part II of IAC at or prior to the interview. As well, the Associated Person will provide at or prior to the interview all the required account documentation provided by the broker dealer or custodial firm and IAC. Typically this would include a New Account Form (NAF), discretionary account forms, margin agreement, solicitor disclosure statement, etc. A critical part of the Investor Questionnaire is the section dealing with Investment Objectives. The Associated Person must exercise due care to make sure that IAC has obtained this information and that it is complete and up-to-date. Care must be taken to discuss the options with the client and to make sure that the objectives, risk tolerance and investment strategy are not inconsistent. Advisory Ops will oversee New Account approval. Supervisors reviewing new accounts should include, without limitation, a review of appropriate selection of advisory programs based on client goals, financial condition, time frame and risk objective. AdvisoryOps will also oversee adherence to account size versus program minimums and general good order of the new account paperwork. Selected advisory paperwork shall be retained according to the Firm s Electronic Record Keeping policy and recorded in the Firm s portfolio management system. When a third party, not the principal or named person on an account, gives instructions regarding orders, disposition of funds, or other actions involving the account, IAC must have a signed third-party authorization. When IAC provides instructions to the custodian, if applicable, regarding trades in the customer account, IAC must provide the custodian a signed authorization from the customer. Authorization documents include powers of attorney and other evidence of discretionary authority granted over any account, including copies of resolutions empowering an agent to act on behalf of a corporation. The authorization is signed by the principal of the account and the third party, giving the third-party authority to act on behalf of the principal. Once the advisory services contract and the account opening documentation have been completely filled out and signed, the Associated Person shall forward the advisory services contract and supporting documentation to Compliance which will promptly perform a check on the data and make other provisions to process the documents and obtain signature by the designated supervisor on behalf of IAC. Once approved, copies of the advisory services contract plus any required supporting documents are to be sent to the custodian with copies to the IAC files. The Associated Person is responsible for executing all documentation in the customer records so that records are maintained as current. This may be completed at annual review with customers, documented in the client file and updates made to Advisory Ops as necessary Anti-Money Laundering (AML) Rules Anti-Money Laundering Rules require investment advisers to report on Form 8300 the receipt of cash totaling more than $10,000 in one transaction or two or more related transactions, including cashier s checks, bank drafts, travelers checks or money orders. The Treasury Department s Financial Crimes Enforcement Network (FinCEN) issued proposed AML regulations for investment advisers. 05/

15 Before initiating a client relationship, representatives of IAC take steps to verify the identity of the prospective client and that the client s use of the services provided by IAC is not in furtherance of an illicit purpose Initial Review Associated Persons should determine, at minimum, the following suitability factors at an initial review for clients: A. Client financial status; B. Client tax status; C. Client investment objectives; D. Client current portfolio/investments; E. Client risk tolerance; F. Client liquidity/cash needs; Suitability from an investment advisory standpoint is significantly different from the transactional suitability Rule administered by the FINRA. To establish suitability an investment adviser has to demonstrate the development of portfolio objectives and a portfolio strategy for each client and that each individual transaction is consistent with those objectives and strategy. It is not enough that the particular transaction fits generally within the client s risk tolerance and investment objectives. This is because investment advisory service is about relationship rather than a particular transaction. It is the policy of IAC that all discretionary accounts regardless of value and any non-discretionary accounts valued at greater than $250,000 will be governed by an Investment Policy Statement (IPS) or an Asset Allocation Model (AAM). An AAM may be adopted as part of a financial plan prepared for the client. Any AAM or IPS must have defined asset classes. Separate but related accounts that are being managed together and that total more than $250,000 must also be governed by an IPS or an AAM. The IPS or AAM must be from an IAC approved provider. The IPS or AAM must be discussed with each client and must be signed or initialed by the client at inception. The advisor must meet with each client that has an AAM or IPS at least annually to review accounts and agreements and update as necessary. In addition, any time that there has been a significant market event the advisor must meet with the client within a reasonable amount of time to discuss the changes and whether the client s IPS or AAM should be revised. IAC s compliance department must be sent copies of all Investment Policy Statements and all Asset Allocation Models and financial plans Ongoing Review The supervisors will use the above information in reviewing client account performance on an ongoing basis. If it appears that an account is not being managed to the announced objectives and strategy or if it appears that the account is the subject of unusual or excessive transactions, the supervisor will discuss this with the Associated Person. Where it appears that there is no adequate explanation, the supervisor will contact the Chief Compliance Officer 05/

