Conflict Disclosures for Retail Customers
Neuberger Berman BD LLC (“NBBD”) is registered with the Securities and Exchange Commission (“SEC”) as a broker-dealer and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). While NBBD is also registered with the SEC as an investment adviser, it does not currently act as an investment adviser. Rather, investment advisory services are provided by NBBD’s advisory affiliates (“NBBD Advisory Affiliates”), including Neuberger Berman Investment Advisers LLC (“NBIA”), which is registered with the SEC as an investment adviser. NBBD is directly owned by NBIA, which is an indirect subsidiary of Neuberger Berman Group LLC (“NBG”). NBG is a holding company, the subsidiaries of which (collectively referred to herein as the “Firm” or “Neuberger Berman”) provide a broad range of global investment solutions — equity, fixed income, multi-asset class and alternatives — to institutions and individuals through products including separately managed accounts, registered funds and private investment vehicles. As a global investment firm providing various brokerage, advisory and other services, the Firm engages in and will continue to engage in activities that conflict with the interests of its retail customers and their investments.
The SEC defines a conflict of interest as “an interest that might incline a broker, dealer, or a natural person who is an associated person of a broker or dealer—consciously or unconsciously—to make a recommendation that is not disinterested.” Conflicts of interest that arise include NBBD or its wealth advisors or portfolio managers, in their capacity as associated persons of NBBD (“NBBD Brokers”): (1) serving the interest of NBBD or the Firm over that of a retail customer; (2) NBBD and NBBD Brokers serving the interest of one customer or group of customers over those of other customers; or (3) NBBD Brokers serving their own interests over those of the Firm, NBBD or its retail customers.
The following is a summary of material facts related to conflicts of interest associated with recommendations that exist with respect to NBBD’s business and its retail customers. The Firm has adopted policies and procedures reasonably designed to comply with applicable law and reduce and manage many of the conflicts described below, but it cannot eliminate or mitigate all conflicts. Please see NBBD’s Form CRS at https://www.nb.com/form_CRS_nbia_nbbd/ and Regulation Best Interest Disclosure Statement at https://www.nb.com/reg_BI_disclosure_nbbd/, or contact your NBBD Broker for additional information regarding NBBD and its brokerage services, or your brokerage account.
In addition to the summary below, each retail customer should review carefully the retail customer’s brokerage agreement with NBBD. Where a retail customer invests in a mutual fund, an exchange-traded fund (“ETF”) or other pooled investment vehicle (each, a “Registered Fund”) registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”) or a privately offered pooled investment vehicle (including privately offered Registered Funds, each, a “Private Fund”), the retail customer should carefully review the fund’s summary prospectus, prospectus, statement of additional information, offering memorandum, private placement memorandum, or other offering document (the “Offering Documents”). The conflict disclosures provided below apply to retail customers.
If you are not a retail customer and would like additional information regarding the services provided to you by NBBD, please contact your NBBD Broker.
Compensation of NBBD and NBBD Brokers
In general, most NBBD Brokers are compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to the customers they cover. In some cases, an NBBD Broker’s compensation is based directly on the revenue that the NBBD Broker generates. However, in most cases, NBBD Brokers are eligible to participate in a compensation pool made available to the NBBD Broker’s team, the amount of which is determined based on a number of factors including the revenue that is generated by that team. The percentage of revenue received by an NBBD Broker or the NBBD Broker’s team varies across products and strategies. With respect to Private Funds managed by NBBD Advisory Affiliates (“NB Private Funds”), NBBD Brokers are generally compensated based on a percentage of their customers’ committed capital. For Plan1 customers, NBBD has established additional limitations on the compensation of NBBD Brokers with respect to the revenue generated by customers consistent with its fiduciary duties and certain exemptions on which it may rely. Some NBBD Brokers receive a fixed amount rather than commissions and are also eligible for special payouts upon hitting certain targets (e.g., new business, assets under management (“AUM”)).
Because NBBD and NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to its retail customers, this creates an incentive for NBBD and NBBD Brokers to increase the amount of assets invested with NBBD and NBBD Advisory Affiliates. In addition, in certain cases, NBBD Brokers receive a fixed amount and are eligible for special payouts upon hitting certain targets, which creates an incentive for NBBD Brokers to take actions to hit those targets. To increase the amount of assets invested with NBBD and NBBD Advisory Affiliates (whether to increase revenue (and therefore compensation) or to hit AUM or new business targets), NBBD and NBBD Brokers have an incentive to promote or recommend that retail customers or prospective retail customers invest more of their money with NBBD Advisory Affiliates, including by transferring assets from other managers to NBBD and NBBD Advisory Affiliates for NBBD Advisory Affiliates to manage and rolling over the assets from a customer’s workplace retirement plan (e.g., a 401K plan) to an IRA managed by NBBD Advisory Affiliates.
