A. FDx Advisors, Inc. (the “Registrant”) is a corporation formed on April 24, 1987, in the
State of California. The Registrant became registered as an Investment Adviser Firm in
July 1987. The Registrant is owned by a holding company, M3FN, LLC, which is wholly
owned by Folio Dynamics, Inc. Folio Dynamics, Inc. is principally owned by Folio
Dynamics Holdings, Inc. Folio Dynamics Holdings, Inc. is principally owned by Envestnet
Inc., which is a public reporting company (NYSE: ENV).
Bradley Larson is the Registrant’s Chief Compliance Officer.
B. Registrant provides investment advisory and consulting services via proprietary research, ,
investment platforms and asset management programs to Clients (“Clients”). Registrant
serves institutional Clients (banks, trust companies, broker-dealers, other investment
advisers, institutional retirement plans, etc.). Registrant’s services are typically provided to
institutional Clients for their Customers (“Customers”) as a sub-advisor; or directly to
institutional entities.
If engaged to serve as a sub-advisor, the Registrant shall have discretionary authority for
the day-to-day management of the assets that are allocated to it by the Client. The
Registrant shall continue in such capacity until such arrangement is terminated or modified
by the Client. In exchange for its sub-advisory services, the Client shall typically pay a
portion of the investment advisory fee received from the Customer to the Registrant for the
allocated assets. The Registrant’s Chief Compliance Officer, Bradley Larson, remains
available to address any questions concerning the Registrant’s sub-advisory arrangements.
To the extent that Registrant’s Clients utilize its services to provide investment advisory
services for their Customers, the Client is responsible for initial and ongoing suitability
determination, Customer communications, designation of custodian/broker-dealer, and
corresponding best execution. Registrant does not offer financial planning or related
consulting services directly to Customers or other individuals.
INSTITUTIONAL INVESTMENT ADVISORY SERVICES
1. Unified Overlay Management Program
The Registrant offers investment management access and advice, not involving supervisory
services, on a non-discretionary basis, through the Unified Overlay Management Program
(“UOMP”) to banks, trust companies and others who are trustees, investment management
agents or who may otherwise have discretionary authority over certain Customer portfolios,
broker-dealers or registered investment advisers; all such parties herein described as the
“Client’s Fiduciary Agent”. Under the UOMP, the Registrant contracts for the investment
advice of third-party investment managers called “Alpha Providers,” who provide purchase
or sale recommendations based on their research.
The Registrant’s role in the UOMP is to make available one or more third party investment
managers to an Overlay Manager, and to supply the Overlay Manager with investment
recommendations received from Alpha Providers. The Overlay Manager invests the assets
in a Client’s UOMP account based upon the Client information received from the Customer
or the Client’s Fiduciary Agent.
For selected third party managers that are designated on the Registrant’s approved list, the
Registrant approves the Alpha Providers for inclusion in the UOMP based upon a
comprehensive review and analysis of their investment strategies, performance
information, and other inquiries as the Registrant may find necessary. The Registrant then
forwards such information received from the Alpha Providers to the Overlay Manager on
a regular basis, which allows the Overlay Manager to construct investment portfolios for
Customers. In certain cases, the Client’s Fiduciary Agent serves as the Overlay Manager,
an Alpha Provider, or both.
Initial and ongoing reviews of the Alpha Providers are conducted by the Registrant’s
Research Committee and include the analysis of investment information. The Registrant
requires performance information of Alpha Providers on the Registrant’s approved list to
be provided in a format which is Global Investment Performance Standards (GIPS)
compliant. Exceptions to this compliance requirement apply if the Alpha Provider has
demonstrated a strong investment management background. The review can include
comparisons to investment advisers with similar investment styles. Research may include
an onsite visitation with the Alpha Provider. Alpha Providers that successfully complete
this process are placed on the Registrant’s approved list and are then available for use in
the Customers’ investment portfolios by the Overlay Manager. Credentials and select data
of Alpha Providers are reviewed each quarter to determine if expectations have been met
on a relative basis to remain eligible for inclusion in the UOMP. If general expectations
have not been met, a more comprehensive review may be conducted, after which,
replacement of the Alpha Provider would occur, if applicable.
In selecting the appropriate investments for a particular Customer’s UOMP account, the
Client’s Fiduciary Agent determines which combination of investment recommendations
provided by Alpha Providers through the Registrant are appropriate and suitable for a
particular Customer account based upon the Customer’s investment objectives, financial
situation, risk tolerance, and other investment guidelines. The Overlay Manager has
discretion as to the specific timing and manner of execution of investment transactions
based upon Customer information it has received from the Client’s Fiduciary Agent. The
Registrant does not make investment selections, including individual funds and share
classes.