16 who will investigate the matter, including contacting the client if necessary, and determine whether further action is necessary, including corrective transaction(s), re-assigning the account, or disciplinary action. If the investigation reveals any changes in the client s objectives or strategy, the client documentation should be corrected and re-signed. The Operations and the Compliance Department will review client files for accuracy and completeness. If client suitability information requires updating, the IAR is responsible for promptly ensuring that this update occurs and that proper documentation pertaining to any changes in suitability data are documented in the client file Non-U.S. Residents and Foreign Clients IAC monitors closely any client living outside the U.S. unless the client has a designated representative (proxy) living within the U.S. IAC is not registered to conduct business with any foreign regulatory authorities. The CCO will oversee the establishment of foreign client relationships. Any statements should be sent encrypted or secured. IAC should not contact clients when they are outside the U.S. All of IAC s interactions should be within the U.S. Brokerage account statements from the qualified custodian should not be delivered to a foreign address of an IAC client. This is especially important when IAC s logo or name is listed on the statement. If a foreign client is domiciled in the U.S. or a U.S. citizen client is going to live in another country for a period of time, IAC should continue to send all documents to the client s U.S. address. The client must also designate a U.S.-based proxy or representative for IAC to communicate with on the client s behalf while the client is living abroad. IAR should not fly to another country to conduct business. IAR should not call prospects and clients in another country. IARs should not market services in another country. 6. Insider Trading Policy 6.1 Overview No employee or IAR may purchase or sell a security, either personally or on behalf of others (including private accounts managed by IAC), while in possession of material, nonpublic information on the security being bought or sold. IAC also forbids communicating material, nonpublic information to others in violation of the law; frequently referred to as insider trading. This Policy applies to every employee or IAR and extends to activities within and outside their duties at IAC. Questions regarding this Policy may be directed to the CCO. Insider trading generally refers to the use of material, nonpublic information to trade in securities (regardless of whether the individual with the material, nonpublic information is an insider of the company). Insider trading also encompasses the communication of material, nonpublic information to others. Individuals trading securities while in possession of material, nonpublic information or improperly communicating that information to others may be exposed to stringent legal penalties. 6.2 Procedures The following procedures have been established to aid IAC and all employees or IARs in avoiding insider trading, and to assist IAC in preventing and detecting insider trading. Any questions regarding these procedures should be directed to the CCO. 05/

17 A. Identifying Nonpublic Information Before employees or IARs trade securities for themselves or others, including private accounts managed by IAC, an employee or IAR should consider the following questions: (1) Is the information nonpublic? To whom has this information been provided? Has the information been communicated to the marketplace by being published in The Wall Street Journal, brokerage reports, the internet, or other publications of general circulation? (2) Is the information material? Is this information that a potential investor would consider important? Is this information that would substantially affect the market price of the security if it were public? B. Employee or IAR Actions After consideration of the above, if (i) any employee or IAR suspects a client or another employee or IAR is trading based on inside information; (ii) any employee or IAR believes they are in receipt of material, nonpublic information; or (iii) an employee or IAR has questions as to whether they are in receipt of material, nonpublic information, the employee or IAR should take the following steps: (1) Report the information and, if applicable, proposed trade immediately to the CCO; (2) Do not purchase or sell the securities either on behalf of yourself or on behalf of others, including any private account managed by IAC; (3) Do not communicate the information inside or outside of IAC other than to the CCO; and (4) After the CCO has reviewed the issue, the employee or IAR will be instructed either to continue the prohibition against trading and communication because the CCO has determined the information is material and nonpublic, or the employee or IAR will be allowed to trade the security and communicate the information. C. Chief Compliance Officer Actions Upon determination that the information may represent material inside information, the CCO will take the following actions as deemed appropriate: (1) If feasible, ascertain the validity and nonpublic nature of the information, possibly with the issuer of the security; (2) Consider a halt to all Firm trading activity in the security; (3) Consider a halt to all recommendations of the security; (4) Request the issuer or other appropriate parties to disseminate the information promptly to the public if the information is valid and nonpublic; 05/