Similarly, on a limited basis, NBBD and NBBD Brokers have an incentive to promote or recommend trading on margin and investing in overlay strategies. Both of those actions would increase the assets managed by NBBD Advisory Affiliates and, accordingly, the revenue generated from the retail customer, but meanwhile, increase the amount of money that the customer stands to lose.
Types of Accounts
Generally, other than buy and sell transactions related to Private Funds and other customer-directed transactions, brokerage accounts are available only to employees and to retail advisory clients of NBIA on an accommodation basis. Generally, retail customers of NBBD that invest in a separately managed account managed by an NBBD Advisory Affiliate (“NB SMA”) or through the NB Private Wealth Management Advisory Program (“PWM Advisory Program”) or NBIA’s Guided Portfolio Solutions Program (“GPS Program”) will open one or more advisory accounts with NBIA2. The revenue generated by NBIA from the advisory accounts of retail customers covered by an NBBD Broker is included in determining the compensation to that NBBD Broker.
Because NBBD and NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to its retail customers, this creates an incentive for NBBD and NBBD Brokers to promote or recommend advisory accounts over brokerage accounts, or to recommend moving monies out of brokerage accounts to advisory accounts, because that promotion or recommendation will generally increase their respective compensation (as fees for advisory accounts are generally higher than fees for brokerage accounts).
Recommendations Relating to Equity Investment Goals (“EIGs”) / Risk Profiles
Most separately managed accounts managed by NBBD Advisory Affiliates (“NB SMAs”) are on a “balanced” fee schedule where the annual investment advisory fee is higher for equity securities (and all other assets, including cash, not held for permanent investment in fixed income securities) than fixed income securities (and all other assets, including cash, of the account being held for permanent investment in fixed income securities). For each NB SMA that is on a “balanced” fee schedule, the retail customer will select an EIG that represents the NB SMA’s target allocation to equity. Plan customers will be charged an investment advisory fee based on their EIG rather than their actual allocation. Non-Plan customers will be charged an investment advisory fee based on their actual allocation but where there is cash in the account, to the extent the actual allocation to equities is less than the EIG, cash will be treated as equity for fee calculation purposes.
Similarly, Plan retail customers that invest through the PWM Advisory Program are subject to a single tiered retirement fee that does not vary based on the underlying investment strategies and is based on the risk profile selected by the customer (i.e., lower fees for more conservative profiles and higher fees for more aggressive profiles).
Non-Plan customers and Plan customers that are on a “balanced” fee schedule are charged higher advisory fees if they have a higher EIG, as the equity rate is higher than the fixed income rate. Similarly, Plan customers that invest through the PWM Advisory Program will pay higher fees for more aggressive risk profiles. Because NBBD and NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates from retail customers, this creates an incentive for NBBD and NBBD Brokers to recommend a higher EIG for Plan and non-Plan retail customers on a “balanced fee” schedule and a more aggressive risk profile for Plan retail customers that invest through the PWM Advisory Program.
Unless otherwise agreed with the Plan customer, accounts are generally billed quarterly in advance; however, fees are typically not adjusted to reflect changes in risk profiles or EIGs for Plan customers within the relevant quarter.
Because NBBD and most NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to its retail customers, this creates an incentive for NBBD and NBBD Brokers to recommend that a Plan customer change their risk profiles at times that will maximize the fees paid by the retail customers.
Brokerage Framework/NBBD’s Trust Co Affiliate
Certain existing retail customers have invested through an existing framework (“Brokerage Framework” and such customers “Existing Brokerage Framework Customers”) where NBBD and NBBD Brokers make asset allocation recommendations among mutual funds or ETFs managed by NBBD Advisory Affiliates (“NB Mutual Fund” or “NB ETFs,” respectively)), NB SMAs and NB Private Funds. With respect to Plan customers that have invested through the Brokerage Framework, NBBD Brokers will be compensated based on a fixed allocation that will generally not vary regardless of the Plan customers’ actual allocations. The Brokerage Framework is no longer offered to new customers.
