Orders for the following alternative investment products must be placed through the Alternative Investment Order Entry (AIOE) system. AIOE training materials can be accessed via the LPL Resource Center under alternative investments.

These products include:

Non-traded real estate investment trusts (REITS)
Non-traded business development companies (BDCs)
Non-traded closed-end/interval funds

ORDER PROCESSING

• Access account in ClientWorks and select buy alternative investment.
• Complete the application including the suitability write-up and submit for review
  Note – do not print it out at this point.
• When you lock the case, the application is automatically moved to ISQ for review. If approved, the order will be forwarded to home office for approval. If changes are needed, the order will be sent back via the AIOE system for rework.
• Check on the application daily in case there are any problems with the application that may need attention.
• Once the order shows pre-approval complete you may: Print the applications, obtain wet signature from client, and submit all signed forms to LPL.

Note that in order to purchase the fund, you must have completed the appropriate product training.
If you have not completed the training, the fund will not show up as an option when you navigate to purchase it in ClientWorks – this is because you are not approved.

To complete the training, log into the Learning Center and take the required course.
The training will take 20-30 minutes. After the training is complete, it may take up to 48 hours for the approval to flow through to your ClientWorks system allowing you to find the fund in the system.

All other alternative investments, such as private equity or hedged funds, must be ordered via paper applications (AI2 or AI8). Before sending the applications to the client for signature please send them to ISQ for pre-review and approval. The forms should be sent to documents@indsquare.com.  Once the signed forms are received to the client forward them to ISQ for OSJ signature.

Currently, most fixed annuities are not available for ordering via the AOE system. These transactions are ordered using the sponsor application and other supporting forms based upon the source of funds. LPL does require a Fixed Annuity Suitability Profile form (F487 or F439-FA) to be completed for each transaction. All sponsor forms and the F487 or F439-FA should be fully and accurately completed, signed & dated by the client and advisor and uploaded into account documents in Clientworks.

While these transactions are not supervisory reviewed and approved pre-sale, they will be reviewed post-sale and must be suitable for the client. Any purchase using a surrender of an annuity product as the source of funds should include a financial summary of the proposed product versus the surrendering product and a clear financial gain for the client. Any liquidation of an annuity within the first two years of its purchase or with a CDSC of over 2% is a violation of LPL policy.

After the purchase is complete the Branch Trade Report (BTR) must be entered for each purchase and either the sponsor carrier’s delivery receipt or LPL’s F146 Insurance/Annuity Receipt obtained and uploaded into account documents in Clientworks.

All initial purchases, subsequent deposits resulting from replacements, and all subsequent deposits greater than $25,000 for fixed indexed annuities are required to be submitted for suitability and approval via the A.O.E. system. The orders need to be in “fully approved” or “transmitted” status before any paperwork can be mailed to the carrier. Any purchase using a surrender of an annuity product as the source of funds should include a financial summary of the proposed product versus the surrendering product and a clear financial gain for the client. Any liquidation of an annuity within the first two years of its purchase or with a CDSC of over 2% is a violation of LPL policy.

FIA purchases processed through the A.O.E. system require the following documents to be obtained and imaged in Clientworks account documents:

• All F439 forms generated by the A.O.E. system. Please be sure that all fields are fully & accurately completed and all signatures are dated.
• Copy of the carrier application. This form needs to be uploaded into account documents in Clientworks.
• Copy of the policy delivery receipt should be imaged in Clientworks account documents once the policy has been delivered to the client. The carrier’s version or LPL’s F146 Insurance/Annuity Receipt are acceptable.

FIA purchases processed through the A.O.E. exception approval process require the following items:

• Copy of the AOE Manual Review Approval received from an LPL Analyst should be imaged in Clientworks account documents.
• Copies of all F439 forms provided by the AOE Manual Review Process Mailbox should be imaged in Clientworks account documents. Please be sure that all fields are fully & accurately completed and all signatures are dated.
• Copy of the carrier application should be imaged in Clientworks account documents.
• Copy of the policy delivery receipt should be imaged in Clientworks account documents once the policy has been delivered to the client. The carrier’s version or LPL’s F146 Insurance/Annuity Receipt are acceptable.
• A Branch Trade Report (BTR) must be entered.

An Investment Product Switch is defined as liquidating one investment product sold by prospectus (Mutual Fund, Annuity, UIT, Alternative Investment, Structured Product, 529 Plan) and purchasing another company’s investment product also sold by prospectus.

Trades that will be flagged for advisor review and completion via the OSJ Review Tool (ORT) in ClientWorks include: transactions executed in LPL brokerage accounts, or involving investments held directly at fund company/carrier, where LPL Financial is the broker-dealer of record on the investment being liquidated, and the product being purchased is a Mutual Fund, Structured Product, UIT or 529 Plan.

Please refer to the ClientWorks Investment Product Switch How To Guide – Advisor for instructions on how to navigate this tool.