18 (5) Take steps to ensure all files containing material, nonpublic information are secured and access to computer files containing material, nonpublic information are restricted; (6) After the CCO has reviewed the issue, the employee or IAR will be instructed either to continue the prohibition against trading and communication because the CCO has determined the information is material and nonpublic, or the employee or IAR will be allowed to trade the security and communicate the information; or (7) Notify legal counsel and request advice as to what further steps should be taken before transactions or recommendations in the securities are resumed. In addition, the CCO will confidentially document the Firm s actions in addressing the material inside information. 7. Trading and Brokerage Policy Consistent with our fiduciary obligations, IAC seeks best execution in all transactions. The Firm defines best execution as the best price believed to be obtained for a specific trade in light of all relevant circumstances. This Trading and Brokerage Policy is designed to assist the Firm in meeting its goal of seeking best execution in all transactions. However, as a single written policy describing the Firm s trading and brokerage practices cannot alone ensure best execution, IAC employees or IARs are expected to be mindful of their responsibility to seek best execution for our clients as part of their daily business activities, and are encouraged to suggest any recommendations to Firm management which may improve upon our best execution process. The Oversight Committee will formally review trading and brokerage practices no less frequently than on an annual basis. 7.1 Approved Broker-Dealers Clients of IAC may be referred to the affiliated broker-dealer, Broker Dealer Financial Services Corp. and its clearing firm, First Clearing LLC, as custodian. Other approved broker-dealers include T.D. Ameritrade Institutional, Schwab Institutional, Fidelity Institutional Wealth Services, and Trust Company of America which may be used. Each broker-dealer has different fee structures and service factors and the IAR should consider the type of client account and which broker-dealer would best suit that account. Portfolio transactions are allocated to brokers on the basis of best execution and in consideration of brokerage and research services (i.e., research ideas, investment strategies, special execution, clearance settlement and custodial services), financial stability, reputation and efficiency and service factors provided by such broker-dealers. Brokerage firms will not charge a separate fee for research. Research may be used to service all applicant accounts, as needed. In general, transactions within investment advisory programs will have no commissions charged but there may be transaction charges by the brokerage firm. Sales commissions for mutual funds or variable products, if any, will be outlined in the prospectus and may be offset against investment advisory fees under certain circumstances. No-load funds (i.e., no commissions) may be used to which there may be transaction charges that apply. 7.2 Trade Aggregation and Allocation IAC strives to treat all clients in a fair manner. This is the basic principal underlying this Trade Aggregation and Allocation Policy. 05/

19 The allocations of a particular security will be determined by the IAR before the trade is placed with the broker. When practical, client trades in the same security will be bunched in a single order (a block ) in an effort to obtain best execution. When employing a block trade: A. The Firm will attempt to fill client orders by the end of the day; B. If the block order is not filled by the end of the day, the IAR will allocate shares executed to underlying accounts on a pro-rata basis, adjusted as necessary to keep client transaction costs to a minimum and in accordance with specific account guidelines; C. If a block order is filled (full or partial fill) at several prices through multiple trades, an average price and commission will be used for all trades executed; D. All participants receiving securities from the block trade will receive the average price; and E. Only trades executed within the block on the single day may be combined for purposes of calculating the average price. It is expected that this Trade Aggregation and Allocation Policy will be applied consistently. However, if application of this Policy results in unfair or inequitable treatment to some or all of IAC s clients, the Firm may deviate from this Policy. 7.3 Trade Error Correction It is IAC s Policy to ensure clients are made whole following a trade error. Specifically, when IAC or its IAR causes a trade error to occur in a client account that results in a loss, IAC will reimburse the client. If the trade error results in a gain, IAC will keep that gain at its discretion (see Appendix D for further information on trade errors). 7.4 Client-Directed Brokerage (Commission Recapture) Arrangements Ordinarily, the Firm does not accept client directed brokerage arrangements. Any requests for such brokerage arrangements will be directed to the CEO. 7.5 Mutual Fund Conversions to Advisory Share Class IAC will allow for mutual fund shares from A, B, and C classes to be converted to Advisory Class shares. B and C shares may be converted only after they are out of the CDSC period. A class shares may be converted to Advisory Class shares after 13 months. Certain exceptions may be made to the conversion of A Class shares to Advisory Class shares at the discretion of Compliance, and after providing any documentation requested and rationale for the change if requested before 13 months are complete. 7.6 Use of Brokerage Research IAC periodically uses research information provided by broker-dealers with whom the Firm conducts business. However, IAC does not have any formal or informal agreements to compensate broker-dealers for the receipt of such research information. IAC, as a matter of practice, does not compensate broker-dealers for third-party research services (known as soft 05/

