Part 2A of Form ADV: Firm Brochure June 28, 2017

Transcription

1 Part 2A of Form ADV: Firm Brochure June 28, East Jefferson Street, Charlottesville, Virginia, This brochure provides information about the qualifications and business practices of Old Dominion Capital Management, Inc. ( ODCM ). If you have any questions about the contents of this brochure, please contact us at (434) or info@odcm.com. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Additional information about Old Dominion Capital Management, Inc. also is available on the SEC s website at You can search this site by a unique identifying number, known as a CRD number. ODCM s CRD number is References herein to Old Dominion Capital Management, Inc. as a registered investment adviser or any reference to being registered does not imply a certain level of skill or training.

2 Item 2 Material Changes This disclosure document dated January 24, 2017 updates information filed since our last Annual Amendment filing on January 6, Since then, ownership of Old Dominion Capital Management, Inc. has changed. On May 31, 2016, Old Dominion Capital Management, Inc. became a wholly owned subsidiary of Union Bank & Trust, a subsidiary of Union Bankshares Corporation. We have provided disclosure that relates to our affiliation with Union Bank & Trust in Item 5, Fees and Compensation and in Item 10, Other Financial Industry Activities and Affiliations. Also in Item 10, we added disclosure regarding an employee s separate accounting business. In addition to these material changes, we have also restructured the entire Brochure in order to provide enhanced disclosure. 2

3 Item 3 Table of Contents Item 1 Cover Page... 1 Item 2 Material Changes... 2 Item 3 Table of Contents... 3 Item 4 Advisory Business... 4 Item 5 Fees and Compensation... 6 Item 6 Performance Based Fees and Side by Side Management... 7 Item 7 Types of Clients... 7 Item 8 Methods of Analysis, Investment Strategies and Risk of Loss... 8 Item 9 Disciplinary Information... 8 Item 10 Other Financial Industry Activities and Affiliations... 9 Item 11 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading Item 12 Brokerage Practices Item 13 Review of Accounts Item 14 Client Referrals and Other Compensation Item 15 Custody Item 16 Investment Discretion Item 17 Voting Client Securities Item 18 Financial Information

4 Item 4 Advisory Business Old Dominion Capital Management, Inc. ( ODCM ) is a corporation formed on December 12, 1988 in the Commonwealth of Virginia. ODCM registered as an Investment Adviser Firm in January On May 31, 2016, Union Bank & Trust, a wholly owned subsidiary of Union Bankshares Corporation, acquired ODCM. ODCM still operates under its name as a subsidiary of Union Bank & Trust. Old Dominion Capital Management, Inc. has offices in Charlottesville and Alexandria, Virginia, and serves the investment and financial planning needs of individuals, retirement plans, trusts, estates, charitable organizations, business entities and foundations. We do not participate in a wrap fee program. As of December 31, 2016, ODCM had $310,952,678 in assets under management on a discretionary basis. Investment Advisory Services ODCM provides discretionary investment advisory services on a fee only basis. We are primarily longterm fundamental investors. We concentrate on helping clients meet their long term objectives and believe that this is most reliably done over a several year time horizon by owning high quality investments in widely diverse asset classes. Using a mix of individual securities, mutual funds, and exchange traded funds, we incorporate foreign and domestic equities, foreign and domestic fixed income, real estate and other mutual fund investments in client portfolios. Our firm provides continuous advice to a client regarding the investment of client funds based on the individual needs of the client. Through personal discussions in which goals and objectives based on a client's particular circumstances are established, we develop a client's personal investment policy and create and manage a portfolio based on that policy. During our data gathering process, we determine the client s individual objectives, time horizons, risk tolerance, and liquidity needs. As appropriate, we also review and discuss a client's prior investment history, as well as family composition and background. We manage these advisory accounts on a discretionary basis. Account supervision is guided by the client's stated objectives (i.e., aggressive growth, moderate growth, and conservative growth), as well as tax considerations. Clients may impose reasonable restrictions on investing in certain securities, types of securities, or industry sectors. Our investment recommendations are not limited to any specific product or service offered by a brokerdealer or insurance company and will generally include advice regarding the following securities: Exchange listed securities Securities traded over the counter Foreign issuers Corporate debt securities (other than commercial paper) Commercial paper 4

