Understanding our fees, charges and other compensation

Transcription

1 Understanding our fees, charges and other compensation Important information about: How we are paid by you How your Financial Advisor is compensated Payments we receive from third parties for select products and services Potential conflicts of interest resulting from our compensation structures

2 About our fees, charges and other compensation As a UBS client, you benefit from the broad scope of services and resources of a leading global firm whether as a broker-dealer, investment adviser or both. While there are similarities between the brokerage and advisory services we provide, there are important differences, including the pricing structures for these services. Our goal is to make sure that our clients are informed about many of the more common investment products and services we offer which is why we have published this overview of our fees and how we generate revenue. Topics that are covered in this overview include: Sources of revenue to the firm Financial Advisor compensation Compensation and fees for selected products and services Compensation and fees for advisory services Conflicts of interest Relationships and pricing Our client relationships can be divided into two broad styles with different pricing methods transaction-based (brokerage) and asset-based (advisory). Transaction-based account relationships What you should know about pricing for transactionbased brokerage services: Clients pay for the services they request, such as buying and selling stocks, bonds and mutual funds, as well as trading and exercising options Payment may be in the form of commissions or other fees for each transaction, sales charges or built-in expenses Factors about our pricing Clients may purchase many of our products and services in either transaction-based or asset-based accounts, or a combination of both. Advisory services, however, are available predominantly in asset-based fee accounts. As the cost of doing business with us depends on each client s wealth management preferences and needs, it may be difficult to compare asset-based and transaction-based relationships solely on the basis of price. You may pay more or less in an asset-based program than you might otherwise pay if you purchased the services separately. The costs of doing business with us in a brokerage relationship or an advisory relationship vary and depend upon a number of factors, including: Your product and service preferences Size and value of your account Mix of products you hold Frequency with which you trade Administrative or management fees associated with the products or services you purchase Please consider the costs associated with each pricing structure carefully and speak with your Financial Advisor about which approach is most appropriate for you in light of the services you would like. For a description of our brokerage and advisory services, please refer to our Agreements and Disclosures booklet available at or to the disclosure materials we provided to you when you opened your accounts at UBS. Asset-based account relationships Our asset-based investment advisory accounts can be divided into three categories: Discretionary portfolio management, in which qualified Financial Advisors or UBS Portfolio Managers make investment decisions Investment management consulting, where qualified Financial Advisors provide advice about mutual funds and separate account managers Client-directed advisory accounts where Financial Advisors provide advice but clients make their decisions independently 1

3 Sources of revenue to the firm Our firm earns revenue primarily from our clients and third parties including product vendors, underwriters and investment managers whose products and services are purchased by clients and from our affiliates. Revenue received from clients In general, our firm receives revenue from clients in the following ways: Commissions charged to clients in connection with the purchase, or sale, of investment products Markups (i.e., an increase) and markdowns (i.e., a reduction) on the price of purchases and sales of equities and fixed-income products, where the firm acts as principal, i.e., purchases for or sales of securities from UBS s inventory Asset-based fees charged in connection with our investment advisory programs Interest on margin and loan accounts Account administration fees Sales loads, commissions or fees for various financial products, such as mutual funds, alternative investment funds, unit investment trusts, insurance and annuities Revenue from third parties In addition to revenues that are generated by the sale of products and services to clients, we earn revenue from third parties in the following ways: Companies that issue investment products (mutual funds, unit investment trusts (UITs), exchange traded funds (ETFs), etc.), insurance companies, investment advisers and other third parties fund the cost of educational programs and seminars for employees and clients Underwriters of securities compensate us based on trading activities we provide on their behalf Third-party UITs pay volume-based fees for the sale of their products to our clients, and UITs sponsored by UBS affiliates pay us fees as part of their operating expenses Mutual fund companies pay recordkeeping fees to support the operational processing of accounts held at UBS Insurance and annuity companies compensate us for the costs of establishing and maintaining their products in our distribution system Issuers of new equity, fixed income or structured investments pay us fees and/or offer underwriting discounts or, in certain cases (such as exchange traded notes (ETNs), for example), share fees with us Mutual fund companies and variable annuity issuers make payments for services such as product distribution, educational and marketing support, known as revenue sharing, based on our total sales of and/or total client assets in their products Third parties with whom we offer co-branded programs like the UBS Donor Advised Fund pay referral fees For some alternative investment funds that are managed by third-party investment advisers, we receive fees for distribution, shareholder services or solicitation services, or a combination of the three Additional information regarding revenue sharing can be found on our web site, Affiliate-related revenue When you conduct business with us, our affiliates may earn compensation based on: The purchase of securities underwritten by a UBS affiliate Buying securities directly from or selling securities directly to UBS or one of our affiliates, which is known as principal trading The execution of trades in shares of mutual funds structured or managed by one of our affiliates Investing in a separately managed account managed by UBS or an affiliated investment manager Holding a loan extended by, or maintaining credit with, one of our affiliates Making deposits of your money through us into affiliated entities Trading and hedging activities related to structured products and ETNs Collecting license fees from mutual fund, exchange traded fund (ETF), exchange traded note (ETN), structured product and other product providers for indexes or strategies owned by a UBS affiliate Our affiliates, such as UBS Global Asset Management and UBS Investment Bank, typically pay us for referring clients to them. Likewise, we typically pay our affiliates for referring certain clients and business opportunities to our Financial Advisors. Referral payments can be based on a percentage of the revenue received or as otherwise agreed between the affiliates. Depending on the type of referral, payments can be made over several years. These payments will not result in additional charges to clients, other than previously agreed upon fees or commissions. 2