20 dollar arrangements ) with the use of client commissions any payment required for such research will be made in cash. Questions regarding this Policy should be directed to the CCO. 8. Portfolio Management 8.1 Portfolio Valuation Policy IAC will use information provided by the custodian of the client s account as our main pricing source for purposes of valuing client portfolios; both for fee billing and investment performance calculation purposes. 8.2 Fair Valuation Policy In the rare instance where the custodian is unable to obtain a price, where IAC strongly believes the custodian is not pricing a security fairly or where a security has halted trading, the Oversight Committee will determine a fair value for that security. When determining a fair value for a security, the Committee will attempt to obtain a quote from at least one independent pricing source, preferably two or more. The Committee will make a determination as to whether these quotes represent fair value. If the Committee is unable to obtain quotes or determine the quotes received do not represent fair value, they will establish a fair valued price for the security based on their knowledge of the security and current market conditions among any other considerations deemed appropriate. The Committee will also document the rationale used to establish a fair valued price for the security. Fair valued securities will be reviewed by the Oversight Committee regularly, but no less frequently than quarterly. The fair valued price will be adjusted as appropriate by the Oversight Committee or priced by the custodian as soon as the price is available and deemed to be reliable. A list of fair valued securities and the rationale supporting the fair valuation will be maintained by the CCO. 8.3 Account Reviews The IARs are required to perform at least quarterly reviews of their client accounts. Accounts are reviewed by supervisory personnel on a random basis, but at least annually. IAC has assigned a principal officer to review the client accounts and the CCO is responsible for the supervision of the advisory activities. The review of accounts is designed to provide management with information to detect and prevent conflicts of interest among other things. 8.4 Account Reconciliations IAC uses the portfolio accounting systems of the custodians for daily reconciliation of client accounts. 8.5 Corporate Action Monitoring The custodian tracks all corporate actions and makes appropriate adjustments to client accounts. 9. Proxy Voting Policy 05/

21 IAC and its IAR s do not vote proxies on behalf of clients. Proxy materials received on behalf of a client account are to be sent directly to our client, or the authorized third party, for voting the proxy. IAC personnel may answer client questions regarding proxy voting matters in an effort to assist the client in determining how to vote the proxy. However, the final decision of how to vote the proxy rests with the client. In those very rare instances where an IAR is allowed to vote proxies on behalf of a client, the Proxy Voting Policy is designed to ensure proxies are voted in the clients best economic interest. 9.1 Record Keeping Requirements In the limited exception where the IAR votes proxies on behalf of a client, the IAR will keep the following proxy voting records and forward copies to the Firm to be kept for a minimum of five years: A. These Proxy Voting Policies and Procedures; B. Proxy statements received regarding client securities (Electronic statements, such as those maintained on EDGAR or by a proxy voting service, are acceptable); C. Records of proxy votes cast on behalf of each client; D. Records of client requests for proxy voting information, including a record of the information provided by the IAR; and E. Documents prepared by the IAR that were material to making the decision of how to vote. 9.2 Conflicts of Interest A. Overview IAC or the IAR may encounter a material conflict in voting client proxies. IAC and the IAR have a duty to recognize a material conflict and to resolve the conflict before voting the proxy. For purposes of this Policy, material conflicts of interest are defined as those conflicts that, in the opinion of the IAR, a reasonable investor would view as important in making a decision regarding how to vote a proxy. Examples of material conflicts include: (1) IAC or IAR provides investment management services to a company whose management is soliciting proxies; and (2) An IAC or the IAR employee has a business or personal relationship (i.e., a close friend or spouse) with a member of executive management, a participant in the proxy contest, or a corporate director of the company. B. Identifying Conflicts of Interest (1) IAC maintains a listing of all material business conflicts of interest those business relationships between the Firm and other parties that are deemed to be material and may result in a conflict with respect to a future proxy contest. The Firm s CCO 05/