Regulation Best Interest Disclosure Statement
This Regulation Best Interest (“Reg BI”) Disclosure Statement (“Reg BI Statement”) provides information about Neuberger Berman BD LLC (“NBBD,” “us,” “our,” or “we”). If you have any questions about the contents of this Reg BI Statement, please contact us at 212.476.9000 or email us at: NBBD.DisclosureInfo@NB.com. This Reg BI Statement is applicable to retail customers for whom we are acting as broker. 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 (as defined below).
General Information regarding NBBD
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 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 also 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.
NBBD’s brokerage services, provided by both the Firm’s wealth advisors and portfolio managers in their capacity as associated persons of NBBD (“NBBD Brokers”), include buying and selling securities for retail customers on a customer-directed basis, making recommendations with respect to privately offered pooled investment vehicles managed by NBBD Advisory Affiliates (including privately offered pooled investment vehicles registered under the Investment Company Act of 1940, as amended, “NB Private Funds”) and wealth planning services. Certain portfolio managers, as NBBD Brokers, recommend, on a limited and complementary basis, select third-party privately offered pooled investment vehicles (collectively with NB Private Funds, “Private Funds”). From time to time, NBBD may also make recommendations to certain NBIA clients with respect to their equity investment goals or risk profiles. For most retail advisory clients of NBIA and for employees of NBBD and its affiliates, NBBD generally acts as broker in connection with the purchase and sale of securities and introduces those customers’ transactions and accounts to its clearing broker for clearance and settlement.
In addition, from time to time, NBBD provides various other recommendations to retail customers, including (i) the programs offered by NBBD Advisory Affiliates through which the retail customer will invest (e.g., the NB Private Wealth Management Advisory Program (“PWM Advisory Program”) (where NBIA, on a discretionary or non-discretionary basis, allocates the retail customers’ assets among proprietary strategies and select non-proprietary strategies available through the PWM Advisory Program) or NBIA’s Guided Portfolio Solutions Program (“GPS Program”) (where ISG provides asset allocations and investment management by discretionarily allocating the customer’s assets among a portfolio of mutual funds managed by NBBD Advisory Affiliates (“NB Mutual Funds”) based on the risk profile selected by the customer)), (ii) the equity investment goals and risk profiles selected by the retail customer, (iii) different types of accounts offered by NBBD and NBBD Advisory Affiliates (advisory, brokerage), and (iv) trading on margin. As a general matter, other than interests in Private Funds, NBBD and NBBD Brokers will not make recommendations with respect to any specific securities.
Certain existing retail customers have invested through an existing framework (“Brokerage Framework” and such customers, “Existing Brokerage Framework Customers”) where NBBD and NBBD Brokers provide asset allocation recommendations as among proprietary strategies managed by NBBD Advisory Affiliates (separately managed accounts (“NB SMAs”), NB Mutual Funds, exchange-traded funds (“NB ETFs”),1 and NB Private Funds), which may include overlay strategies. Certain portfolio managers, in their capacity as NBBD Brokers, will, on a limited and complementary basis, recommend third-party Private Funds that have been first vetted through the Neuberger Berman Investment Strategy Group’s (“ISG”) diligence process. The Brokerage Framework is no longer offered to new customers.
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 Registered Funds, and NB Private Funds), with third-party strategies (separately managed accounts (“Third-Party SMAs”), mutual funds (“Third-Party Mutual Funds”), exchange-traded funds (“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”). ISG adheres to a framework developed by ISG that defines how third-party strategies are complementary to those offered directly by NBBD Advisory Affiliates. 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.
Overview of this Reg BI Statement
This Reg BI Statement provides information regarding the material facts relating to the scope and terms of our relationship with you, including the capacity in which we and NBBD Brokers act; the material fees and costs that apply to your transactions, holdings, and accounts; the type and scope of services we provide, including any material limitations on the securities or investment strategies involving securities we recommend; the basis for and risks associated with our recommendations; and material facts relating to conflicts of interest associated with our recommendations.
For additional information regarding NBBD and its brokerage services, or your brokerage account (“Brokerage Account”), please see the Form CRS for NBIA and NBBD at http://www.nb.com/form_CRS_nbia_nbbd/ and NBBD’s Conflict Disclosures at http://www.nb.com/conflicts_disclosure_nbbd/. You can also request this information from your NBBD Broker.
This Reg BI Statement does not apply to advisory services offered by NBBD Advisory Affiliates, including NBIA. For additional information on NBIA please see NBIA’s Form ADV Part 2A brochure at http://www.nb.com/adv_part_2A_nbia/.