A flagged Investment Product Switch Task indicates that within the client household a switch transaction may have taken place. A household is defined as all accounts owned by the same SSN, Last Name, Address and/or immediate family/dependents (401k accounts and Systematic Trades are excluded). Advisors need to review the trades and provide answers to the questions asked as well as appropriate justification to support their rationale. If appropriate, any trade that is determined not to be part of an investment product switch should be removed and specific reason why need to be provided.

If the investment being liquidated is held through another broker-dealer, Form F27 will need to be completed. As best practice, please email this form to documents@indsquare.com for OSJ’s pre-review prior to obtaining client’s signatures.

Whether completing the Investment Product Switch Task in ORT or the F27 form advisors are encouraged to follow these guidelines for providing rationales:

Advisors are required to act in the best interest and net financial benefit of the client. LPL discourages switches unless the customer will clearly benefit by purchasing a different fund or investment.

Advisors should think about the substantiation in terms of not what happened, but a description of why it happened. Why specifically is the investment being sold no longer beneficial to the client, when it matched their needs when it was suggested for them originally? What has changed in the client’s life to make the old investment no longer beneficial? (Investment Objective, Risk Tolerance, Liquidity Needs, Retirement, etc.)
If the trades involve a senior investor (70 or older), please be sure to include background regarding the client’s current physical and mental well-being. Did you or the client include any other persons (adult children or relatives, other professional legal, tax, etc.) in conversations relating to this transaction? Please also comment on the history of your relationship with the client.

Generic and cookie-cutter responses are insufficient – rationale for investments must be unique and client specific. Using the same rationale for clients of different ages, financial backgrounds, investment objectives, risk tolerance and other investment profile factors will be questioned. The same rationale or investment philosophy for all clients will be a red flag; there should be no blanket statements.

Be cautious of using the term “flexibility.”  This is a big review point for FINRA.  They will pull notes and look for advisors that use this as a rationale. If the client is young with a long-term investment time horizon and buy-and-hold investment strategy, then they should be looking at A shares and the ability to achieve breakpoints and lower ongoing expenses. Flexibility as a rationale is not sufficient. The specific reason why this particular client needs the flexibility must be included in the rationale.

Mutual Funds – prior to recommending a switch, advisors should always consider the possibility of an exchange within the same fund family. Please explain why nothing within the existing fund family matched the client’s current situation. How was the new fund arrived at? How does it match up with your client’s investment needs? Did you guide them to this fund? Why? Did you discuss with your client the holding period for the new investment and any CDSC charges that may occur? How does the share class selected, fit with the client’s investment time horizon?

UIT’s – UITs employ a Buy and Hold strategy and are not intended for short term trading. When considering switching to another investment prior to maturity, several factors need to be taken into consideration. These may include but are not limited to – does the client need a more liquid investment vehicle and why? What is the impact to the client’s overall return on investment when potential back end fees and/or loss of roller over discounts are taken into consideration?

Annuities – Annuities are considered long-term retirement vehicles. When surrendering an annuity to purchase a Mutual Fund, UIT or Structured product, detailed rationale why the annuity was no longer a good fit for the client must be provided and should in the very least cover the following:

Were you the selling agent and if so what has changed in the client’s financial needs that caused you to reevaluate your original recommendation.

If the client gave up a living benefit or enhanced death benefit why were those no longer needed?

Did the client incur any CDSC charges and if so how much and when would those charges drop to 0?.

Structured Products – Structured Products are generally offered as a “buy and hold” strategy. Rationale notes need to address the client’s liquidity needs and how those will be met. How do the features of the product meet the client’s financial needs and objectives? Does the client fully understand the best and worst-case scenarios?

529 Plans – when switching from one 529 plan to another, advisors should provide specific details about how the new plan will better help the client meet their educational savings need. If the client is purchasing an out of state plan, and the client’s state of residence offers tax benefits, how does the out of state plan offer greater incentives than the tax benefits? Were sales charge discounts (breakpoints, ROA, LOI) available and considered? If no, why not?

Solicitation – when marking trades as unsolicited, advisors must provide a statement that they did not provide any guidance, suggested comments nor opinions that would assist the client in making an investment decision. Providing clients with a list of offerings from which to choose from is construed as solicitation.

Performance – if performance is cited as the reason for switching advisors will be required to provide 1, 3 & 5 yr. performance history numbers. Additionally, performance alone is an insufficient reason for a change of investments. Interfamily exchanges must be considered and noted in a rationale.

LPL’s Complex Product Supervision (CPS) handles the review and supervision of all VA purchases and subsequent deposits in order to effectively address sales practices, given the current and forthcoming regulatory focus with annuity business. This supervisory change allows LPL to consistently apply the heightened VA supervisory requirements set forth by regulators and LPL Financial.

VA SUPERVISION CENTRALIZATION BENEFITS

• Improves consistency of transaction reviews and allows for a more efficient purchase process for advisors and their clients.
• Provides a cost and time savings to OSJ Branch Managers, who will no longer be required to review each individual VA purchase.
• Creates a Cooperative approach to resolving issues by communicating any concerns that arise from LPL’s review of annuity business directly to the OSJ Branch Manager.
  For assistance with entering VA transactions on the AOE system please contact LPL’s Annuity Operations.