4 Financial Advisor compensation We pay our Financial Advisors a portion of client commissions and fees according to an established schedule that is based on the revenues he or she generates from the clients he or she serves. The portion is known as the payout rate. Financial Advisors may also receive various forms of noncash compensation from product vendors who sell or issue mutual funds, annuities, insurance, unit investment trusts and other securities, including. A portion of ongoing payments, called trailers or 12b-1 fees paid by mutual funds to UBS based on their payout rate Payment of expenses related to training and educational efforts of our Financial Advisors Meals and entertainment of reasonable and customary value, and gifts up to $100 per vendor per year Commissions for trading activities here or at other broker-dealers, including our affiliates ( directed commissions ) Referral fees or finder s fees for referring business to affiliates or assisting others in developing new business Financial Advisors may also be eligible for bonuses based on a combination of factors including his or her annual revenues, length of service with UBS and credit lines from both current and new clients. Financial Advisors working in the UBS Investment Center are paid a salary, which is not affected by the products and services a client purchases or sells. Bonuses for our Investment Center Financial Advisors are determined based on a number of factors, including client satisfaction. While this summary outlines how we currently compensate the majority of our Financial Advisors, some Financial Advisors may be compensated differently, and we may adjust our compensation policies from time to time. 3

5 Compensation and fees for selected products and services The tables that follow offer an overview of what our firm charges and how our Financial Advisors are compensated for the wide variety of products and services that our clients typically purchase. Some of these fees are specific to our firm, while others are imposed by third parties, such as mutual fund and insurance companies. Still others, such as certain charges on the sale of securities, are regulated by the securities industry. This information is designed to serve as a general guide for you, and may or may not apply to your individual circumstances. The amount you pay may be affected by such factors as your account or portfolio size, your mix of assets and liabilities, and your level of trading. Developing your wealth management plan, opening particular accounts and establishing fees typically are part of a conversation you have with your Financial Advisor. While we believe that we have covered the charges most important to you, please note that not every fee, product or pricing detail is listed here. In general, your Financial Advisor receives a percentage of the commissions or charges for the products and services purchased based on his or her payout rate. Alternative investments Product/service Description Pricing Additional information Alternative investments Alternative investments include, but are not limited to, the following: Hedge funds Hedge funds-of-funds Managed futures funds Private equity funds Real estate funds When you invest in alternative investments, you may be subject to a combination of different fees, including: Management fees Performance (incentivebased) fees Administration (e.g., accounting, processing, etc.) fees For funds managed by third-party advisers, UBS (and other brokerdealers that distribute their funds) receives placement, referral and/or distribution fees. For UBS proprietary funds, if the product invests in an underlying fund, then you may pay fees to more than one entity. In this case, UBS is compensated from the UBS fund fees and/or placement, referral and/or distribution fees that it receives from the third-party advisers. While we request that third-party fund managers pay UBS the same level of compensation paid to us by our manager affiliates, there may be cases when fund managers decline to pay distribution fees at exactly the same level. This may present a financial incentive to promote the sale of funds managed by our affiliates over the sale of similar strategy funds managed by non-affiliates. UBS also receives compensation for third-party alternative investment funds that it no longer distributes and, in certain cases, that were purchased by investors before they became UBS clients. Those fees may be payable to UBS as long as our clients are invested in that fund (or its successor). The compensation that your Financial Advisor receives can vary from one fund to another, even if clients pay the same amount overall in fees. 4