5 Certificates of deposit Municipal securities Mutual fund shares United States governmental securities Because some types of investments involve certain additional degrees of risk, they will only be implemented/recommended when consistent with the client's stated investment objectives, tolerance for risk, liquidity and suitability. Financial Planning Services Because ODCM believes in the importance of the integration of asset management and financial planning, we offer these services as a package for a single fee. Financial planning is a comprehensive evaluation of a client s current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans. Through the financial planning process, all questions, information and analysis are considered as they impact and are impacted by the entire financial and life situation of the client. We take a comprehensive approach by assisting clients with all areas that impact their financial situation. We help organize, structure, and implement a financial plan to assist clients in meeting their short term needs along with long term goals. Throughout this process, we work directly with a client s other professionals (attorney, accountant and insurance agent), if the client desires, to help them execute the strategy. We work diligently to update the plan recurrently, as life events often cause changes that should be reflected. Areas of expertise include: Retirement Planning Education Planning Risk Management Estate Planning Tax Planning Charitable Giving Small Business Planning Executive Compensation We gather required information through in depth personal interviews. Information gathered includes the client's current financial status, tax status, future goals, returns objectives and attitudes towards risk. We carefully review documents supplied by the client. Implementation of financial plan recommendations is entirely at the client's discretion. Financial Planning recommendations are not limited to any specific product or service offered by a broker dealer or insurance company. All recommendations are of a generic nature. Pension Consulting Services ODCM works with pension plan trustees to develop an appropriate investment policy statement for the plan and then implement the appropriate investment strategy. ODCM will also conduct educational meetings with plan participants, if the trustee so desires. 5

6 Item 5 Fees and Compensation ODCM provides discretionary investment advisory services on a fee only basis and our annual investment advisory fee will be based upon a percentage (%) of the market value of assets placed under our management (generally 1.00% with reductions over certain asset levels) as follows: Market Value of Portfolio % of Assets Initial $2 million 1.00% Next $3 million 0.80% All additional amounts 0.60% Our annual investment advisory fee shall be prorated and paid quarterly, in advance, based upon the market value of the assets on the last business day of the previous quarter. We generally require an annual minimum fee of $6,000. We may, in our sole discretion, charge a lesser investment management fee and/or waive or reduce our minimum fee based upon certain criteria (i.e. anticipated future earning capacity, anticipated future additional assets, dollar amount of assets to be managed, related accounts, account composition, negotiations with client, etc.). We may group certain related client accounts for the purposes of achieving the minimum account size requirements and determining the annualized fee. Our investment advisory fee includes investment advisory services, financial planning, and pension consulting services, if required. If clients elect not to receive financial planning services, and/or do not require pension consulting services, they pay fees based on the same fee schedule as clients who receive all of these services. All clients receive investment advisory services. ODCM generally deducts advisory fees from clients accounts. Both our Investment Advisory Agreement and the custodial account agreement authorize the custodian to debit the account for the amount of our investment advisory fee and to directly remit that management fee to ODCM in compliance with regulatory procedures. In the event that we bill you directly, payment is due upon receipt of our invoice. ODCM does not solicit fees of more than $1,200 per client, six months or more in advance. Mutual Fund and Other Additional Fees ODCM recommends that Charles Schwab and Co., Inc. ( Schwab ) serve as the broker dealer/custodian for your investment management assets. Broker dealers such as Schwab charge brokerage commissions and/or transaction fees for effecting certain securities transactions (i.e. transaction fees are charged for certain no load mutual funds, commissions are charged for individual equity and fixed income securities transactions). In addition to our investment management fee, brokerage commissions and/or transaction fees, you will also incur, relative to all mutual fund and exchange traded fund purchases, charges imposed at the fund level (e.g. management fees and other fund expenses). When beneficial to our clients, individual fixed income and/or equity transactions may be effected through broker dealers with whom ODCM has entered into arrangements for prime brokerage clearing services, including effecting certain client transactions through other SEC registered and FINRA member broker dealers (in which event, you generally will incur both the transaction fee charged by the executing broker dealer and a trade away fee charged by Schwab). More information on brokerage can be found in the Brokerage Practices section, Item 12. 6