Material Facts About Our Relationship With You - Capacity
Any recommendations regarding your Brokerage Account are made in a broker-dealer capacity. In addition, with respect to Existing Brokerage Framework Customers and NB Trust Co Customers, any recommendations made by NBBD and NBBD Brokers to you regarding allocations to your advisory accounts are generally made in a broker-dealer capacity. However, if you invest through the PWM Advisory Program, recommendations made to you regarding any allocations to your advisory accounts will be made by NBIA.
NBBD has no discretionary authority over your Brokerage Account and can only purchase or sell securities or execute investment strategies that you authorize. This means that you, the customer, make the ultimate decision regarding the purchase or sale of securities or other investments or the allocation of assets recommended by us. Accordingly, you, the customer, must approve each transaction prior to execution.
Material Facts About NBBD’s Relationship With You
Material Fees and Costs
The following describes the material fees and costs that apply to recommendations made by NBBD to you:
NB SMAs: If, based on NBBD’s recommendation (for Existing Brokerage Framework Customers) or a customer direction, a retail customer invests in an NB SMA, retail customers generally enter into account agreements whereby brokerage services are provided by NBBD and advisory services are provided by NBIA. Generally, those accounts are billed an “all-inclusive” investment advisory fee that includes NBBD’s brokerage fees. There are a limited number of existing NBIA advisory clients for whom NBBD buys and sell securities who are subject to separate brokerage commissions and other execution and transaction-related costs in addition to their advisory fee. Commissions paid to NBBD are charged on a transaction basis. Advisory fees charged by NBIA are provided in NBIA’s Form ADV, Part 2A brochure at http://www.nb.com/adv_part_2A_nbia/ and your advisory agreement with NBIA.
NB Registered Funds: If, based on NBBD’s recommendation (for Existing Brokerage Framework Customers) or a customer direction, a retail customer invests in an NB Registered Fund, NBBD will generally purchase the shares of the NB Registered Fund in the retail customer’s brokerage account. The retail customer will be subject to the fees and expenses of the NB Registered Fund, which are disclosed in the summary prospectus, prospectus or statement of additional information (“Offering Documents”) of the applicable NB Registered Fund, which will be delivered to the customer by mail by the customer’s custodian after the purchase of shares in any NB Registered Fund in the customer’s account. If you would like a copy of any NB Registered Fund’s Offering Documents, please visit www.nb.com/en/us/funds/, contact your NBBD Broker or call 877.628.2583.
Private Funds: If, based on NBBD’s recommendation or a customer direction, a retail customer invests in a Private Fund, the retail customer will purchase the interests of the Private Fund and it will be held in the retail customer’s brokerage account. The retail customer will be subject to the fees and expenses of the Private Fund, which are disclosed in the applicable Private Fund’s offering memorandum or private placement memorandum (the “Private Fund Offering Documents”), which will be provided to the customer prior to the customer’s subscription to any Private Fund. If you would like a copy of a Private Fund Offering Document, please contact your NBBD Broker.
NB Trust Co Customers: NB Trust Co Customers should refer to their agreements with NB Trust Co, or contact the customer’s NBBD Broker for fee information.
In addition, if the customer enrolls in additional services, retail customers of NBBD will be subject to other fees and expenses (e.g., fees related to check-writing privileges and debit card use) that are not retained by NBBD. For additional information regarding those fees and expenses, please see your transaction confirmations, account statements and the Form CRS for NBBD and NBIA at http://www.nb.com/form_CRS_nbia_nbbd/, or contact your NBBD Broker.
Wealth Planning Analyses are provided at no additional charge. NBBD does not charge account or service fees for Brokerage Accounts.
Purchases and sales of securities pursuant to customer-directed transactions are not subject to Reg BI but are subject to various commissions and fees that are negotiated with customers.
Type and Scope of Services
Other than buy and sell transactions related to Private Funds and customer-directed transactions, NBBD brokerage accounts are generally only available to employees and to retail advisory customers of NBIA on an accommodation basis.
Generally, NBBD makes recommendations solely with respect to NB Private Funds. Certain portfolio managers, in their capacities as NBBD Brokers, will, on a limited and complementary basis, recommend certain third-party Private Funds that have been first vetted through ISG’s diligence process.
For Existing Brokerage Framework Customers, NBBD’s asset allocation recommendations are generally limited to proprietary strategies managed by NBBD Advisory Affiliates (e.g., NB SMA, NB Registered Funds and NB Private Funds). For NB Trust Co Customers, NBBD’s asset allocation recommendations are primarily to proprietary strategies (i.e., NB SMAs, NB Registered Funds, and NB Private Funds), and third-party strategies are available only on a limited and complementary basis. Third-party strategies available are generally those approved by the Third-Party SMA Provider, and further narrowed by ISG. NB Trust Co Customers are subject to different terms and different fees, and should carefully review their agreement with NB Trust Co.