In addition, on a limited basis, certain NBBD Brokers may provide recommendations to its customers for which NBBD’s trust company affiliate (“NB Trust Co”) provides investment services (“NB Trust Co Customers”) including asset allocation recommendations primarily as among proprietary strategies (i.e., NB SMAs, NB Mutual Funds, NB ETFs, and NB Private Funds), with third-party strategies (separately managed accounts (“Third-Party SMAs”), mutual funds (“Third-Party Mutual Funds”), ETFs (“Third-Party ETFs”), and third-party Private Funds) available on a limited and complementary basis. Third-party strategies are limited to those approved by the third-party separate account program provider (“Third-Party SMA Provider”) and deemed complementary by Neuberger Berman Investment Strategy Group’s (“ISG”) (complementary strategies are generally defined as strategies where there are meaningful differences in style (e.g., growth, value), investment vehicle (e.g., separately managed account, mutual fund, ETF), investment approach (e.g., active, passive, systematic/quantitative, a fully integrated or focused ESG/SRI process), or underlying securities/exposures (e.g., ADRs, currencies, region) from those strategies offered directly by NBBD Advisory Affiliates).
While the conflict is mitigated for Plan customers that have invested through the Brokerage Framework, because NBBD and NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to its retail customers, this creates an incentive for NBBD and NBBD Brokers to recommend strategies and products that generate more revenue for NBBD and NBBD Advisory Affiliates, including strategies and products that have higher fees (e.g., in most cases, NBBD Brokers have an incentive to recommend SMAs over Registered Funds, mutual funds over ETFs, and equity strategies over fixed income strategies), and proprietary strategies. In addition, NBBD Brokers have an incentive to recommend that retail customers invest in the strategies and products on which they are paid a higher percentage of revenue in order to increase their compensation.
To the extent an NBBD Advisory Affiliate wishes to seed or otherwise increase the AUM of any particular NB Mutual Funds or NB ETFs, the NBBD Advisory Affiliate has an incentive to encourage NBBD and NBBD Brokers to recommend those NB Mutual Funds or ETFs.
For NB Trust Co Customers, because the third-party strategies recommended by NBBD are limited to those that are complementary to proprietary strategies, certain third-party strategies will not be recommended because of their similarities to a proprietary strategy, including third-party strategies that have better performance records or lower fees than the corresponding proprietary strategy.
NBBD Advisory Affiliates charge performance fees with respect to certain proprietary products that NBBD and NBBD Brokers recommend to its retail customers, including NB Private Funds and, as agreed with the retail customer, certain NB SMAs. In addition, NBBD Advisory Affiliates charge performance fees in connection with certain other proprietary products (e.g., NB Private Funds, Registered Funds managed by NBBD Advisory Affiliates, sub-advised funds). NBBD Advisory Affiliates also charge performance fees in connection with certain private investments in public equity, or other private placements or restricted securities (“Private Investments”) in which retail customers are invested (directly or through an NB Private Fund). Performance fee arrangements generally create an incentive for NBBD Advisory Affiliates to make investments that are riskier or more speculative, or otherwise make decisions or recommendations that will maximize the compensation to the relevant NBBD Advisory Affiliate. Generally, in determining the compensation to NBBD Brokers, the performance fee revenue for most NB SMAs that charge a performance fee is included but the performance fee revenue for Private Investments, Private Funds and other products is excluded.
NBBD Advisory Affiliates generally have an incentive to encourage NBBD and NBBD Brokers to recommend accounts, strategies or products that charge a performance fee because those accounts, strategies and products have the potential to generate greater revenue for the NBBD Advisory Affiliate.
With respect to Existing Brokerage Framework Customers and NB Trust Co Customers, NBBD and NBBD Brokers have an incentive to recommend NB SMAs that charge a performance fee as those have the potential to increase their compensation.
Revenue Share / Referral Arrangements
From time to time, NBBD and NBBD Advisory Affiliates, or certain NBBD Brokers, participate in revenue-sharing arrangements with respect to certain strategies and products. Generally, the revenue and resulting compensation received by NBIA and NBIA Advisers with respect to third-party strategies and products will be less than the revenue compensation received by NBIA and NBIA Advisers for similar proprietary strategies and products.