6 Product/service Description Pricing Additional information Alternative investments (continued) Your Financial Advisor, at his or her discretion, may charge you a placement fee of 2.00% (with ability to waive in limited circumstances) of your investment in addition to both your initial investment and any additional investment you make in a fund. UBS may also re-allow all or a portion of the placement fee to your Financial Advisor. This placement fee, if imposed, is disclosed to you at the time of your investment. Directed brokerage fees: For a small number of funds that are not on the broad UBS platform, UBS Financial Services Inc. may receive commissions from trades placed on behalf of the applicable fund, either to offset the agreedupon compensation or in addition to paying a hard dollar fee. This directed brokerage practice may cause UBS Financial Services Inc. to earn substantially more than the fees it would normally receive and may result in a financial incentive for your Financial Advisor to advocate funds that use directed brokerage and hard dollars to pay for referral services. Disclosure: Your Financial Advisor may offer to sell you a non-proprietary hedge fund that a UBS fund-of-funds has redeemed from and no longer keeps in its portfolio. Please be mindful that there is no obligation that any of the UBS funds-of-funds (or any other client or affiliate of the firm) either invest in or hold any investment vehicle that your Financial Advisor may offer to you. In addition, there may be occasions when other UBS clients sell their interests in an alternative investment fund that you purchase or hold. Annuities Product/service Description Pricing Additional information Fixed annuities Fixed annuities are contracts issued by insurance companies that guarantee a fixed interest rate for a specified period of time. Variable annuities Variable annuities are contracts issued by insurance companies, the values of which fluctuate with the values of underlying portfolios of securities. Clients typically do not pay upfront sales charges for fixed annuities. Instead, most fixed annuity contracts have a contingent deferred sales charge (CDSC) also known as a surrender charge that is assessed if funds are withdrawn in the first 4 to 10 years (depending on the product), which declines to zero over time. Clients typically do not pay upfront sales charges for variable annuities. Instead, most variable annuity contracts have a contingent deferred sales charge (CDSC) also known as a surrender charge that is assessed if funds are withdrawn in the first three to nine years (depending on the product), which declines to zero over time. Insurance companies pay UBS commissions based on the initial sale of the annuity, commonly ranging up to 5.55% of the annuity s premium. Insurance companies pay UBS additional amounts known as revenue sharing, which is based on UBS s overall sales of fixed annuities. Insurance companies pay UBS a commission in the first year, which commonly ranges from 1.00% to 6.00% of the annuity premium. Insurance companies may also pay trail commissions, (i.e., an ongoing commission paid to your Financial Advisor in each year you own the investment). These payments commonly range from 0.00% to 1.40% of the total value of the annuity assets. 5

7 Product/service Description Pricing Additional information Variable annuities (continued) Insurance companies may pay UBS additional amounts, known as revenue sharing, which is based on UBS s overall sales and/or assets held. Group annuities Group annuities are contracts issued by insurance companies to a business or other eligible organization, often as funding vehicles for qualified retirement plans. Typically clients do not pay an upfront sales charge, instead paying only the purchase price. For more information, refer to our Understanding variable annuities. 1 Insurance companies pay UBS a commission in the first year, which can range up to 2.00% of the group annuity premium. Insurance companies may also pay trail commissions, (i.e., small, ongoing commissions paid to your Financial Advisor each year that you own the investment). These payments commonly range from 0.25% to 1.00% of the total value of the group annuity assets. 1 To view Understanding variable annuities, go to Banking products Product/service Description Pricing Additional information Credit lines Margin loans Variable or fixed-rate credit lines are loans that may not be used to purchase, trade or carry securities. These loans are secured by securities pledged by clients and/or a third party. Margin loans use securities in individual client accounts as collateral and may be used to purchase, trade or carry securities. Clients only pay interest on outstanding balances. For variable-rate loans, clients may repay the principal at any time without prepayment fees. For fixed-rate loans, clients may be subject to prepayment fees (as described in the loan documents) if the loan is repaid before the end of the fixed-rate contract. Clients repay the principal balance and interest on outstanding balances, and they may repay the principal at any time without prepayment fees. Our Financial Advisors are generally credited 8.50% of our interest spread, minus 0.20%. Our Financial Advisors do not receive compensation on margin loans. If you have a margin account with us, as permitted by law, we may use certain securities in your account for, among other things, settling short sales and lending securities for short sales. We also may be compensated for our connection to such transactions. 6

