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Model Folios are Folios that a Model Manager creates and manages and which you can subscribe your clients to. When the Model is modified, trades are generated based on the selected Sync option you chose—and immediately placed or presented to you on a review-and-release basis (this can be done by going to your Client Accounts page and next to Actions selecting Sync Order)—across all subscribed accounts with effected Folios, synchronizing each subscribed Folio to the updated Model Folio.

Registered Investment Advisor (RIA) firms determine who can use and manage Model Folios. If you have been authorized you to create and manage Model Folios, you will see a Models tab in the top navigation. If you are not granted this capability, you will not see this tab.

Advisors designated by their firm as Model Managers can create Model Folios. If you log in and do not see a Models tab, please contact your firm’s point of contact for the Folio Institutional relationship to request this access.

You can only create Model Folios if you are a designated Model Manager:

1. Go to the Model Folios page (Models tab in the top navigation)
2. Select Create a Model
3. Enter the required information
   1. Name this Model
   2. Abbreviated Name
   3. Dollar amount to track this Model (cannot be zero)
4. Enter information in the optional fields to provide a more detailed description of the model
5. Select Continue
6. Select a method to create the Model Folio; you can start by picking a publicly published Folio and modifying it to meet your objective or by creating a new Folio by specifying the Folio composition Security-by-Security. Follow the instructions provided for each method.
7. Set a Target Weight for each security in the Folio and select Continue.
8. Review and Save Model
9. Select either Publish Model or Do Not Publish Model
   1. You can test your Model’s strategy or hypothetical performance by not publishing it right away

Only Published Model Folios can have subscribers.

A Model name can have up to 64 characters.

The Abbreviated Model name will appear on the Models page. Advisors subscribing their clients to a Model Folio will see the abbreviated name on the subscription page. The abbreviated Model name can have up to 25 characters. Example: A Model Folio name may be ABC Advisory Corp.’s Long-term Aggressive Growth, and its abbreviated name might be Aggressive Growth.

You can change the Model Name and the abbreviated name by clicking on the model on the main Model Folios page.

The dollar amount to track this model is not real money that is invested in the model. It is an amount that we use to generate paper trades and calculate hypothetical performance and other statistics specific to the Model Folio.

Once set, this value cannot be changed.

You can set a benchmark so that when you are viewing your Model Folio’s hypothetical performance you will see its performance compared to the benchmark you set here. You may also choose to have no benchmark by selecting ‘–No Index Selected–’ from the menu of available indexes.

If you have more information regarding the Model Folio on a separate website, you can enter the internet address for that information here. The address will be displayed on the specific Model Folio’s information page. This is not required for creating a Model Folio.

Important

We will provide this link for the convenience of our customers; however, we have no control over the content. We in no way can guarantee the accuracy, reliability, or completeness of any data or information provided in any linked Web site, nor do we approve or endorse the content. You and your firm are responsible for the content that appears on this page.

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The Model description provides a brief description of the Model Folio. The description can be up to 100 characters.

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We will display this description of the Model Folio to advisors when they “subscribe” a client to a Model Folio. Specifically, this description will appear on the page that lists all the Model Folios from which an advisor can choose.

We will also display this description to you when you modify the Model Folio and when you place orders to create this Model Folio.

You may use up to 100 characters.

Important

We will provide this information for the convenience of our customers; however, we have no control over the content. We in no way can guarantee the accuracy, reliability, or completeness of any data or information provided in this description. You and your firm are solely responsible for this description.

The Percentage Trade Threshold is the minimum percentage by which a security’s current weights within a folio must deviate from the Model’s Target Weights in order for a trade to be generated for that security in a client’s folio when a model sync order is created. Securities that would have orders generated within the designated threshold at the time the model sync order is created will not have trades generated. The Percentage Trade Threshold only applies to model syncs.

To set a Percentage Trade Threshold:

1. Go to the Model Folios page
2. Select the Model you want to edit
3. Under Action select View Model Settings
4. Enter the Percentage Trade Threshold, and then select Save

When setting a Percentage Trade Threshold, keep in mind Model Folios with a large number of securities require a small Percentage Trade Threshold, otherwise a large number of orders may not be generated.

Review the question below to see an example of a Percentage Trade Threshold.