From time to time, NBBD provides one-time wealth planning analyses to certain retail customers (based on information provided to NBBD by those retail customers), which are intended solely for informational and discussion purposes to educate retail customers on financial planning topics and to help them better understand their financial profile and evaluate possible investment options.
NBBD does not provide any ongoing or periodic review, follow-up or monitoring. With respect to Existing Brokerage Framework Customers and NB Trust Co Customers, in connection with asset allocation recommendations, NBBD will confirm the retail customer’s investment objectives on at least an annual basis, but does not provide any ongoing monitoring of a retail customer’s accounts or investments.
NBBD does not act in the capacity of an investment adviser. If you wish to receive investment advisory services, you can seek the services of one of the NBBD Advisory Affiliates, including NBIA.
Retail customers can engage in self-directed transactions in securities (including interests in NB Registered Funds and NB Private Funds). Your purchases and sales of securities that are not recommended by us are not subject to Reg BI and can cause your account to perform in a way that is inconsistent with our recommendations.
NBBD does not act with discretion over customers’ accounts assets; the retail customer makes the decision regarding any purchase or sale of securities or any asset allocation recommended by NBBD. NB Trust Co Customers should review their agreement with NB Trust Co to determine who makes the decisions with respect to the assets for which NB Trust Co provides investment services. For additional information on the type and scope of brokerage services provided by NBBD to you, please see your brokerage agreement with NBBD.
NBBD’s recommendations regarding securities are generally limited to NB Private Funds. On a limited and complementary basis, certain portfolio managers, as NBBD Brokers, recommend certain third-party Private Funds that are first vetted through ISG’s diligence process. For Existing Brokerage Framework Customers, NBBD’s recommendations regarding securities or investment strategies involving securities are generally limited to proprietary strategies of products managed by NBBD Advisory Affiliates (i.e., generally all of the NB SMA strategies, NB Registered Funds and NB Private Funds). For NB Trust Co Customers, NBBD’s asset allocation recommendations are made primarily to proprietary strategies (i.e., NB SMAs, NB Registered Funds, and NB Private Funds), and third-party strategies are only available on a limited and complementary basis. Because 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 only recommends Private Funds to retail customers who are eligible to invest by meeting certain financial sophistication requirements, including status as accredited investors and qualified purchasers under applicable securities laws, and only recommends NB Registered Funds to retail customers who are U.S. residents and eligible to invest in those funds.
General Basis for Recommendations
NBBD seeks to help customers achieve their unique investment objectives and to deliver custom solutions drawn from the capabilities of a global investment management firm. In designing holistic wealth management solutions, NBBD and NBBD Brokers take the time to understand each retail customer’s “Investment Profile” (e.g., as applicable, the retail customer’s age, other investments, financial situation and needs, tax status, short- and long-term investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, estate planning needs, generational giving and philanthropic desires, and any other information the retail customer discloses to NBBD or NBBD Brokers) in connection with each recommendation. Underscoring that there is no “one-size-fits-all” approach, NBBD and NBBD Brokers work with each retail customer to recommend investments and, where applicable, asset allocations that align with the needs and financial goals of the retail customer.
Material Risks Associated with Brokerage Recommendations
While NBBD will take reasonable care in developing and making recommendations with respect to each retail customer, investments in securities and other financial instruments involve risk, and retail customers can lose some or all of their money. All investments and investment strategies involving securities involve risk of loss, including the potential loss of a retail customer’s entire investment, which the retail customer should be prepared to bear. There is no guarantee that any retail customer will meet the customer’s investment goals, or that NBBD’s recommended investments or, where applicable, asset allocations will perform as anticipated.
The investment performance and the success of any particular investment or investment strategy can never be predicted or guaranteed, and the value of a customer’s investments will fluctuate due to market conditions and other factors. Investments are subject to various market, liquidity, currency, economic, political and other risks. Past performance of any security or investment strategy is not indicative of future performance.
Retail customers that open an NBIA advisory account, including an NB SMA, should review NBIA’s Form ADV, Part 2A brochure at http://www.nb.com/adv_part_2A_nbia/.
Retail customers should consult the offering documents for any security that NBBD recommends, including NB Registered Funds and Private Funds, for a discussion of risks associated with the particular fund. If you would like a copy of any Offering Document prior to purchasing shares of an NB Registered Fund or interests in a Private Fund, you may obtain one by contacting your NBBD Broker (or, for NB Registered Funds, by calling 877.628.2583).