Alpha Providers may delay in providing Registrant with information regarding the
composition and weights of investment recommendations or any updates to such
investment recommendations. As a result, Alpha Providers and/or their affiliates may have
already commenced trading for its or their other clients before a Client has received or had
the opportunity to evaluate or act on Alpha Providers’ recommendations communicated by
Registrant. In this circumstance, trades ultimately placed could be more or less favorable
than the prices obtained by the Alpha Providers or their affiliates for their respective client
accounts.
The Registrant and Alpha Providers selected by the Registrant’s PMC Research team
jointly host seminars from time to time to promote the benefits of the UOMP to various
financial institutions. Alpha Providers commonly share seminar and nominal entertainment
expenses with the Registrant, however, an Alpha Provider’s willingness or unwillingness
to participate in such seminars or to share in such expenses does not positively or negatively
impact the evaluation or assessment of such Alpha Provider by the Research Committee.
4. Discretionary Investment Services and Solutions
The Registrant offers investment management services and solutions on a discretionary
basis (but not involving suitability determinations), as a sub-adviser to the Client’s
Fiduciary Agent.
Client’s Fiduciary Agents serve as the Advisor for their Customers. The Client’s Fiduciary
Agent retains responsibility for the Customer relationship, determines Customer suitability
on an initial and ongoing basis, and develops and maintains the Client Investment Policy
(“CIP”) that provides the guidelines and policies for the management of Customer
accounts. Once the CIP is established for a Customer, some or all of the appropriate
investment program management may be delegated in order to achieve desired outcomes
for the Customer in a more efficient and effective manner.
In this context, the Registrant offers two levels of discretionary investment management
services to meet the varying needs of Client’s Fiduciary Agents.
Discretionary Investment Services and Solutions:
Investment Policy Oversight
This service is designed for Client’s Fiduciary Agents that choose to maintain full control
of all portfolio management decisions (asset allocation, manager selection, portfolio
construction, manager monitoring, etc.), while delegating portfolio execution and
rebalancing services to the Registrant, subject to the Client Investment Policy. After the
Client’s Fiduciary Agent establishes the CIP with the Customer, and the Registrant receives
the CIP, the Registrant monitors the Customer account/portfolio relative to the CIP on an
ongoing basis and executes transactions necessary to maintain reasonable alignment
between the Customer portfolio and the CIP, including
adjustments for contributions to and
distributions from the portfolio. Client’s Fiduciary Agent and Customer can impose
reasonable investment restrictions on the account. This service can be implemented with
mutual funds, exchange traded funds, separately managed accounts, and/or third-party
Alpha Provider strategies/styles.
The Registrant serves as Overlay Manager with discretion as to the specific timing and
manner of execution of investment transactions based on the CIP. The actual share class
fund that is purchased and allocated to a Customer account is specific to the Client’s
agreement with the fund company. The Registrant does not negotiate share class
availability on behalf of Clients, nor does the Registrant take responsibility for the
management and review of Customer accounts for share class usage or suitability.
Customers should consult with their Fiduciary Agent for share-class specific guidance.
MISCELLANEOUS
Separately Managed Account (“SMA”) Services. Separate account managers engaged
by the Registrant provide services for Customer’s accounts when appropriate. If a Client
Fiduciary Agent elects to utilize these SMA services, the manager selected will provide
discretionary investment management services. This service attempts to harmonize various
program accounts or assets for trading and/or tax-efficiency purposes and/or employs
strategies such as hedging and leveraging across a portion or all of the program portfolios.
SMA services often involve the use of options contracts in order to achieve its stated goals.
The Registrant does not oversee or supervise the investment recommendations when a
Customer receives SMA services. It is the RIA’s or Client Fiduciary’s Agent obligation to
review the performance to determine whether such SMA services remain suitable for a
Customer.
Please Note: Private investment funds generally involve various risk factors, including, but
not limited to, potential for complete loss of principal, liquidity constraints, and lack of
transparency. A complete discussion of such risk factors is set forth in each fund’s offering
documents, which will be provided to each Client for review and consideration. Unlike
liquid investments, private investment funds do not provide daily liquidity or pricing. Each
prospective client investor will be required to complete a Subscription Agreement, pursuant
to which the Customer shall establish that he/she is qualified for investment in the fund and
acknowledges and accepts the various risk factors that are associated with such an
investment.