7 At any specific point in time, depending upon perceived or anticipated market conditions or events, (there being no guarantee that such anticipated market conditions or events will occur), we may maintain cash positions for defensive purposes. All cash positions (money markets, etc.) shall be included as part of assets under management for purposes of calculating our advisory fee. ODCM has clients who are also clients of Union Bank & Trust. Management fees paid directly to ODCM are separate from, and in addition to, any fees that may be paid to Union Bank & Trust for their services. Because ODCM is a wholly owned subsidiary of Union Bank & Trust, fees paid to ODCM directly profit Union Bank & Trust. Termination of the Advisory Relationship The Investment Advisory Agreement between ODCM and you will continue in effect until terminated by either party by written notice in accordance with the terms of that agreement. Upon termination, we will refund the pro rated portion of the advanced advisory fee paid based upon the number of days remaining in the billing quarter. Advisory Fees in General Clients should note that similar advisory services may (or may not) be available from other registered (or unregistered) investment advisers for similar or lower fees. While Old Dominion Capital Management, Inc. is committed to giving financial planning and investment advice that is solely in the best interests of its clients, charging fees that are based on a percentage of assets under management presents a conflict of interest. The revenues of ODCM are increased by actions that maximize assets under the firm s management. To the extent that a client s interest is best served by taking actions that reduce billable assets under management, the revenues of the firm will be reduced. Item 6 Performance Based Fees and Side by Side Management ODCM does not charge performance based fees. Item 7 Types of Clients Our clients generally include high net worth individuals (with at least $1 million assets under management), individuals (other than high net worth individuals), retirement plans, trusts, estates, charitable organizations, business entities, and foundations. We generally require an annual minimum fee of $6,000. We may, at our sole discretion, charge a lesser investment management fee and/or waive or reduce our minimum fee based upon certain criteria (i.e. anticipated future earning capacity, anticipated future additional assets, dollar amount of assets to be managed, related accounts, account composition, negotiations with client, etc.). 7

8 Item 8 Methods of Analysis, Investment Strategies and Risk of Loss METHODS OF ANALYSIS We use the following methods of analysis in formulating our investment advice and/or managing client assets: Fundamental Analysis. We attempt to measure the intrinsic value of a security by looking at economic and financial factors (including the overall economy, industry conditions, and the financial condition and management of the company itself) to determine if the company is underpriced (indicating it may be a good time to buy) or overpriced (indicating it may be time to sell). Fundamental analysis does not attempt to anticipate market movements. This presents a potential risk, as the price of a security can move up or down along with the overall market regardless of the economic and financial factors considered in evaluating the stock. Qualitative Analysis. We subjectively evaluate non quantifiable factors such as quality of management, labor relations, and strength of research and development factors not readily subject to measurement, and predict changes to share price based on that data. A risk in using qualitative analysis is that our subjective judgment may prove incorrect. Asset Allocation. Rather than focusing primarily on securities selection, we attempt to identify an appropriate ratio of securities, fixed income, and cash suitable to the client s investment goals and risk tolerance. A risk of asset allocation is that the client may not participate in sharp increases in a particular security, industry or market sector. Another risk is that the ratio of securities, fixed income, and cash will change over time due to stock and market movements and, if not corrected, will no longer be appropriate for the client s goals. Mutual Fund and/or ETF Analysis. We look at the experience and track record of the manager of the mutual fund or ETF in an attempt to determine if that manager has demonstrated an ability to invest over a period of time and in different economic conditions. We also look at the underlying assets in a mutual fund or ETF in an attempt to determine if there is significant overlap in the underlying investments held in another fund(s) in the client s portfolio. We also monitor the funds or ETFs in an attempt to determine if they are continuing to follow their stated investment strategy. A risk of mutual fund and/or ETF analysis is that, as in all securities investments, past performance does not guarantee future results. A manager who has been successful may not be able to replicate that success in the future. In addition, as we do not control the underlying investments in a fund or ETF, managers of different funds held by the client may purchase the same security, increasing the risk to the client if that security were to fall in value. There is also a risk that a manager may deviate from the stated investment mandate or strategy of the fund or ETF, which could make the holding(s) less suitable for the client s portfolio. Risks for all forms of analysis. Our securities analysis methods rely on the assumption that the companies whose securities we purchase and sell, the rating agencies that review these securities, and 8