Using a Percentage Trade Threshold allows you to:

• Eliminate unnecessary trades—thereby avoiding tax consequences
• Maintain more concise transaction histories, trade confirmations and customer statements

Example of a Percentage Trade Threshold:

In this example:

• The weight deviation of Security A does not meet the Percentage Trade Threshold, so a sell order will not be placed.
• The weight deviation for Security B does not meet the Percentage Trade Threshold, so a buy order will not be placed.

To change Model Folio settings:

1. Go to the Models page
2. Select the name of the Model Folio you want to change
3. Under Actions select View Model Settings
4. Update the settings and select Save to complete the changes

Model Managers can allocate a portion of the Model Folio to cash by using the FDIC.CASH ticker. Clients subscribed to the Model Folio will thereafter hold the same FDIC.CASH position as specified in the allocation.

Cash can have a specific allocation within a Model Folio or may be present as the result of trading imbalances during a sync order. In the event there is a corporate action (such as a cash merger or cash liquidation) for a security in a Model Folio, the excess cash will become part of the FDIC.SWEEP position of the entire account, thereby removing the value of that cash from the Model Folio.

1. Go to the Model Folios page
2. Under Actions select Modify
3. Set New Target Weights, or add/remove securities, then select Save Target Weights
4. Review the instructions provided on the Modify a Model Folio page, and either select Rebalance All or Selected Rebalance
   1. If you choose Rebalance All, all of the securities in the Model Folio will rebalance to the new Target Weights
   2. If you choose Selected Rebalance, decide which securities you want to rebalance and select Preview Order
5. Review the order and select Continue
6. Select either Generate Orders to Sync & Update (which will generate orders in each subscribed client account) or Return to Model Folios (which will save the Target Weights, but will not generate orders at this time)

There are two ways to analyze Model Folio.

Option 1:

1. Go to the Model Folios page
2. Under Actions select Analyze
   1. You will see a backtest performance graph of the securities in the Model Folio, sector weightings, risk metrics and Model fundamentals such as financial ratios

Option 2:

1. Go to the Model Folios page
2. Under Personal Models select a Model Folio name
   1. You will be able to view Model Statistics, gain/loss information, order status information, model performance, transaction history, etc.

There are two ways to subscribe a client to a Model Folio.

To subscribe a client to a Model Folio by creating a new Folio:

1. Go to the client’s accounts page
2. Next to the account name select the Subscribe to Model Icon
3. Under Personal Models select a Model Folio name
4. Enter a dollar amount and name the Model Folio
5. Decide how you want the model to sync when the Model Folio is modified
6. Choose how you want security exclusions to be handled
7. Select a treatment for cash distributions, then select Preview Order
8. Review and Place Order to complete the subscription
9. The sync order will be placed in the next window

To subscribe to an existing Folio:

1. Go to the client’s accounts page
2. In the Actions menu next to the Folio, select Subscribe to Model
3. Under Personal Models select a Model Folio name
4. Decide how you want the model to sync when the Model Folio is modified
5. Choose how you want security exclusions handled, then select Subscribe to Model
6. Either select Synchronize to the Model or Return to this Client’s Account
   1. If you select Synchronize to the Model you will be directed to choose the method to sync, then select Preview Order
   2. Review and Place Order to complete the subscription

When you subscribe an existing Folio to a Model Folio, current holdings will be sold and replaced by the Model Folio’s holdings when you sync the Model Folio for the first time.

To unsubscribe a client from a Model:

1. Go to the client’s account page
2. Under More Info select View Client Settings
3. Scroll down to the Information about Client Accounts section
4. Under the Folio name select Unsubscribe
5. Then select the Unsubscribe button to complete unsubscribing to the Model Folio

When a Model Manager syncs a model, orders will be generated for subscribed Folios. You have the following choices to determine how you want those orders generated.