In addition to the investment-specific risks associated with investments and investment strategies involving securities, there are other potential risks associated with any relationship with financial intermediaries, such as NBBD. For example, as the use of technology increases, NBBD and NBBD Advisory Affiliates may be more susceptible to operational or information security-related risks. A breach in cybersecurity refers to both intentional and unintentional events that may cause NBBD or an NBBD Advisory Affiliate to lose proprietary information or operational capacity or suffer data corruption. Cybersecurity breaches of NBBD’s or NBBD Advisory Affiliates’ third-party service providers or issuers in which customers and clients invest may also subject NBBD or NBBD Advisory Affiliates to many of the same risks associated with direct cybersecurity breaches. Cybersecurity breaches can cause disruptions and affect business operations, potentially resulting in financial losses, impediments to trading, the inability to transact business, destruction to equipment and systems, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs or additional compliance costs.
Standard of Conduct under Regulation Best Interest
Reg BI requires that NBBD and NBBD Brokers act in the best interest of the retail customer at the time a recommendation of a security or an investment strategy involving a security is made, without placing the financial or other interest of NBBD or the NBBD Broker ahead of the interest of the retail customer.
The requirement under Reg BI that NBBD and NBBD Brokers act in the best interest of the retail customer is limited to recommendations of a security or investment strategy involving securities by NBBD and NBBD Brokers.
Material Facts Regarding Conflicts of Interest
Reg BI defines a conflict of interest associated with a recommendation 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.”
When NBBD or an NBBD Broker provides you with a recommendation regarding securities or investment strategies involving securities, NBBD and the NBBD Broker must act in your best interest at the time the recommendation is made without putting their interest ahead of yours. At the same time, the way NBBD and NBBD Brokers make money and otherwise conduct business creates conflicts with your interests. Where possible, NBBD has taken steps to mitigate or eliminate material conflicts of interest associated with recommendations regarding securities and investment strategies involving securities. For a detailed discussion of the material conflicts of interest associated with the recommendations provided by NBBD and NBBD Brokers, please see NBBD’s Conflict Disclosures at http://www.nb.com/conflicts_disclosure_nbbd/.
NBBD Fiduciary Recommendation Disclosure for Covered ERISA and IRA Accounts
This NBBD Fiduciary Recommendation Disclosure for Covered ERISA and IRA Accounts (“NBBD Fiduciary Recommendation Disclosure”) provides additional information to employee benefit plans subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and plans subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “IRC” or the “Code“) in respect of certain recommendations made by Neuberger Berman BD LLC (“NBBD,” “us,” “our,” or “we”) and its wealth advisors or portfolio managers, in their capacity as associated persons of NBBD (“NBBD Brokers” and such plans, collectively, “Plan Customers”).
Where NBBD or an NBBD Broker provides individualized investment advice for purposes of ERISA or Section 4975 of the Code when making an NBBD Fiduciary Recommendation (as defined below), NBBD (and the relevant NBBD Broker) is a fiduciary within the meaning of ERISA for those Plan Customers subject to Title I of ERISA, and Section 4975(e)(3) of the Code for those Plan Customers subject to Section 4975 of the Code.
In addition to this NBBD Fiduciary Recommendations Disclosure, Plan Customers should also carefully review NBBD’s Regulation Best Interest Disclosure Statement for additional disclosure and information related to NBBD Fiduciary Recommendations.
Where NBBD makes NBBD Fiduciary Recommendations to a Plan Customer, it may rely upon one or more exemptions, including, among others, Prohibited Transaction Exemption 2020-02 from rules under Title I of ERISA and/or Section 4975 of the Code, as may be applicable (“PTE 2020-02”), that are intended to regulate conflicts of interests. PTE 2020-02 is designed to permit NBBD and NBBD Brokers to provide NBBD Fiduciary Recommendations in your Best Interest (as defined below) under a fiduciary standard of care (as defined under ERISA and the Code) while adhering to prescribed conditions designed to mitigate conflicts.