9 other publicly available sources of information about these securities, are providing accurate and unbiased data. While we are alert to indications that data may be incorrect, there is always a risk that our analysis may be compromised by inaccurate or misleading information. INVESTMENT STRATEGIES We use the following strategies in managing client accounts, provided that such strategies are appropriate to the needs of the client and consistent with the client's investment objectives, risk tolerance, and time horizons, among other considerations: Long term purchases. We purchase securities with the idea of holding them in the client's account for a year or longer. Typically, we employ this strategy when: we believe the securities to be currently undervalued, and/or we want exposure to a particular asset class over time, regardless of the current projection for this class. A risk in a long term purchase strategy is that by holding the security for this length of time, we may not take advantage of short term gains that could be profitable to a client. Moreover, if our predictions are incorrect, a security may decline sharply in value before we make the decision to sell. Short term purchases. When utilizing this strategy, we purchase securities with the idea of selling them within a relatively short time (typically a year or less). We do this in an attempt to take advantage of conditions that we believe will soon result in a price swing in the securities we purchase. Risk of Loss. We ask that you work with us to help us understand your tolerance for risk. Clients should understand that investing in any securities, including mutual funds, involves a risk of loss of both income and principal. Item 9 Disciplinary Information We are required to disclose any legal or disciplinary events that are material to a client's or prospective client's evaluation of our advisory business or the integrity of our management. Our firm and our management personnel have no reportable disciplinary events to disclose. Item 10 Other Financial Industry Activities and Affiliations Neither ODCM, nor its representatives, are registered or have an application pending to register, as a broker dealer or a registered representative of a broker dealer. Neither ODCM, nor its representatives, are registered or have an application pending to register, as a futures commission merchant, commodity pool operator, a commodity trading advisor, or a representative of the foregoing. 9

10 ODCM is a registered investment adviser and a wholly owned subsidiary of Union Bank & Trust, a community bank that offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients. Union Bankshares Corporation is the holding company for Union Bank & Trust. As a subsidiary of Union Bank & Trust, our firm is under common ownership and control with other financial institutions that are also part of the holding company, including the following with which we have a material business relationship (referred to collectively as the "Related Companies"): Union Mortgage Group, Inc. Union Insurance Group, LLC ODCM has clients who are also clients of Union Bank & Trust and/or Related Companies. Management fees paid directly to ODCM are separate from, and in addition to, any fees that may be paid to Union Bank & Trust and any Related Companies for their services. Because ODCM is a wholly owned subsidiary of Union Bank & Trust, fees paid to ODCM directly profit Union Bank & Trust. ODCM may refer its clients to Union Bank & Trust and/or Related Companies for bank products and services including, but not limited to, trust, insurance, loan, and mortgage products and services, as appropriate. ODCM and its employees receive no direct compensation for these referrals. ODCM clients are not required to use Union s services. An employee of ODCM, Jeffrey P. Blatter, CFP, has a separate business, JPB Tax Preparation, doing income tax work for clients. This business is not affiliated with ODCM, ODCM does not supervise this business, and ODCM is not responsible for it. Any ODCM clients using his services will pay his fees in addition to ODCM s investment advisory fees. ODCM clients are not required to use his independent tax services. We do not receive, directly or indirectly, compensation from investment advisors that we recommend or select for our clients. Item 11 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading Our firm has adopted a Code of Ethics which sets forth high ethical standards of business conduct that we require of our employees, including compliance with applicable federal securities laws. ODCM and our personnel owe a duty of loyalty, fairness and good faith towards our clients, and have an obligation to adhere not only to the specific provisions of the Code of Ethics but to the general principles that guide the Code. Our Code of Ethics includes policies and procedures for the review of quarterly securities transactions reports as well as initial and annual securities holdings reports that must be submitted by the firm s access persons. Among other things, our Code of Ethics also requires the prior approval of any acquisition of securities in a limited offering (e.g., private placement) or an initial public offering. Our code also provides for oversight, enforcement and recordkeeping provisions. 10