8 Product/service Description Pricing Additional information Margin loans (continued) Mortgage loans and, when available, home equity lines of credit Standby letters of credit Sweep option for non-u.s. accounts: International Deposit Account (IDA) Sweep programs for domestic accounts Mortgage loans and home equity lines of credit are loans that may be used to purchase a home, refinance an existing mortgage or for other purposes. These loans are secured by personal residential real property. Standby letters of credit are documents that guarantee the payment of your obligations to a third party for a specified period and up to a specified amount. UBS deposits its participating clients free credit balances into a demand deposit account at UBS AG, New York branch, from which such balances are further swept daily into an interest-bearing deposit account at UBS AG, Cayman Islands branch. A sweep program for domestic accounts is a service whereby free cash balances in eligible securities accounts are automatically deposited into interest-bearing bank deposit accounts, or invested in money market mutual funds or other sweep options, based on your eligibility and your sweep election. Residents of Puerto Rico may also choose to sweep eligible funds into the Puerto Rico Short-Term Investment Fund, Inc. Clients repay the principal amount borrowed, plus interest. These loans generally have origination fees, application fees and/or closing costs. Clients pay an issuance fee and an annual credit fee based on the stated dollar amount of the standby letter of credit. Clients are not charged an additional fee for this service. Clients are not charged an additional fee for this service. In addition, if you are engaged in short selling a security, you may incur a charge due to certain borrowing costs for that particular security. Our Financial Advisors are generally paid a percentage of the mortgage loan. Our Financial Advisors are generally paid a percentage of the annual credit fee. UBS Financial Services Inc. receives an annual fee from UBS AG based on the daily balance held by UBS AG in deposit accounts established through the IDA program. UBS Financial Services Inc. receives a monthly fee from UBS Bank USA for each UBS securities account that sweeps into a UBS Bank USA deposit account established through this program. Depending on the type of account, UBS Financial Services Inc. may earn interest on cash balances in client accounts at the prevailing market rates through overnight investments only until the cash balances are either invested by clients or swept pursuant to client sweep elections. The fund transfer agents pay UBS or our affiliates for certain transfer agent-related services. UBS Financial Services Inc. and/or its affiliates receive investment management, distribution and service fees on investments in the money market funds offered as sweep options. 7

9 Product/service Description Pricing Additional information Sweep programs for domestic accounts (continued) For residents of Puerto Rico: You may choose to sweep your eligible funds into the Puerto Rico Short- Term Investment Fund, Inc. in which case, we will receive investment management and services fees. In addition, the fund s transfer agent pays UBS or our affiliates for certain transfer agent-related services. Individual securities and brokerage services Product/service Description Pricing Additional information Equity securities Equity syndicates Municipal securities Equity securities include common stock, American Depositary Receipts (ADRs) and closed-end funds, i.e., funds with a fixed number of shares. Equity syndicates include initial and secondary offerings of common stock and closed-end funds, i.e., funds with a fixed number of shares. Municipal securities are bonds issued by states, cities, countries and other governmental entities to raise money, typically for general governmental needs or special projects. Clients pay a commission based on the quantity of shares purchased and their corresponding stock prices. Clients pay the initial offering price. In addition, UBS receives a fee/selling commission directly from the company that is bringing the equity syndicate to market, which is built into the offering price of the syndicate. For new issues, clients pay the initial offering price, and UBS receives a fee/selling commission from either the issuer that is bringing the security to market or a preferred provider, such as another broker-dealer. The fee is built into the initial offering price. UBS or one of our affiliates may also earn revenues from underwriting or based on principal trading, i.e., purchasing securities in order to provide market liquidity, in municipal securities. For secondary municipal bonds, clients pay a sales charge, i.e., markup or markdown, depending primarily on the bond type and duration. Municipal variable rate demand obligations (VRDOs) Municipal VRDOs are debt instruments with long maturities (i.e., usually 30 years) that feature multiple interest rate modes and associated tender features, including an option to tender securities at par on seven days notice or, in some cases, on one day notice. For new issues purchased from a preferred provider, clients pay the initial offering price. Our preferred provider receives a selling fee directly from the issuer that is bringing the security to market and shares a portion with UBS. The fee is built into the initial offering price. For certain secondary VRDO transactions where a UBS affiliate acts as a remarketing agent for an issuer, the affiliate receives a remarketing fee from the issuer. 8

10 Product/service Description Pricing Additional information Municipal variable rate demand obligations (VRDOs) (continued) Options Taxable fixed income Securities transactions tied to the stocks, commodities, currencies or indexes that give the holder the right to buy or sell within a specified timeframe for a defined price. Options include puts and calls. Taxable fixed income securities include: Corporate bonds U.S. Treasuries Federal agency bonds Mortgage-backed securities Zero-coupon bonds High-yield and emerging market securities Convertible securities Certificates of deposit (CDs) Preferred securities Commercial paper Foreign exchange spot and forward transactions Clients pay a commission to buy or sell an option based on the number of contracts and the principal amount of the trade. For new issues, clients pay the initial offering price. UBS receives a fee from the issuer that is bringing the security to market, which is built into the initial offering price. UBS or an affiliate may earn revenues from underwriters based on principal trading, i.e., trading securities in order to provide market liquidity, in fixed-income securities. For other secondary VRDO transactions, our preferred provider acts as remarketing agent, i.e., a broker-dealer responsible for reselling to new investors VRDOs and other tender option bonds that have been tendered for purchase by their owner, and is subsequently paid a remarketing fee. This preferred provider may share a portion of that fee with UBS. On foreign exchange spot, i.e., immediate delivery and future transactions, clients pay a sales charge up to 1.00%, depending on the size of the transaction. For secondary bonds and CDs, clients pay a sales charge, i.e., markup or markdown, or commission of up to 2.50% for purchases and 1.00% for sales (up to 3.00% in Puerto Rico), depending on the type of security and its duration. For preferred securities, the maximum commission is 2.00% for purchases and 1.00% for sales. Disclosure: For U.S. Treasury bills, notes and bonds, and government agency securities, as well as Treasury auction transactions, an additional $35 fee is charged if the markup or markdown is less than $100, and the size of the transaction has under $100,000 in face value. 9