Revenue-sharing arrangements create an incentive for NBBD and NBBD Advisory Affiliates (or NBBD Brokers, as applicable) to allocate client assets to the those strategies and products for which NBBD and NBBD Advisory Affiliates (or NBBD Brokers) have a revenue-sharing arrangement over other strategies and products.
With respect to revenue-sharing arrangements for third-party strategies and products, because the revenue and resulting compensation received by NBBD and NBBD Brokers with respect to those third-party strategies and products will generally be less than the revenue compensation received by NBBD and NBBD Brokers for similar proprietary strategies and products, this creates an incentive for NBBD and NBBD Brokers to recommend proprietary strategies despite those third-party products and strategies being available for their recommendation.
In addition, from time to time, NBBD Brokers are anchor investors in NB Private Funds and receive a portion of the revenue generated by the NB Private Fund.
Where NBBD Brokers are anchor investors in NB Private Funds and receive a portion of the revenue generated thereby, this creates an incentive for NBBD Brokers to recommend the relevant NB Private Fund in order to increase the revenues generated by the NB Private Fund.
NBBD and NBBD Advisory Affiliates may compensate certain of its employees, including non-brokerage and non-advisory employees, and certain third-parties for referring clients to the Firm.
Employees of NBBD and NBBD Advisory Affiliates and third parties that receive compensation for referring clients to the Firm will have an incentive to refer clients to the Firm.
Commissions for Customer-Directed Transactions
Purchases and sales of customer-directed transactions generate commissions to NBBD.
NBBD and NBBD Brokers have an incentive to encourage customer-directed transactions in order to generate more revenue for NBBD (and more compensation for NBBD Brokers).
From time to time, NBBD and NBBD Brokers recommend that customers invest in Private Funds, including NB Private Funds. Private Funds are often speculative and can involve a higher degree of risk than more traditional investments. See also “Revenue Share / Referral Arrangements”.
NBBD Advisory Affiliates have an incentive to encourage NBBD and NBBD Brokers to recommend Private Funds and other illiquid or less liquid investments because to the extent the retail customer is restricted in, or prohibited from, redeeming, transferring or otherwise divesting from their interest in a Private Fund, NBBD Advisory Affiliates could continue to receive advisory fees so long as the asset is held in the retail customer’s account.
The NB Private Funds are generally organized or “sponsored” by an NBBD Advisory Affiliate, and an NBBD Advisory Affiliate will typically act as the managing member or general partner of the NB Private Funds. For certain NB Private Funds, affiliates of the Firm also serve as officers, directors or other persons authorized to facilitate the operation of the NB Private Funds.
To the extent an NBBD Advisory Affiliate wishes to seed or otherwise increase the AUM of any particular NB Private Funds, the NBBD Advisory Affiliate has an incentive to encourage NBBD and NBBD Brokers to recommend those NB Private Funds.
Based upon particular facts and circumstances and, as permitted by applicable law, NBBD or NBBD Advisory Affiliates as a courtesy will, in their sole discretion, permit “family billing” arrangements, where the account values of two or more connected retail customer accounts are combined for the purpose of reducing the overall fees paid by the account (generally as a result of breakpoints in fee schedules). Family billing arrangements are non-contractual and NBBD or NBBD Advisory Affiliates are permitted to terminate family billing arrangements at any time.
Because “family billing” would result in the customer paying lower fees to NBBD and NBBD Advisory Affiliates (and less compensation to NBBD Brokers) and NBBD and NBBD Brokers are generally compensated based on the revenues generated by NBBD and NBBD Advisory Affiliates with respect to its retail customers, this creates an incentive for NBBD and NBBD Brokers to limit “family billing” arrangements or to combine accounts in a manner that limits the reductions of fees.
NBBD and NBBD Advisory Affiliates provide brokerage, advisory and other services to many customers/clients.
In providing various services to customers/clients, NBBD (and NBBD Brokers) and NBBD Advisory Affiliates (and their supervised persons (“NB Advisers”)) face conflicts of interest with respect to activities performed for, or opportunities recommended or provided to, certain customers/clients, on the one hand, and their other customers/clients on the other hand. For example, NBBD and NBBD Brokers generally have an incentive to dedicate more time and resources to certain customers such as customers that pay higher fees, larger institutional customers, or customers from whom they are seeking additional business (collectively, “Favored Customers”). For example, when recommending investment opportunities, especially those that are limited, NBBD and NBBD Brokers have an incentive to favor certain customers or groups of customers (e.g., Favored Customers).