11 ODCM's Code of Ethics further includes the firm's policy prohibiting the use of material non public information. While we do not believe that we have any particular access to non public information, all employees are reminded that such information may not be used in a personal or professional capacity. A copy of our Code of Ethics is available to our advisory clients and prospective clients. You may request a copy by sent to info@odcm.com, or by calling us at ODCM and individuals associated with our firm are prohibited from engaging in principal transactions. ODCM and individuals associated with our firm are prohibited from engaging in agency cross transactions. Our Code of Ethics is designed to assure that the personal securities transactions, activities and interests of our employees will not interfere with (i) making decisions in the best interest of advisory clients and (ii) implementing such decisions while, at the same time, allowing employees to invest for their own accounts. Our firm and/or individuals associated with our firm may buy or sell for their personal accounts securities identical to or different from those recommended to our clients. In addition, any related person(s) may have an interest or position in a certain security(ies) which may also be recommended to a client. We may aggregate our employee trades with client transactions where possible and when compliant with our duty to seek best execution for our clients. In these instances, participating clients will receive an average share price. In the instances where there is a partial fill of a particular batched order, we will allocate all purchases pro rata, with each account paying the average price. Our employee accounts will be included in the pro rata allocation. As these situations represent actual or potential conflicts of interest to our clients, we have established the following policies and procedures for implementing our firm s Code of Ethics, to ensure our firm complies with its regulatory obligations and provides our clients and potential clients with full and fair disclosure of such conflicts of interest: No principal or employee of our firm may put his or her own interest above the interest of an advisory client. No principal or employee of our firm may buy or sell securities for their personal portfolio(s) where their decision is a result of information received as a result of his or her employment unless the information is also available to the investing public. When ODCM considers specific strategic investment changes in multiple client accounts, employees are restricted from purchasing or selling the securities under consideration in their personal accounts before the purchases and/or sales have been completed in unrestricted client accounts. ODCM requires prior approval for any stock, ETF, IPO, or private placement trade by related persons of the firm. We maintain a list of all reportable securities holdings for our firm and anyone associated with this advisory practice that has access to advisory recommendations ("access person"). These holdings are reviewed on a regular basis by our firm's Chief Compliance Officer or his/her designee. 11

12 We have established procedures for the maintenance of all required books and records. All of our principals and employees must act in accordance with all applicable Federal and State regulations governing registered investment advisory practices. We require delivery and acknowledgement of the Code of Ethics by each supervised person of our firm. We have established policies requiring the reporting of Code of Ethics violations to our senior management. Any individual who violates any of the above restrictions may be subject to termination. Item 12 Brokerage Practices ODCM does not maintain custody of client assets that we manage (although we may be deemed to have custody of your assets if you give us authority to withdraw assets from a client account see Item 15, Custody below. Client assets must be maintained in an account at a qualified custodian, generally a broker dealer or bank. ODCM recommends that clients establish brokerage accounts with the Schwab Institutional division of Charles Schwab & Co., Inc. ("Schwab"), a FINRA registered broker dealer, member SIPC, as the qualified custodian. Schwab will hold a client s assets in a brokerage account and buy and sell securities when ODCM instructs them to. Although we recommend that clients establish accounts at Schwab, it is the client's decision to open an account with Schwab by entering into an account agreement directly with them. We do not open the account for you. Even though client accounts are maintained at Schwab, ODCM can still use other brokers to execute trades for client accounts, as described in the next paragraph. ODCM is not affiliated with Schwab. How We Select Brokers/Custodians When evaluating broker dealers/custodians, we consider several factors in deciding which is most advantageous, overall, in comparison to other available options. Factors that we consider in recommending Schwab (or any other broker dealer/custodian to you) include, among others: combination of transaction execution services along with asset custody services (generally without a separate fee for custody) capability to execute, clear and settle trades (buy and sell securities for your account) capabilities to facilitate transfers and payments to and from accounts (wire transfers, check requests, bill payment, etc.) breadth of investment products made available (stocks, bonds, mutual funds, exchange traded funds (ETFs), etc.) availability of investment research and tools that assist us in making investment decisions quality of services competitiveness of the price of those services (commission rates, margin interest rates, other fees, etc.) and willingness to negotiate them reputation, financial strength and stability of the provider their prior service to us and our other clients availability of other products and services that benefit us, as discussed below (see Products and Services Available to Us from Schwab ) Custody and Brokerage Costs Although the commissions and/or transaction fees paid by you shall comply with our duty to obtain best execution, a client may pay a commission that is higher than another qualified broker dealer might 12