11 Insurance Product/service Description Pricing Additional information Disability, life and long-term care insurance Disability, life and long-term care insurance contracts are issued by insurance companies to cover the risks of disability, loss of life or the need for long-term care. Contracts may be fixed or variable. If the life insurance policy is variable, its value and death benefit fluctuates with the value of an underlying securities portfolio. The amount of the premium that clients pay depends on a variety of factors, including the level of coverage, the optional riders selected, i.e., provisions that may be added to an insurance policy to increase or limit the benefits that the policy otherwise provides, and a client s age. Depending on the life insurance contract, clients may have to pay a surrender charge, which is based on a variety of factors, including the number of years a policy has been in force, its cash value and death benefits. UBS receives a commission based on the policy structure, and it is calculated as a percentage of the premiums that clients pay. Financial Advisors may receive a percentage of the commission based on his or her payout rate. Our Financial Advisors may also receive a trail commission, i.e., a small, ongoing commission paid to your Financial Advisor in each year that you own the investment. Investment company products Product/service Description Pricing Additional information Mutual funds Mutual funds are open-end investment vehicles designed to invest in a group of assets in accordance with stated investment objectives. Many mutual funds offer several classes of shares that represent an interest in the same portfolio of securities. The principal difference between the classes is that the mutual fund will charge you different fees and expenses depending on the class you choose. In addition to ongoing fees, certain fund share classes may also impose either an upfront sales charge or a contingent deferred sales charge (CDSC) also known as a surrender charge or back-end sales charge. Upfront sales charges can be reduced or eliminated depending upon the amount of your total investments in the particular mutual fund family, as well as the type of account in which the assets are invested (i.e., advisory). The CDSC fees can be reduced or eliminated based on how long you hold the shares or in special circumstances, as described in the prospectus. Mutual fund companies may pay UBS revenue based on our overall sales and/or assets, known as distribution support or revenue sharing. These fees are not paid to Financial Advisors. The funds may also pay networking or omnibus (i.e., a consolidated trade executed once per day in order to save costs) fees, which are determined on a per-account or percentage-ofassets basis. These fees are not paid to Financial Advisors. Mutual funds may pay a 12b-1 annual distribution fee to UBS directly from the fund s assets. In turn, UBS generally pays part of this fee to the Financial Advisor. For more information, please refer to Understanding mutual fund share classes and fees. 2 2 To view Understanding mutual fund share classes and fees, go to 10

12 Product/service Description Pricing Additional information Exchange traded funds (ETFs) Unit investment trusts (UITs) An ETF is a type of open-end investment company, generally registered as a unit investment whose shares can be bought and sold in the open market. These funds typically hold portfolios of securities that correspond to the price and yield performance of a particular broad market index or basket of securities for a particular industry, sector or geographic region, less annual fees and expenses. UITs are investment companies that purchase a fixed, unmanaged portfolio of securities and subsequently sell shares in the trust to investors. Clients typically pay a commission in connection with the purchase or sale of an ETF. For investments linked to the performance of an index, fees generally include licensing fees for use of the index, which may be paid to UBS for indexes owned or sponsored by UBS. Clients typically pay either an upfront sales charge or a combination of upfront and deferred sales charges. The charges on new issues usually decrease as a client s investment increases, based on a breakpoint schedule, i.e., the level at which your account balance in an investment management company or the size of a new investment in the company s funds qualifies you to pay a reduced sales charge. Sales charges may also be reduced under other circumstances. UBS receives a portion of the sales charge from the company sponsoring the UIT. For products sponsored by third parties, we may receive additional amounts based on our overall sales, called volume concessions. For more information, please refer to Understanding unit investment trusts. 3 Structured products Product/service Description Pricing Additional information Structured products Structured products include debt securities, obligations or certificates of deposit (CDs) issued by our affiliates and nonaffiliated third parties, with returns linked to underlying assets such as equities, commodities, foreign exchange, interest rates, credit indexes or hedge funds. For new issues, clients pay the initial offering price, which includes fees and commissions, unless stated otherwise. Clients are not charged additional sales charges or commissions. In these instances, UBS receives a fee (sometimes called a selling concession) directly from the issuer, for bringing the security to market. Some structured products may also include ongoing embedded fees charged by the issuer that may or may not be shared with UBS. For certain structured products linked to hedge funds and funds of funds, UBS or its affiliates may receive a portion of the management fees charged by those funds as compensation. UBS or its affiliate may also receive compensation from issuing structured products and from trading and hedging activities related to structured products. 3 To view Understanding unit investment trusts, go to 11