• Place sync orders in the first available window following changes to the Model Folio. This option allows your sync orders to be placed immediately for the next available window. On the Order Status page for each subscribed client account you can view, modify or cancel the order before the window closes.
• Hold sync orders with exclusion alerts, place all other orders in first available window. This option allows you to hold sync orders for your review, which have at least one security that is excluded within a specific Client’s account. For example, if an account subscribed to the Model has an exclusion for Philip Morris, you must choose to delete the orders to buy Philip Morris or leave them as they would be generated. If a sync order contains none of the Client’s excluded securities, or the client has no excluded securities set, the order will be placed for the next available window.
• Do not create sync orders following changes to the model. You decide when to create sync orders. Selecting this option will allow you to create the orders to sync the Folio to the model at your discretion. You have complete control over when sync orders are created. When the Model Folio is modified, the system will not create sync orders, instead, sync orders will only be created when you create them by placing a Synchronization trade within the specific Folio. We will send you a Model Sync email alert when an Model Manager updates a Model Folio.

When subscribing clients to Model Folios, you must also decide how to handle excluded securities:

• Remove excluded securities from synchronization orders. When generating an order to sync the Folio, our system will NOT create orders to buy or sell securities that have been marked for exclusion by you. For example, if you excluded Philip Morris for a client account, our system will remove any order to buy or sell Philip Morris from the sync order.
• Leave excluded securities in synchronization orders. When generating orders to sync the Folio, our system will create orders to buy or sell securities even though the securities have been marked for exclusion by you. For example, if you excluded Philip Morris for an account, our system will generate an order to buy Philip Morris if it is part of a sync order

You can retain sole discretion over when orders to sync a subscribed Folio (sync orders) are generated by selecting Do not create sync orders following changes to the model. If you make this choice you decide when to create sync orders when subscribing a client to a Model. You can place a sync order anytime no matter the sync option selected.

To place a sync order:

1. Go to the client’s accounts page
2. In the Actions menu located next to a Folio, select Prepare a Window Trade
3. Select Advanced Trade
4. Select Synchronize
5. Decide the type of sync order you want to place, the amount of the order and then select Preview Order
6. Review and Place Order

As a model manager, you place a Syncronization Request (Sync Request) which results in actual Folio orders (called Sync Orders) being created by the system for all customer accounts that have a Folio subscribed to your model. If you place a second Sync Request before all the customer Folio Sync Orders have been processed in one of our windows, then either the original or the second Sync Order will be cancelled for any customers in this situation.

If you place a second Sync Request for a model Folio while there are still unprocessed Sync Orders for customer Folios, these are the rules that the system uses to determine which customer Sync Orders to cancel:

• If both Sync Requests are to rebalance ALL securities, the Sync Orders generated from FIRST request will be cancelled. When the second Sync Orders are processed, customer Folios will be rebalanced to the model as expected.
• If the first Sync Request is to rebalance SELECTED securities and the second Sync Request is for a FULL rebalance, the orders generated FIRST will be cancelled. When the second Sync Orders are processed, customer Folios will be rebalanced to the model as expected.
• If the first Sync Request is to rebalance ALL securities but the second Sync Request is to rebalance SELECTED securities, the Sync Orders generated SECOND will be cancelled. When the first Sync Order is processed, the customer Folios will NOT follow any additional changes you may have intended by the second Sync Request.
• If both Sync Requests are to rebalance SELECTED securities, then the SECOND order will be cancelled. When the first Sync Order is processed, the customer Folios will NOT follow any additional changes you may have intended by the second Sync Request.
  
  Sometimes, the second Sync Order cannot even be generated, as in the following example (the Investment Advisor for the customers in question will receive an email alerting them to this fact): Say the first Sync Request was to sell all of Security A and buy Security B not currently in the Folio. Your model will be updated immediately but customer orders will not be processed until the next window or later (if the IA has specified “review and release”). If you place another Sync Request to sell Security B and buy Security C, the system will not be able to generate any customer orders because the customers will not own Security B at the time of the second Sync Request.
• Please be aware that if individual advisors have orders pending in subscribed accounts, then the sync orders may not ever be generated. The advisor order always takes precedent over the sync orders generated by model managers.

When this Model Folio generates excess cash, our system will automatically invest the cash in the sweep investment you choose here.

Your Model Folio may generate excess cash in these situations:

• If a security pays cash distributions (dividends, capital gains, and return of capital) of less than $1.
• If there is a cash merger for a security in this Model Folio.

In all the above cases, the cash will automatically be invested in the sweep investment.