13 charge to effect the same transaction where we determine, in good faith, that the commission/transaction fee is reasonable in relation to the value of the brokerage and research services received. In seeking best execution, the determinative factor is not the lowest possible cost, but whether the transaction represents the best qualitative execution, taking into consideration the full range of a broker dealer s services, including the value of research provided, execution capability, commission rates, and responsiveness. Accordingly, although we will seek competitive rates, we may not necessarily obtain the lowest possible commission rates for your account transactions. To the extent that we provide investment management services to our clients, the transactions for each client account generally will be effected independently, unless we decide to purchase or sell the same securities for several clients at approximately the same time. We may (but are not obligated to) combine or bunch such orders to obtain best execution, to negotiate more favorable commission rates or to allocate equitably among our clients differences in prices and commissions or other transaction costs that might have been obtained had such orders been placed independently. Under this procedure, transactions will be averaged as to price and will be allocated among clients in proportion to the purchase and sale orders placed for each client account on any given day. We will not receive any additional compensation or remuneration as a result of such aggregation. For accounts of our clients maintained in custody at Schwab, Schwab will not charge the client separately for custody but will receive compensation from our clients in the form of commissions or other transaction related compensation on securities trades executed through Schwab or that settle into your Schwab account. Schwab charges the client a flat dollar amount as a prime broker or trade away fee for each trade that ODCM has executed by a different broker dealer but where the securities bought or the funds from the securities sold are deposited (settled) into a client s Schwab account. These fees are in addition to the commissions or other compensation you pay the executing brokerdealer. Because of this, in order to minimize trading costs, ODCM has Schwab execute most trades for client accounts. ODCM nevertheless acknowledges its duty to seek best execution of trades for client accounts. Products and Services Available to ODCM from Schwab Schwab Advisor Services (formerly called Schwab Institutional) is Schwab s business serving independent investment advisory firms like ODCM. They provide us and our clients with access to its institutional brokerage trading, custody, reporting and related services many of which are not typically available to Schwab retail customers. Schwab also makes available various support services. Some of those services help us manage or administer our clients accounts while others help us manage and grow our business. Here is a more detailed description of Schwab s support services: Services that Benefit Clients Schwab s institutional brokerage services include access to a broad range of investment products, execution of securities transactions, and custody of client assets. The investment products available through Schwab include some to which we might not otherwise have access or that would require a significantly higher minimum initial investment by our clients. Schwab s services described in this paragraph generally benefit you and your account. Services that May Not Directly Benefit Clients Schwab also makes available to our firm other products and services that benefit ODCM but may not directly benefit our clients' accounts. These products and services assist us in managing and administering our clients account. They include investment research, both Schwab s own 13

14 and that of third parties. We may use this research to service all or some substantial number of our client accounts, including accounts not maintained at Schwab. In addition to investment research, Schwab also makes available software and other technology that:provide access to client account data (such as trade confirmations and account statements); facilitate trade execution and allocate aggregated trade orders for multiple client accounts; provide research, pricing and other market data; facilitate payment of our fees from clients' accounts; and assist with back office functions, recordkeeping and client reporting. Services that Generally Benefit Only ODCM Schwab also offers other services intended to help us manage and further develop our business enterprise. These services may include: educational conferences and events; technology, compliance, legal and business consulting; publications and conferences on practice management and business succession; and access to employee benefits providers, human capital consultants and insurance providers. Schwab may provide some of these services itself. In other cases, it will arrange for third party vendors to provide the services to us. Schwab may also discount or waive its fees for some of these services or pay all or a part of a third party s fees. Schwab may also provide us with other benefits such as occasional business entertainment of our personnel. Our clients do not pay more for investment transactions effected and/or assets maintained at Schwab as a result of this arrangement. There is no corresponding commitment made by us to Schwab or any other entity to invest any specific amount or percentage of your assets in any specific mutual funds, securities or other investment products as result of the above arrangement. Research and Other Soft Dollar Benefits Certain items obtainable with soft dollars may not be used exclusively for either execution or research services. The cost of such "mixed use" products or services will be fairly allocated and ODCM makes a good faith effort to determine the percentage of such products or services which may be considered as investment research. The portions of the costs attributable to non research usage of such products or services are paid by our firm in accordance with the provisions of Section 28(e) of the Securities Exchange Act of When ODCM uses client brokerage commissions to obtain research or brokerage services, we receive a benefit to the extent that ODCM does not have to produce such products internally or compensate third parties with our own money for the delivery of such services. Therefore, such use of client brokerage commissions results in a conflict of interest, because we have an incentive to direct client brokerage to those brokers who provide research and services we utilize, even if these brokers do not offer the best price or commission rates for our clients. Within our last fiscal year, we have obtained the following products and services on a soft dollar basis: MoneyGuide Pro, financial planning software Telemet, securities quote and research service Tamarac, portfolio monitoring, trading, and rebalancing software (partial soft dollars) 14