13 Product/service Description Pricing Additional information Structured products (continued) For secondary issues, clients pay a sales charge, i.e. markup or markdown, the amount of which is based on the market value of the product. For investments linked to the performance of an index, fees generally include licensing fees for use of the index, which may be paid to UBS for indexes owned or sponsored by UBS. Exchange traded notes (ETNs) ETNs are debt securities that are designed to track the return of a specific market index or asset, less investor fees. Clients typically pay a commission in connection with the purchase or sale of an ETN. In some instances, UBS receives a fee (sometimes called a selling concession) directly from the issuer for bringing the security to market and may participate in the ongoing investor fee charged by the issuer. UBS or its affiliate also receives compensation from issuing ETNs and from trading and hedging activities related to ETNs. Auction rate securities Auction rate certificates (ARCs) and Auction Preferred Stocks (APS) are floating rate securities with long or perpetual maturities that are repriced periodically through a series of Dutch Auctions, i.e., an auction system in which the price is gradually lowered until it meets a responsive bid. For investments linked to the performance of an index, fees generally include licensing fees for use of the index, which may be paid to UBS for indexes owned or sponsored by UBS. Clients pay the offering price. Meanwhile, a UBS affiliate may receive an annual broker-dealer fee for operating the auction process. A portion of the annual brokerdealer fee is paid to your Financial Advisor. 12

14 Compensation and fees for advisory services The chart below describes our advisory programs and provides an outline of how services are priced. Please note that if you have more than one advisory account, you may be able to link these accounts (if eligible) so that the total of your eligible assets is considered when determining the appropriate fee schedule. For details, please contact your Financial Advisor. For each or the programs described below, your Financial Advisor receives a portion of the fee that you pay based on his or her payout rate. Financial Advisors in certain programs also receive fees in connection with mutual fund assets in client accounts. In addition to the program fees you pay us, commingled investment vehicles, including exchange traded funds, mutual funds and unit investment trusts, carry built-in operating expenses. The applicable Form ADV Disclosure ( provides detailed information regarding each of these programs, our fees, our personnel, our other business activities and financial industry affiliations, and conflicts between our interests and your interests. Please contact your Financial Advisor if you are interested in obtaining more information. Investment advisory programs Program Description Pricing ACCESS SM Managed Accounts Consulting (MAC) PACE (Personalized Asset Consulting and Evaluation) Multi Advisor ACCESS allows clients to select world-class professional investment management organizations that will assume all day-to-day investment decisions for their assets. For a minimum investment of $100,000 (though some managers may have higher minimums), ACCESS offers a broad spectrum of respected investment management organizations that have undergone our Manager Research Group s due diligence process and met our standards in performance, style consistency and organizational stability. MAC offers clients (i.e., high net worth individuals, small pension plans, foundations, etc.) the ability to establish a discretionary relationship directly with the management organization they choose. Meanwhile, Financial Advisors provide professional investment consulting services, such as custody, trading and execution services, as well as performance reporting for accounts that are custodied at UBS. The PACE Multi Advisor program offers access to a broad array of mutual funds with diverse investment management approaches. accounts, up to 2.80% for equity and balanced accounts, and up to 1.25% for fixed income accounts. Clients pay an asset-based fee to both UBS and the investment management organization. The fee for UBS can range up to: 2.05% for the equity and balanced accounts 0.90% for fixed-income accounts The fee for the investment management organization can be up to: 1.00% of assets under management for equity and balanced accounts 0.75% of assets under management for fixed-income accounts accounts, up to 2.00%. 13