NBBD Fiduciary Recommendations
From time to time, NBBD or an NBBD Broker will make recommendations in connection with Plan Customer’s potential investment in a privately offered registered or unregistered investment vehicle (“Private Fund”), Plan Customer’s equity investment goal (“EIG”) or risk profile (“Risk Profile”), as applicable, or Plan Customer’s decision to roll over or transfer assets from an account subject to Title I of ERISA or other individual retirement account (“IRA”) to a Neuberger Berman IRA (“Rollover Decision”). In addition, with respect to certain current Plan Customers that have invested through an existing brokerage framework (“Brokerage Framework”), NBBD and NBBD Brokers provide asset allocation recommendations as among proprietary strategies managed by NBBD Advisory Affiliates (“NB Strategies”). Where NBBD or an NBBD Broker provides individualized investment advice for purposes of ERISA or Section 4975 of the Code when making a recommendation in connection with Plan Customer’s potential investment in a Private Fund, a Plan Customer’s selection of EIG or Risk Profile, as applicable, Plan Customer’s Rollover Decision, or, for Plan Customers that have invested through the Brokerage Framework, Plan Customer’s asset allocation among, or potential investments in, certain NB Strategies (each, an “NBBD Fiduciary Recommendation”), NBBD (and the NBBD Broker) are fiduciaries within the meaning of Section 3(21) of ERISA or Section 4975(e)(3) of the Code, as applicable. NBBD Fiduciary Recommendations that may be covered by PTE 2020-2 may be afforded relief under other exemptions from ERISA’s and the Code’s conflict of interest rules. From time to time, NBBD and its affiliate may utilize one or more other prohibited transaction exemptions, to the extent they may be necessary or appropriate.
Requirements under PTE 2020-02
The way NBBD and NBBD Brokers make money creates some conflicts with the interests of Plan Customers, so NBBD and NBBD Brokers may operate under PTE 2020-02 with respect to NBBD Fiduciary Recommendations. PTE 2020-02 requires NBBD and NBBD Brokers to act in the Best Interest (as defined below) of the Plan Customer, without placing the interest of NBBD or the NBBD Broker ahead of the interest of the Plan Customer.
Under PTE 2020-02’s provisions, NBBD and NBBD Brokers must:
- Meet a professional standard of care when making investment recommendations (give prudent advice);
- Never put our financial interests ahead of Plan Customer’s when making recommendations (give loyal advice);
- Avoid misleading statements about conflicts of interest, fees, and investments;
- Follow policies and procedures designed to ensure that we give advice that is in Plan Customer’s best interest;
- Charge no more than is reasonable for our services; and
- Give you basic information about conflicts of interest.
“Best Interest” for this purpose means that, with respect to NBBD Fiduciary Recommendations, NBBD and the NBBD Broker must act in accordance with a standard of prudence as set forth under ERISA based on the investment objectives, risk tolerance, financial circumstances and needs of Plan Customer and that neither NBBD nor the NBBD Broker may place the interests of NBBD, the NBBD Broker or other party ahead of the Plan Customer. In addition, neither NBBD nor the NBBD Broker may make statements to Plan Customer that are materially misleading, and neither NBBD nor any NBBD Broker will be insulated or relieved of liability that is imposed upon either as a fiduciary under ERISA and the Code, as may be applicable, when making NBBD Fiduciary Recommendations. When effecting transactions arising out of NBBD Fiduciary Recommendations, NBBD and the NBBD Broker must seek to obtain best execution in accordance with applicable securities rules. Finally, the compensation NBBD and the NBBD Broker receive directly or indirectly arising out of any NBBD Fiduciary Recommendation must not exceed reasonable compensation under applicable ERISA guidance and related guidance under the Code. Under the exemption, NBBD is required to establish, maintain and enforce written policies and procedures prudently designed to ensure satisfaction of these “Impartial Conduct Standards.” PTE 2020-02 also contains additional requirements concerning our compliance. For more information, see https://www.federalregister.gov/documents/2020/12/18/2020-27825/prohibited-transaction-exemption-2020-02-improving-investment-advice-for-workers-and-retirees.
Conflicts of Interest
The way NBBD and NBBD Brokers make money creates some conflicts with the interests of Plan Customers. For this purpose, a conflict of interest is defined as “an interest that might incline a financial institution or an investment professional– consciously or unconsciously – to make a recommendation that is not in the Best Interest of the Retirement Investor.”
Where possible, NBBD has taken steps to mitigate or eliminate material conflicts of interest associated with NBBD Fiduciary Recommendations. For a detailed discussion of the material conflicts of interest associated with NBBD Fiduciary Recommendations, please see NBBD’s Conflict Disclosures at http://www.nb.com/conflicts_disclosure_nbbd/.
For the avoidance of doubt, unless otherwise specifically agreed in writing, when making NBBD Fiduciary Recommendations, none of NBBD, its affiliates nor any of their respective employees, officers, directors, or agents (including NBBD Brokers) are providing investment advice or otherwise acting as a fiduciary under the Investment Advisers Act of 1940, as amended.