15 Client Referrals We receive client referrals from Charles Schwab & Co., Inc. ( Schwab ) through our participation in Schwab Advisor Network ( the Service ), designed to help investors find an independent investment advisor. Schwab is a broker dealer independent of, and unaffiliated with, ODCM. Schwab does not supervise us and has no responsibility for our management of clients portfolios or our other advice or services. We pay Schwab fees to receive client referrals through the Service. Our participation in the Service may raise potential conflicts of interest described below. We pay Schwab a Participation Fee on all referred clients accounts that are maintained in custody at Schwab and a Non Schwab Custody Fee on all accounts that are maintained at, or transferred to, another custodian. The Participation Fee paid by us is a percentage of the fees owed by the client to ODCM or a percentage of the value of the assets in the client s account, subject to a minimum Participation Fee. We pay Schwab the Participation Fee for so long as the referred client s account remains in custody at Schwab. The Participation Fee is billed to us quarterly and may be increased, decreased or waived by Schwab from time to time. The Participation Fee is paid by ODCM and not by the client. We have agreed not to charge clients referred through the Service fees or costs greater than the fees or costs ODCM charges clients with similar portfolios (pursuant to our standard fee schedule) who were not referred through the Service. We generally pay Schwab a Non Schwab Custody Fee if custody of a referred client s account is not maintained by, or assets in the account are transferred from Schwab, unless the client was solely responsible for the decision not to maintain custody at Schwab. The Non Schwab Custody Fee is a onetime payment equal to a percentage of the assets placed in custody other than at Schwab. The Non Schwab Custody Fee is higher than the Participation Fees ODCM generally would pay in a single year. Thus, we will have an incentive to recommend that client accounts be held in custody at Schwab. The Participation and Non Schwab Custody Fees will be based on assets in accounts of our clients who were referred by Schwab and those referred clients family members living in the same household. Thus, ODCM will have incentives to encourage household members of clients referred through the Service to maintain custody of their accounts and execute transactions at Schwab and to instruct Schwab to debit ODCM s fees directly from the accounts. Directed Brokerage Other than the use of Schwab, we do not generally accept directed brokerage arrangements (when a client requires that account transactions be effected through a specific broker dealer). In such client directed arrangements, the client will negotiate terms and arrangements for his/her account with that broker dealer, and we will not seek better execution services or prices from other broker dealers or be able to "batch" your transactions for execution through other broker dealers with orders for other accounts managed by us. As a result, the client may pay higher commissions or other transaction costs or greater spreads, or receive less favorable net prices, on transactions for the account than would otherwise be the case. Item 13 Review of Accounts While the underlying securities in Accounts are continually monitored, ODCM reviews client accounts and financial plans on an ongoing basis as part of the semi annual review conducted by our Investment 15