15 Program Description Pricing PACE (Personalized Asset Consulting and Evaluation) Select Advisors Portfolio Management Program (PMP) UBS Managed Portfolio Advised by Richard Bernstein Advisors LLC UBS Managed Portfolio of Funds (MPF) UBS Managed Portfolio of Global Selections (MPGS) Global Selections of ETFs UBS Managed Portfolio Selections UBS Managed Portfolio of Environmental, Social and Governance Investments (ESG) The PACE Select Advisors program offers clients the opportunity to participate in stylespecific, no-load funds that are managed by investment subadvisors carefully chosen by UBS Global Asset Management the advisor on the portfolios. PMP places specially trained Financial Advisors in the role of investment manager, providing discretionary fee-based investment management. This is a discretionary program that offers clients diversified exchange traded fund (ETF) portfolios, utilizing UBS s Portfolio Strategy Group s investment management capabilities and Richard Bernstein Advisors market insight and asset allocation guidance. MPF is a centrally managed, discretionary mutual fund and ETF program. The portfolios are managed by UBS s Portfolio Strategy Group. MPGS is a centrally managed, discretionary program that offers a diversified portfolio of U.S. core equities with a global selection of ETFs for exposure to other asset classes, including international equity and fixed income. The portfolios are managed by UBS s Portfolio Strategy Group. This centrally managed, discretionary program offers clients a diversified portfolio of global investments through ETFs that are available through MAC. The portfolios are managed by UBS s Portfolio Strategy Group. The UBS Managed Portfolio Selections are centrally managed discretionary portfolios in which UBS s Portfolio Strategy Group, depending on the strategy selected, invests in single equity securities and ETFs. ESG is a centrally managed, discretionary mutual fund and ETF program. The portfolios are managed by UBS s Portfolio Strategy Group. accounts, up to 2.00%. Our affiliate, UBS Global Asset Management, receives fees for providing investment management, administration and shareholder servicing to the PACE UBS portfolios. accounts, up to: 2.80% for equity and balanced accounts 1.25% for fixed income accounts 2.00% for pooled investment vehicle accounts accounts, up to 2.80%. accounts, with fees 2.00%. accounts, with fees up to 2.50%. In addition to the MAC program fee, UBS charges an investment management fee up to 0.80% of assets under management. accounts, with fees up to 2.50%. accounts, with fees 2.00%. 14

16 Program Description Pricing UBS Strategic Advisor UBS Strategic Wealth Portfolio (SWP) This nondiscretionary, fee-based program offers clients the ability to receive ongoing advice from their UBS Financial Advisor and implement recommendations without paying commissions on individual transactions. Through UBS Strategic Wealth Portfolio, Financial Advisors help clients build portfolios using a combination of investment managers, mutual funds, ETFs and alternative strategies all within a single account. accounts, with fees up to 2.00%. Clients are charged a Blended Program Fee, which includes a combination of UBS consulting fees (up to 2.00%) and investment management fees for the separately managed sub-accounts. 15

17 Conflicts of interest Conflicts of interest may arise as a consequence of the Firm s interests and our relationships with multiple clients, other financial service firms we interact with to provide services you ask us to do on your behalf and vendors with whom we conduct business. The following is a partial list of potential conflicts of interest, which may expand over time. These are conflicts that may arise as a result of our compensation structures. Financial Advisor compensation You should be aware that Financial Advisors may feel they have an incentive to recommend products and services for which they receive a higher compensation. For example: The percentage of firm revenues that Financial Advisors receive from investment advisory programs is higher than the percentage of firm revenues they receive from many other products and services In general, Financial Advisors earn more for products sold in initial offerings than for those purchased and sold in secondary offerings Revenue sharing UBS receives compensation, known as revenue sharing, from certain distributors or advisers of mutual funds we sell. Revenue-sharing payments may present a conflict between our interests and those of our customers, because the payments give us an incentive to recommend that our customers buy and hold shares of those funds that we maintain on our distribution platform and for which we receive revenue-sharing payments. These compensation amounts are based on two components: 1. The amount of sales by UBS of a particular mutual fund family to our clients, and 2. The asset value of a particular mutual fund family s shares held at the firm. Revenue-sharing payments are one factor among many we use to determine a fund s access to our branches. UBS evaluates mutual fund families to see how funds fit our investment models, and also gives branches discretion. We require that these payments be made directly from the distributor or adviser, not from the mutual funds or indirectly through mutual fund portfolio trading commissions, because revenue-sharing payments are intended to compensate us for ancillary sales services. Except as noted in the following sections, these amounts are not rebated to you or paid to Financial Advisors or their branch offices. In general, we charge each mutual fund family the following amounts: 0.08% per year (paid quarterly) on all sales of mutual fund shares (excluding sales through wrap-fee programs); up to 0.15% per year (paid quarterly) of the asset value of all equity mutual fund shares held at UBS Financial Services Inc.; and up to 0.10% per year (paid quarterly) of the asset value of all fixed income mutual fund shares held at UBS Financial Services Inc. (other than money market and offshore funds). Except as noted, this calculation includes shares of affiliated and non-affiliated funds in our wrap-fee programs, but does not include UBS PACE Money Market investments or mutual fund assets held at other financial institutions or ERISA assets in discretionary advisory programs. UBS generally receives fees for offshore mutual funds. These fees are generally calculated as a percentage of the management fee charged by the applicable fund. Such fees may represent an amount ranging from 0.00% to 65.00% of the fund s management fee. This fee includes compensation for all services provided by UBS to the fund. Further, we may institute caps at certain asset and sales levels, as well as comprehensive caps, and may exclude certain mutual fund shares from the above calculations. Although we seek to apply a level payment schedule for all the companies whose funds we sell, we recognize that some mutual fund companies may decline to pay revenue sharing exactly at the levels listed previously or at all. This may present a financial disincentive for us to promote the sale of those funds. This revenue sharing information is current as of the date of this brochure and can be changed at our discretion. For updates, visit Finder s fees. Our Financial Advisors may receive finder s fees from certain mutual fund companies, up to 1.00% of sales of a particular mutual fund. Generally, these finder s fees offset other fees payable to UBS Financial Services Inc. by the client purchasing the particular mutual fund. Affiliate payments. Our affiliate, UBS Global Asset Management (US) Inc., may make payments out of its own resources for the sales of Class Y shares in certain Global Asset Management funds. We pay a portion of these payments to the Financial Advisor originating the sale. These payments, detailed in the fund s prospectus, may create a financial incentive for our brokers to recommend Class Y shares of these UBS proprietary funds over non-proprietary products. 16