NBBD and NBBD Brokers have an incentive to use their knowledge of trading for customer accounts to generate greater profits from trading in accounts for certain customers or groups of customers (e.g., Favored Customers).
It is possible that, from time to time, the strategy or product recommended to, or invested in on behalf of, one retail customer/client could create or involve conflicts with strategies or products recommended to another retail customer/client.
From time to time, NB Mutual Funds participate in the same Private Investments in which retail customers are invested (directly or through an NB Private Fund). The prohibition on “joint” transactions provided in the Investment Company Act may limit the ability of NBBD and NBBD Advisory Affiliates to negotiate the terms of the Private Investment on behalf of the retail customers (or the relevant NB Private Fund).
Where a retail customer invests in a Private Investment alongside NB Mutual Funds (whether directly or through an NB Private Fund), if NBIA is not able to negotiate the terms of the Private Investment because of the NB Mutual Funds’ participation therein, it is possible that the retail customers (or the relevant NB Private Fund) will receive terms that are less favorable than if the NB Mutual Funds did not participate and NBIA was able to negotiate the terms of the Private Investment on behalf of the retail customers (or the NB Private Fund).
Material Non-Public Information
From time to time, the Firm and its financial professionals (including NBBD and NBBD Brokers) can acquire material non-public information (“MNPI”). Where it acquires MNPI, in accordance with the Firm’s procedures and applicable law, NBBD and NBBD Brokers are prohibited from making recommendations or otherwise using the MNPI until such time as the information is no longer deemed to be non-public or material. The Firm will further determine whether to share any MNPI between different businesses within the Firm or with certain customers/clients of the Firm. Alternatively, it is possible that the Firm and its financial professionals (including NBBD and NBBD Brokers) will, at times, decline to receive MNPI or take actions to avoid obtaining MNPI (e.g., NBBD or an NBBD Advisory Affiliate could decide not to join a creditor’s committee), which could lead to lost investment opportunities.
If the Firm or its financial professionals (including NBBD and NBBD Brokers)) acquire MNPI (whether intentionally or unintentionally), that would restrict the ability of NBBD and NBBD Brokers from making a recommendation based on or otherwise using the MNPI, even on behalf of retail customers. In those cases when the Firm declines access to (or otherwise does not receive or share within the Firm) MNPI regarding an issuer, NBBD and NBBD Brokers could potentially base their recommendations, if any, with respect to assets of that issuer solely on public information, thereby limiting the amount of information available to NBBD and NBBD Brokers in connection with such recommendations. Additionally, when the Firm declines to receive or share MNPI, retail customers could miss the opportunity to make certain investments, such as SPAC PIPEs, that require potential investors to be “brought over the wall” and accept MNPI prior to making the investment.
When considering whether to acquire MNPI, the Firm will attempt to balance the interests of all customers/clients, taking into consideration relevant factors, including the extent of the prohibition on trading that would occur, the size of the Firm’s existing position in the issuer, if any, and the value of the information as it relates to the investment decision-making process. Because the interests of its customers/clients could differ, the Firm will be conflicted in making its determination.
Environmental, Social and Governance (“ESG”) Standing
NBBD and NBBD Advisory Affiliates often reference their integration of ESG factors in their marketing materials, including certain scores they have been awarded for their overarching approach(es) to ESG strategy and governance and integration across asset classes. In addition, under the terms of one of the Firm’s credit agreements, the Firm has an incentive to maintain or improve certain of its ESG ratings.
NBBD and NBBD Advisory Affiliates have an incentive to encourage NBBD Brokers to recommend that retail customers invest assets based on ESG factors in order to maintain the Firm’s ESG scores or improve the Firm’s ESG standing so that the Firm can continue referencing those scores in marketing materials in an effort to attract new customers/clients or additional assets from existing customers/clients, and maintain or improve those scores to retain the interest rate under one of the Firm’s credit agreements. The use of ESG factors is not always consistent with maximizing the performance of retail customer accounts.
From time to time, NBBD and NBBD Advisory Affiliates provide additional services to retail customers for which they do not receive additional compensation. For example, from time to time, NBBD provides wealth planning analyses to certain eligible retail customers and the Neuberger Berman Foundation provides philanthropic consulting services to certain retail customers. Those services and any related discussions are intended solely for information and discussion purposes, do not constitute investment advice, are not part of any investment advisory or fiduciary services offered by any NBBD Advisory Affiliate, and are not intended to serve as a primary basis for any decision or as a recommendation with respect to any investment, financial, insurance, trust and estate or tax planning determination. None of NBBD nor any NBBD Advisory Affiliate provides any ongoing or periodic review, follow-up or monitoring with respect to those services.