16 Counselors. These reviews include a discussion with the clients to determine if there has been a change in the client s financial situation and/or investment objectives. ODCM Portfolio Managers also conduct account reviews on an as needed basis upon the occurrence of a triggering event, such as a change in a client s investment objectives and/or financial situation, security price movements, deposits and withdrawals, the need to raise or invest cash, strategic account rebalancing, and economic and security specific news. Clients are provided, at least quarterly, with written transaction confirmation notices and regular written summary account statements directly from the broker dealer/custodian. ODCM also provides a written quarterly report summarizing account holdings and trade activity. These reports will also remind the client to notify us if there have been changes in the client's financial situation or investment objectives and whether the client wishes to impose investment restrictions or modify existing restrictions. Item 14 Client Referrals and Other Compensation Schwab Advisor Network We receive client referrals from Charles Schwab & Co., Inc. ( Schwab ) through our participation in Schwab Advisor Network ( the Service ), designed to help investors find an independent investment advisor. Schwab is a broker dealer independent of, and unaffiliated with, ODCM. Schwab does not supervise us and has no responsibility for our management of clients portfolios or our other advice or services. We pay Schwab fees to receive client referrals through the Service. Our participation in the Service may raise potential conflicts of interest described below. We pay Schwab a Participation Fee on all referred clients accounts that are maintained in custody at Schwab and a Non Schwab Custody Fee on all accounts that are maintained at, or transferred to, another custodian. The Participation Fee paid by us is a percentage of the fees owed by the client to ODCM or a percentage of the value of the assets in the client s account, subject to a minimum Participation Fee. We pay Schwab the Participation Fee for so long as the referred client s account remains in custody at Schwab. The Participation Fee is billed to us quarterly and may be increased, decreased or waived by Schwab from time to time. The Participation Fee is paid by ODCM and not by the client. We have agreed not to charge clients referred through the Service fees or costs greater than the fees or costs ODCM charges clients with similar portfolios (pursuant to our standard fee schedule) who were not referred through the Service. We generally pay Schwab a Non Schwab Custody Fee if custody of a referred client s account is not maintained by, or assets in the account are transferred from Schwab, unless the client was solely responsible for the decision not to maintain custody at Schwab. The Non Schwab Custody Fee is a onetime payment equal to a percentage of the assets placed in custody other than at Schwab. The Non Schwab Custody Fee is higher than the Participation Fees ODCM generally would pay in a single year. Thus, we will have an incentive to recommend that client accounts be held in custody at Schwab. The Participation and Non Schwab Custody Fees will be based on assets in accounts of our clients who were referred by Schwab and those referred clients family members living in the same household. Thus, ODCM will have incentives to encourage household members of clients referred through the 16

17 Service to maintain custody of their accounts and execute transactions at Schwab and to instruct Schwab to debit ODCM s fees directly from the accounts. Other Solicitors If a client is introduced to us by either an unaffiliated or an affiliated solicitor, we may pay that solicitor a referral fee in accordance with the requirements of Rule 206(4) 3 of the Investment Advisers Act of 1940, and any corresponding state securities law requirements. Any such referral fee shall be paid solely from ODCM s investment management fee, and will not result in any additional charge to you. If you are introduced to us by an unaffiliated solicitor, the solicitor, at the time of the solicitation, shall disclose the nature of his/her/its solicitor relationship, and shall provide each prospective client with a copy of our written Brochure with a copy of the written disclosure statement from the solicitor to you disclosing the terms of the solicitation arrangement between ODCM and the solicitor, including the compensation to be received by the solicitor from us. It is ODCM's policy not to accept or allow our related persons to accept any form of compensation, including cash, sales awards or other prizes, from a non client in conjunction with the advisory services we provide to our clients. Item 15 Custody Under government regulations, ODCM is deemed to have custody of your assets if clients authorize us to instruct the broker dealer/custodian to deduct our advisory fees directly from client accounts. The broker dealer/custodian maintains actual custody of client assets. Clients are provided, at least quarterly, with written transaction confirmation notices and regular written summary account statements directly from the broker dealer/custodian. ODCM also provides a written quarterly report summarizing account holdings and trade activity. Clients are urged to compare any statement or report provided by us with the account statements received from the account custodian. The account custodian does not verify the accuracy of our advisory fee calculation. Our firm does not have actual or constructive custody of client accounts. Item 16 Investment Discretion ODCM provides investment advisory services on a discretionary basis. Prior to our assuming discretionary authority over your account, you will be required to execute an Investment Advisory Agreement, naming ODCM as client s attorney and agent in fact, granting us authority to buy, sell, or otherwise effect investment transactions involving the assets in the discretionary account. Clients may, at any time, impose restrictions, in writing, on our discretionary authority (i.e. limit the types/amounts of particular securities purchased for their account, exclude the ability to purchase securities with an inverse relationship to the market, limit or proscribe our use of margin, etc.). 17

18 Item 17 Voting Client Securities ODCM does not vote client proxies. You maintain exclusive responsibility for: (1) directing the manner in which proxies for the securities you own will be voted, and (2) making all elections relative to any mergers, acquisitions, tender offers, bankruptcy proceedings or other type events pertaining to your investment assets. You will receive your proxies or other solicitations directly from your custodian or a transfer agent. You may contact us via phone or to discuss any questions you may have with a particular solicitation. Item 18 Financial Information ODCM does not solicit fees of more than $1,200 per client, six months or more in advance. ODCM is unaware of any financial condition that is reasonably likely to impair our ability to meet our contractual commitments relating to our discretionary authority over client accounts. ODCM has not been the subject of a bankruptcy petition. 18