18 Directed brokerage For a small number of funds that are not on the broad UBS platform, UBS Financial Services Inc. may receive commissions from trades placed on behalf of the applicable fund, either to offset the agreed-upon compensation or in addition to paying a hard dollar fee. That directed brokerage practice may cause UBS Financial Services Inc. to earn substantially more than the fees it would normally receive and may result in a financial incentive for your Financial Advisor to advocate funds that use directed brokerage and hard dollars to pay for referral services. Access to our alternative investment fund platform Your ability to invest in the alternative investment products offered by our firm will be subject to the following allocation policy which, depending on the circumstances, may limit or preclude your access to these products. Normally, we will give priority in allocating opportunities to invest in alternative investments that have limited capacity, such as private equity offerings, to those clients of our firm who have invested previously with the same manager in the same type of vehicle or investment strategy. If capacity remains, we will make these alternative investment products available as follows. We segment potential investors into three categories, and allocate a percentage of the remaining capacity to each category. The categories are: (i) clients of our most established Financial Advisors, who generally are members of our Chairman s Club or those Financial Advisors who have completed our Wealth Management training program; (ii) clients of our Private Bank; and (iii) other clients of UBS Financial Services Inc. Please note that the percentage allocations may differ for each category and may differ from one offering to the next. In addition, depending on the offering, we may allocate a percentage of the offering to clients that we select or categorize in our sole discretion. In the event that there is a shortage of a particular alternative investment fund offering, the firm will attempt to treat all investors equitably, but not necessarily equally. Other investors, who may share in the distribution of such funds may include UBS affiliates and UBS proprietary funds. Proprietary funds of funds Your Financial Advisor may offer to sell you a nonproprietary hedge fund that a UBS fund of funds has redeemed. There is no obligation that any of the UBS funds of funds (or any other client or affiliate of the firm) either invest in or hold any investment vehicle that your Financial Advisor may offer to you. In addition, there may be occasions when other UBS clients sell their interests in an alternative investment fund that you purchase or hold. Due diligence Alternative investment funds placed by UBS Financial Services Inc. are subject to both initial and ongoing due diligence. Our due diligence function consists of two principal components. The first component is due diligence carried out to identify new alternative investment fund investment opportunities for our clients. The process includes consideration of both subjective and objective criteria. The professionals on our due diligence team rely upon their industry knowledge, expert references, databases and their network of professional clients. The due diligence team also performs quantitative analysis where data is available. Finally, an operational due diligence analyst independently assesses the potential investment manager s internal controls. After this analysis is completed, the due diligence team reports to a UBS investment committee that determines whether to make the fund available to our clients. The second component of the due diligence process consists of monitoring. Once an investment fund is approved for inclusion on our platform, the due diligence team takes a risk-based approach to monitoring investments. The level of diligence performed may vary based on a number of factors; a fund subject to limited distribution is subject to an appropriate level of diligence that nevertheless may exclude elements common to more widely distributed funds, such as, for example, on-site visits. A fund closed to new investment may be subject to no ongoing diligence at all, and a fund that you have transferred from another broker-dealer may never have been subject to any diligence by UBS Financial Services Inc., although UBS Financial Services Inc. and your Financial Advisor may nevertheless receive ongoing payments from the managers of such transferred funds. Additionally, we may choose to outsource all or part of this due diligence process to a third-party service provider, including diligence for funds broadly available on our fund platform. If you have questions about the level of diligence performed with respect to any specific fund, please contact your Financial Advisor. Non-cash compensation In addition to the revenue sharing payments described previously, we and our Financial Advisors may, from time to time, receive non-cash compensation from mutual fund companies, ETFs, investment managers, insurance vendors and sponsors of products we distribute in the form of: Occasional gifts Occasional meals, tickets or other entertainment Sponsorship support of training events for our employees Various forms of marketing support 17