Excess Cash and Subscribed Folios

If an advisor subscribes a client to a model, in all cases described above, the cash will NOT be invested in the sweep investment. Rather, the money will go into the client’s Cash and Money Fund.

Once money is added to a client’s Cash and Money Fund, the money will not be reinvested in the Folio unless the advisor makes a separate transaction.

This page allows you to compare various statistics of the Model Folio to an index, security, or mutual fund.

You can change the Model Folio you are viewing by making a selection in the drop-down box at the top right side of the screen and selecting Go.

How do I choose a comparison criteria?

Follow the steps below to choose a comparison criteria:

1. Go to Change the Comparison Criteria.
2. Decide if you want to compare the Model Folio to an index, security, or mutual fund. Click on your selection. You may only compare the performance against one index, fund, or security at a time.
3. For indexes, click in the drop down box titled “Index” and select one. For securities, type the security’s symbol in the field next to “vs. a Security.” If you do not know the security’s symbol, click on “Security Lookup.” For mutual funds, type the fund’s symbol in the field next to “vs. a Fund.” If you do not know the fund’s symbol, click on “Fund Lookup.”
4. Click on Change View. The tables will then display the comparison you are looking for.

Average Model Statistics

The “Average Model Statistics” table compares the Model Folio to the index or investment you choose. The following items are included:

• Price / Earnings Ratio
• Price / Sales Ratio
• Price / Book Ratio
• Market Capitalization
• Volatility (standard deviation)
• Beta
• Daily Volume
• Dividend Yield
• Number of Securities (Statistics may not be available for some of the securities in the model. This column shows you how many securities had a particular statistic available and were used to calculate an average statistic.)

Target Weights allow you to easily modify your Model Folio and all client Folios that are subscribed to it.

When you choose to modify a model and sync subscribers, our system will generate orders to bring the weight of each security in the Model Folio and all subscribed Folios in line with the model’s Target Weights.

Target Weights

Initially, the Target Weight of each security in the Model Folio is equal to the weight of that security when you created the Model Folio. Say you create a Model Folio with five securities, with weights listed in column 1 in the table below. The initial Target Weights are equal to the when-created weights.

After you create a Model Folio, you can modify the Model by setting and saving new Target Weights.

If you click on “Modify Model” on the Model Folios page, the most recent Target Weights appear in the “Saved Target Weights” column.

Current Market Weights

After the Model Folio is created, obviously the weights will change as the stock market fluctuates. At any point in time, the current market weight of each security depends on its market price.

If you want to rebalance the Model Folio to bring it and all subscribed Folios back in line with the Target Weights, you can easily do that. Simply click “Sync Subscribers” next to the appropriate model on the Model Folios page and follow the steps. Our system will generate orders so that the weight of each security in the model and all subscribed Folios will be brought back in line with the Target Weights.

If you want to rebalance the Model Folio and all subscribed Folios to different weights, you must set and save new Target Weights.

Reminder! Unpublished Model Folios do not have subscribers. You modify an Unpublished Model Folio the same way—by setting and saving new Target Weights. However, you can only update the Model Folio to the new Target Weights because there are no subscribers.

Setting and Saving New Target Weights

You can easily set and save new Target Weights. You will also be given the chance to update your Model Folio and sync all subscribers. That will generate orders to bring your Model Folio and all subscribed Folios in line with the new Target Weights that you just set.

• The information that appears when you click on More Info and the short description that appears below each Model Folio name are provided by companies and organizations that are independent from us.
• We provide access to this info for the convenience of our customers; however, we have no control over these other companies.
• We in no way guarantee the accuracy, reliability, or completeness of any data or information provided in any linked Web site or in the short description. We do not approve or endorse this information.

Fees and trading activity can result in debit balances occurring in accounts. Keeping some cash outside of your Folios will help reduce the possibility of a debit balance.

How fees can create debit balances

Management and Brokerage Fees are collected from the cash position within an account (not from cash held in a Folio). If fees are charged and an insufficient amount of cash is available in the account to cover the entire fee, a debit balance is created. We do not allow a debit balance to persist, so you must sell some of the securities in the account, have your client make a new deposit of cash, or refund some of your fees to satisfy the debit balance.