Please Also Note: Valuation. In the event that the Registrant references private investment
funds owned by the client on any supplemental account report(s) prepared by Registrant,
the value(s) for all private investment funds owned by the client shall reflect the most recent
valuation provided by the fund sponsor. However, if subsequent to purchase, the fund has
not provided an updated valuation, the valuation shall reflect the initial purchase price. If
subsequent to purchase, the fund provides an updated valuation, then the statement will
reflect that updated value. The updated value will continue to be reflected on the report
until the fund provides a further updated value. Additionally: As result of the valuation
process, if the valuation reflects initial purchase price or an updated value subsequent to
purchase price, the current value(s) of an investor’s fund holding(s) could be significantly
more or less than the value reflected on the report. Unless otherwise indicated, the client’s
advisory fee shall be based upon the value reflected on the report.
ERISA Fiduciary Representation. Financial Advisors have the ability to provide
fiduciary and/or non-fiduciary services to retirement plans (i.e., 401k, 403b, etc.).
Retirement plans may or may not be subject to the U.S. Department of Labor’s Employee
Retirement Income Security Act (”ERISA”). The Registrant acknowledges that with
respect to advisory services provided to ERISA accounts, the Registrant is a “fiduciary”
within the meaning of ERISA Section 3(21).
Use of Mutual and Exchange Traded Funds: Most mutual funds and exchange traded
funds are available directly to the public. Thus, a prospective client can obtain many of the
funds that may be utilized by Registrant independent of engaging Registrant as an
investment advisor. However, if a prospective client determines to do so, he/she will not
receive Registrant’s initial and ongoing investment advisory services. Please Note: In
addition to Registrant’s investment advisory fee described below, and transaction and/or
custodial fees discussed below, clients will also incur, relative to all mutual fund and
exchange traded fund purchases, charges imposed at the fund level (e.g., management fees,
and other fund expenses). The actual share class fund that is purchased and allocated to a
Customer account is specific to the Client’s agreement with the fund company. The
Registrant does not negotiate share class availability on behalf of Clients, nor does the
Registrant take responsibility for the management and review of Customer accounts for
share class usage or suitability. Customers should consult with their Fiduciary Agent for
share-class specific guidance.
Portfolio Activity. Registrant has a fiduciary duty to provide services consistent with the
Client’s best interest. As part of its investment advisory services regarding management of
strategies, Registrant will review the advisory Client’s portfolios on an ongoing basis to
determine if any changes are necessary based upon various factors, including, but not
limited to, investment performance, fund manager tenure, style drift, account
additions/withdrawals, and/or a change in the investment objectives (provided by the
Fiduciary Agent). Registrant does not have a relationship with the end investor and,
therefore, does not make portfolio changes based on retail client changes in needs or
investment objectives. Based upon these factors, there is a possibility for extended periods
of time when Registrant determines that changes to a Client’s portfolio are neither
necessary nor prudent. Of course, as indicated below, there can be no assurance that
investment decisions made by Registrant will be profitable or equal any specific
performance level(s).
Client Obligations. In performing its services, Registrant shall not be required to verify
any information received from the Client’s Fiduciary Agent or from the Client’s Fiduciary
Agent’s other professionals and is expressly authorized to rely thereon. Moreover, each
Client’s Fiduciary Agent is advised that it remains their responsibility to promptly notify
the Registrant if there is ever any change in the Customers’ financial situation or investment
objectives for the purpose of reviewing, evaluating, or revising Registrant’s previous
recommendations and/or services.
Disclosure Statement. A copy of the Registrant’s written Brochure as set forth on Part 2
of Form ADV shall be provided to each Client’s Fiduciary Agent’s Firm prior to, or
contemporaneously with, the execution of an agreement.
Fee Differentials. Because we shall generally price our advisory services based upon
various objective and subjective factors, Clients could pay diverse fees based upon a
combination of factors, including but not limited to the market value of their assets, the
complexity of the engagement, the level and scope of the overall investment advisory
services to be rendered, and negotiations. Therefore, similarly situated Clients could pay
diverse fees, and the services to be provided by Registrant to any particular client could be
available from other advisers at lower fees. All Clients and prospective Clients and
Customers should be guided accordingly.
C. The Registrant shall provide investment advisory services specific to the needs of each
Client’s Fiduciary Agent. Prior to providing investment advisory services, an investment
adviser representative will ascertain each Client’s Fiduciary Agent’s or RIA’s objective(s).
Thereafter, the Registrant shall allocate and/or recommend that the Client’s Fiduciary
Agent or RIA allocate investment assets consistent with the designated investment
objective(s). The Client’s Fiduciary Agent or RIA may, at any time, impose reasonable
restrictions, in writing, on the Registrant’s services.
D. The Registrant may participate in a wrap fee program but does not sponsor wrap fee
programs at this time.
E. As of December 31, 2023, the Registrant had $2,266,403,429 in Regulatory Assets under
Management on a discretionary basis.