CFS Wealth Management, L.L.C.
Disclosure Brochure
Form ADV Part 2A
Updated March 7, 2023
Office Locations:
1515 Bass Road, Suite D, Macon, GA 31210 Telephone: 229.236.0322
121 N. Broad Street, Thomasville, GA 31792 Telephone: 888.471.1875
Website: www.cfswealth.com
Firm CRD/IARD # 135579
This brochure provides information about the qualifications and business practices of CFS Wealth Management. If you have any questions about the contents of this brochure, please contact us at (888)471.1875 or at service@cfswealth.com. Additional information about CFS Wealth Management also is available on the SEC’s website at www.adviserinfo.sec.gov.
The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.
Item 2 Material Changes
2023.03/07 This Brochure is prepared in the revised format required in the beginning of 2011. Registered Investment Advisors are required to use this format to inform clients of the nature of advisory services provided, types of clients served, fees charged, potential conflicts of interests and other information. The Brochure requirements include providing a Summary of Material Changes (the “Summary”) reflecting any material changes to our policies, practices, or conflicts of interest made since our last required “annual update” filing. In the event of any material changes, such Summary is provided to all clients within 120 days of our fiscal year-end. Our last annual update was filed on March 31, 2022. Of course, the Brochure is available to you at any time upon request.
Item 3 Table of Contents
· Item 4 Advisory Business
· Item 5 Fees and Compensation
· Item 6 Performance –Based Fees and Side-By-Side Management
· Item 7 Types of Clients
· Item 8 Method of Analysis, Investment Strategies and Risk of Loss
· Item 9 Disciplinary Information
· Item 10 Other Financial Industry Activities and Affiliations
· Item 11 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading
· Item 12 Brokerage Practices
· Item 13 Review of Accounts
· Item 14 Client Referrals and Other Compensation
· Item 15 Custody
· Item 16 Investment Discretion
· Item 17 Voting Client Securities
· Item 18 Financial Information
· Item 19 Requirements for State-Registered Advisers
Item 4 Advisory Business
General Information
CFS Wealth Management, LLC (“CFS Wealth”) was formed in May 2005 and provides fee-based investment advisory and wealth management services including portfolio management and consulting services to our clients. Wade Chapman is the sole owner of CFS Wealth.
We primarily utilize portfolios of open-end mutual funds, however closed-end funds, ETFs and individual equities and bonds may also be utilized. The fee charged is usually determined as a percentage of the account value or based on a fixed annual fee. As the portfolios are often tailored to the individual needs of clients, clients may impose restrictions on investing in certain types of securities. We do not participate in Wrap programs.
Please see Form ADV, Part 2B, for more information on the individuals who formulate investment advice and have direct contact with clients, or have discretionary authority over clients accounts.
Reports of Assets under Management as of March 6, 2023
Discretionary Assets Under Management $111,775,447
Consulting (Non-Discretionary) Assets Under Management $6,910,664
Services Offered
At the outset of our relationship, we seek to gain an understanding and assessment of your current and prospective financial position, investment experience, goals, objectives and risk tolerance (ability and willingness to handle volatility). Based on our reviews, we generally develop an overall investment and asset allocation plan for your investment portfolio.
We engage in ongoing dialogue throughout the course of our relationship. Changes in your circumstances may require a change in your asset allocation or overall investment plan.
Portfolio Management (Discretionary Services) Your portfolio is generally invested in mutual funds, individual stocks and bonds, ETFs, separate account managers (“SAMs”) and private investment funds or partnerships (e.g., hedge funds or private equity funds) where appropriate for you.
We will generally manage your investment portfolio on a discretionary basis. As a discretionary investment advisor, we will have authority to supervise and direct your portfolio without consultation with you. Not withstanding the foregoing, you may impose certain restrictions on us in the management of your investment portfolio, such as prohibiting the inclusion of certain types of investments. You should note, however, that restrictions imposed by you may adversely affect the composition and performance of your investment portfolio. You should also note that your investment portfolio is treated individually by giving consideration to each purchase or sale of your account. For these are other reasons, performance of your investment portfolio within the same investment objectives, goals and/or risk tolerance may differ and you should not expect that the composition or performance of your investment portfolio would necessarily be consistent to similar clients of ours.