How trades can create debit balances

When you create orders that both buy and sell securities (e.g., model sync and rebalance orders), the client may end up with a debit balance if the proceeds from the securities sold are less than the cost of the securities purchased. This can happen when the prices of the securities being sold decrease more than the prices of the securities being purchased, between the time when the order is entered and the time the order is executed. If there is not enough cash in the account to cover this difference, a debit balance is created. In order to avoid Regulation T violations, the debit balance needs to be resolved quickly. This can be accomplished by selling some of the securities in the account or making a new deposit of cash into the account. If the debit balance is not resolved quickly, then we are required to sell a sufficient dollar amount of securities in the account to satisfy the debit balance.

After the Model Folio is modified, our system will start generating orders to synchronize this Folio. These orders will be executed according to your instructions.

You have the following choices:

• Place sync orders in the first available window following changes to the Model Folio.
  This option allows you to place sync orders in the next available window. You can view the status of this order. Before the window closes, you can also modify or cancel it. Just click on a client’s name on the Clients’ Account page. Then select View Order Status in the drop-down box for that client.
• Hold all sync orders until you place or delete orders.
  This option allows you to hold all sync orders. You must then choose to delete orders, modify them, or place them in a window for execution.
• Hold only orders with exclusion alerts, place all other orders in first available window.
  This option allows you to hold sync orders that have at least one exclusion alert. For example, if you have excluded Microsoft for this account, our system will alert you that Microsoft is in the order. You must then chose to delete the order to buy Microsoft or leave it in. If a sync order has no exclusion alerts, it will be placed in the next available window.
• Do not create sync orders following changes to the model. You decide when to create sync orders.
  This option allows you to create the orders to synchronize this Folio to the model at your discretion. You have complete control over when sync orders are created. When the model changes, the system will not automatically create sync orders. Instead sync orders will be created when you choose to create them for this specific Folio through a Window Trade.

Competing Orders

Occasionally there may be instances in which an order already exists within this folio when a Sync trade is attempting to be placed. In the event that the existing order is a Buy/Sell at the Folio Current Weights, Buy Dollar Cost Average, Buy-/Sell-Only Synchronize or Just Synchronize—those orders that trade across all holdings within the folio—we will cancel and replace that order with the appropriate Buy/Sell and Synchronize order. The introduction of new cash or the sale of securities to generate proceeds within the folio will still occur, however the subscribed folio will be synchronized with the newest Model Target Weights, as intended by the Model Manager.

Example:

A Buy at the Folio Current Weights for $100 has been placed into the folio.

The Model Manager places a Sync order to rebalance the holdings to equal weights with an additional security. The existing order will be replaced with a Buy and Synchronize order to incorporate the $100 of new money while rebalancing to the new Model Target Weights.

The $100 is still included in the order, but the order results in the Folio being brought in sync with the Model at the same time as other subscribers to this Model.

If there is an order to buy into or sell out of the Folio in place at the time of a Model Sync being generated, we will merge the two orders. The merged order will complete the buy into or sell out of the Folio while also synching the holdings with the latest version of the Model.

This will occur with all orders except:

• Custom Modify Orders
• Direct Trades (Market/Limit/Stop)

Example

A Buy at the Folio Current Weights for $100 has been placed into the Folio.

The Model Manager places a Sync order to rebalance the holdings to equal weights with an additional security. The existing order will be replaced with a Buy and Synchronize order to incorporate the $100 of new money while rebalancing to the new Model Target Weights.

The $100 is still included in the order, but the order results in the folio being brought in sync with the Model at the same time as other subscribers to this Model.

If you do not want these orders to merge:

• Visit the Settings page
• Scroll to the account and subscribed folio
• Select Sync Options
• Under Choose how to synchronize when the Model Folio changes, select Hold all sync orders until you place or delete orders

• This option will generate orders to buy or sell every security in the Model Folio and every security in all subscribed Folios.
• These orders will bring each security in line with its Target Weight.
• If you do NOT want to generate an order to trade all securities in the model, please choose “Rebalance Selected Securities.”
• Important! When you modify a model and choose to generate sync orders, those orders are always executed according to the instructions of individual advisors.
• Important! To eliminate/reduce small orders, set a “Percentage Trade Threshold.”