In addition, NBBD or an NBBD Advisory Affiliate may introduce retail customers to one or more private banks with which it has a partnership that can provide lending solutions to the retail customer. None of NBBD nor any NBBD Advisory Affiliate recommends or endorses any of those private banks or the services they may provide. None of NBBD nor any NBBD Advisory Affiliate receives direct compensation in connection with any such lending services, but it is possible that they will receive other benefits.
NBBD has an incentive to provide, and to partner with third parties that provide, additional services to retail customers in order to maintain and build relationships with NBBD’s retail customers. In addition, NBBD has an incentive to partner with third parties in order to build those relationships for NBBD’s own gain (e.g., to potentially obtain customer referrals). Non-affiliate and non-partner providers may be able to provide retail customers with better services, or with respect to lending solutions, better lending terms.
NBBD and NBBD Brokers will often invest for their own account in equity, fixed income, derivatives or other investments that (i) NBBD and NBBD Brokers recommend to retail customers or (ii) are invested in by NB SMAs recommended by NBBD and NBBD Brokers to Existing Brokerage Framework Customers and NB Trust Co Customers.
NBBD and NBBD Brokers have an incentive to use their knowledge of trading in customer accounts to generate greater profits or avoid losses from trading in their personal accounts.
NBBD and NBBD Brokers who have access to customer trading information have an incentive to execute a trade in the opposite direction from a customer after a trade is executed on the customer’s behalf in order to receive a better price on a buy or sell.
From time to time, it is possible that, where there are limited investment opportunities, NBBD and NBBD Brokers will invest in the opportunity for their own account rather than recommending the opportunity to retail customers.
NBBD and NBBD Brokers have an incentive to take more potentially profitable investment opportunities for themselves rather than recommending the opportunity to retail customers.
Outside Business Activities
In most cases, the Firm requires its employees, including NBBD Brokers, to disclose outside activities and affiliations to the Firm in writing so that responsible personnel are able to assess the compatibility of the outside affiliation or activity with their role at the Firm. “Outside affiliations” include relationships in which a Firm employee serves as an employee, director, officer, partner or trustee of a public or private organization or company other than the Firm (paid or unpaid), including joint ventures, portfolio investment companies, or non-profit, charitable, civic or educational organizations. In some cases, those relationships are related to employment with the Firm. Additionally, Firm employees are generally prohibited from (i) being employed by another company or engaging in other activities that could interfere or conflict with their service at the Firm, (ii) being employed by, or serving on a board or in an advisory position with, any public company or with other firms in the financial services industry, or (iii) entering into independent non-Firm related business relationships with customers/clients, vendors, or co-workers. Exceptions to these prohibitions can be made in writing on a case-by-case basis by the Legal and Compliance Department. Certain Firm employees serve, under certain limited circumstances, as an executor, trustee, guardian or conservator, with prior approval from the Legal and Compliance Department. Brokerage accounts under control of the employee as a result of their service as an executor, trustee, guardian or conservator must be disclosed in accordance with the Firm’s Code of Ethics. The Firm generally permits employees to engage in philanthropic, charitable or other similar pursuits, subject to certain limitations and with prior approval from the Legal and Compliance Department.
Firm employees, including NBBD Brokers, who spend some portion of their time on non-Firm matters have less time to allocate to managing the retail customer accounts.
It is possible that, from time to time, the interests of an outside activity could conflict with the Firm, its customers/clients or their investments.
While the Firm does not make political contributions, Firm employees, including NBBD Brokers, are permitted, in compliance with the Firm’s policy and procedures and applicable law, to make political contributions (including in-kind contributions) to government officials and political party committees. Some government officials have influence in awarding government or public pension investment advisory business (i.e., “pay-to-play” practices) or in other actions.
The Firm’s employees, including NBBD Brokers, have an incentive to make contributions to certain government officials and party committees in order to obtain government or public pension investment advisory business or influence other government actions.
Gifts and Entertainment
The Firm allows its employees, including NBBD Brokers, to provide limited business gifts and entertainment to personnel/representatives of customers/clients or prospective customers/clients, subject to the Firm’s policies and procedures.
While the Firm prohibits its employees, including NBBD Brokers, from providing business gifts or entertainment that is excessive, inappropriate or intended to cause any person to act against the best interests of their employer, the customer/client they represent or those to whom they owe a fiduciary duty, the Firm and its employees, including NBBD Brokers, have an incentive to provide such gifts and entertainment in order to obtain advisory business or influence the decisions of the recipient.
The Firm allows its employees, including NBBD Brokers, to accept limited business gifts and entertainment from customers/clients, prospective customers/clients, employees or agents of customers/clients, outside vendors, suppliers, consultants, and other persons or entities with whom the Firm does business, subject to the Firm’s policies and procedures.
While none of the Firm’s employees, including NBBD Brokers, are permitted to accept any gift or entertainment of a significant value or that impairs, or appears to impair, employee ethics, loyalty to the Firm, or ability to exercise sound judgment, the receipt of gifts or entertainment (or the possibility or expectation of any gift or entertainment) could affect the judgment of the Firm’s employees, including NBBD Brokers, when making decisions, including when selecting vendors or other service providers.
From time to time, NBBD are involved in “agency cross-transactions,” where NBBD acts as broker for a retail client of an NBBD Advisory Affiliate and for another person on the other side of the transaction. Subject to applicable rules and regulations, if NBBD causes a customer to engage in agency cross transactions, NBBD would disclose the transaction to the customer and obtain the customer’s consent.
The parties to an agency cross-transaction have conflicting interests and NBBD has an incentive to favor certain customer or certain groups of customers (e.g., Favored Customers).
NBBD could receive fees, commissions or otherwise be compensated for the trades (i.e., from both parties).
NBBD has adopted policies and procedures for correcting trade errors. Trade errors can result from a variety of situations (e.g., miscommunication of information, such as wrong number of shares, wrong price, wrong account, calling the transaction a buy rather than a sell and vice versa). NBBD’s policies and procedures require that all errors affecting a customer account be resolved promptly and fairly upon discovery. Under certain circumstances, the policy provides that trades can, where appropriate, be cancelled or modified prior to settlement. The intent of the policy is, where the customer is in a worse financial position as a result of the error, to restore a customer account to the appropriate financial position considering all relevant circumstances surrounding the error.
In situations where correcting a trade error would result in NBBD bearing financial losses, NBBD has an incentive to ignore or understate the trade error.
NBBD utilizes various third-party service providers and vendors in connection with the provision of its brokerage services.
When hiring third party vendors to service customer accounts, NBBD has an incentive to choose vendors at the lowest possible cost to NBBD or vendors that provide other financial incentives (e.g., potentially referring customers/clients to NBBD or NBBD Advisory Affiliates).
Generally, NBBD utilizes an internal centralized trading desk to execute transactions with third-party brokers for retail customers. With respect to retail customer accounts for which NBBD has discretion to select the broker-dealer, NBBD looks to the overall quality of service provided by the broker and will consider many factors when making a selection for execution. It is NBBD’s policy to seek the best execution of customer trades considering all the relevant circumstances. In addition, NBBD can consider research and other services in making brokerage decisions. NBBD will also utilize alternative trading systems when NBBD believes the alternative trading systems can provide liquidity and price improvement over and above what is available through traditional methods for execution.
NBBD has an incentive to select brokers for execution taking into account its own financial or other interests and the interests of NBBD Advisory Affiliates (e.g., receiving referrals of customers/clients or increased allocations to NBBD Advisory Affiliates in initial public offerings).
Several of NBBD affiliates, including NBIA, are registered investment advisers. Most NBBD Brokers are also supervised persons of NBIA. NBIA and NBIA’s supervised persons, in their separate capacities as investment advisers, provide advisory services to customers for which they receive separate and customary compensation. In addition, NBBD Brokers are generally compensated based on the revenues generated by the customers they cover and most of that revenue is generated by NBBD Advisory Affiliates, including NBIA, for their advisory services.
Most NBBD Brokers are dually licensed and certain conflicts exist with respect to their advisory activities as supervised persons of NBIA. Please refer to NBIA’s Form ADV, Part 2A brochure at http://www.nb.com/adv_part_2A_nbia/ and Conflict Disclosure at http://www.nb.com/conflicts_disclosure_nbia/ for additional conflicts that relate to the advisory services and activities of NBIA and its supervised persons. Each retail customer for whom NBIA provides advisory services should also carefully review the retail customer’s advisory agreement with NBIA.