We do not have discretionary authority to invest your funds in private investment funds or partnerships (i.e., hedge funds or private equity funds). When we recommend such investments, you must decide whether to invest, and if you invest, you must execute subscription or similar documents with the fund or related entity. We monitor these investments and include the assets in quarterly reports to you. In general, these private investment funds are carried at market value in your portfolio and updated on a monthly (or in some cases quarterly or annually) basis by the fund administrator.
Consulting Services (Non-Discretionary Services) We also work with endowments, foundations, trusts, family offices, retirement plans and corporations on a consulting basis. In this role, we do not have discretion over the portfolio but rather work with client trustees, investment committee, or others responsible for the assets to develop an investment plan, make ongoing recommendations to implement the plan and monitor the performance of the portfolio. We may assist the client in implementation of the strategy to the extent possible, but is is generally the client’s responsibility for all decisions regarding actions taken (or not taken) with respect to the portfolio.
Retirement Plan Advisory Services Establishing a sound fiduciary governance process is vital to god decision making and to ensuring that prudent procedural steps are followed in making investment decisions. We will provide Retirement Plan consulting services to Plans and Plan Fiduciaries as described below. The particular services provided will be detailed in the consulting agreement. The appropriate Plan Fiduciary(ies) designated in the Plan documents (e.g., the Plan sponsor or named fiduciary) will (i) make the decision to retain our firm; (ii) agree to the scope of the services that we will provide; and (iii) make the ultimate decision as to accepting any of the recommendations that we may provide. The Plan Fiduciaries are free to seek independent advice about the appropriateness of any recommended services for the Plan.
The Employee Retirement Income Security Act of 1974 (“ERISA”) sets forth rules under which Plan Fiduciaries may retain investment advisors for various types of services with respect to Plan assets. For certain services, we will be considered a fiduciary under ERISA. For example, we will act as an ERISA 3 (21) fiduciary when providing non-discretionary investment advice to the Plan Fiduciaries by recommending a suite of discretionary investments as choices among which Plan Participants may select. Also, to the extent that the Plan Fiduciaries retain us to act as an investment manager within the meaning of ERISA 3 (21), we will provide discretionary investment management services to the Plan.
With respect to any account for which we meet the definition of a fiduciary under Department of Labor rules, we acknowledge that both CFS Wealth and our Related Persons are acting as fiduciaries. Additional disclosure may be found elsewhere in the Brochure or in the written agreement between you and CFS Wealth.
Fiduciary Consulting Services
Investment Selection Services: We will provide Plan Fiduciaries with recommendations of investment options consistent with ERISA section 404(c). Plan Fiduciaries retain responsibility for the final determination of investment options and for compliance with ERISA section 404(c).
Non-Discretionary Investment Advice: We provide Plan Fiduciaries and Plan Participants general, non-discretionary investment advice regarding assets, classes and investments.
Investment Monitoring: We will assist in monitoring the plan’s investment options by preparing periodic investment reports that document investment performance, consistency of fund management and conformation to the guidelines set forth in the investment policy statement and we will make recommendations to maintain or remove and replace investment options. The details of this aspect of service will be enumerated in the engagement agreement between the parties.
Fiduciary Management Services
Discretionary Management Services: When retained as an investment manager within the meaning of ERISA 3(38), we provide continuous and ongoing supervision over the designated retirement plan assets. We will actively monitor the designated retirement plan assets and provide ongoing management of the assets. When applicable, we will have discretionary authority to make all decisions to buy, sell or hold securities, cash or other investments for the designated retirement plan assets in our sole discretion without first consulting with the Plan Fiduciaries. We also have the power and authority to carry out these decisions by giving instructions, on your behalf, to brokers and dealers and the qualified custodian(s) of the Plan for our management of the designated retirement plan assets.
Discretionary Investment Selection Services: We will monitor the investment options of the Plan and add or remove investment options for the plan without prior consultation with the Plan Fiduciaries. We will have discretionary authority to make and implement all decisions regarding the investment options that are available to Plan Participants.
Investment Management via Model Portfolios: We will provide discretionary management of Model Portfolios among which the participants may choose to invest as Plan options.
Separate Account Managers
From time to time, when suitable, we may utilize one or more Separate Account Managers (each a “SAM”). In cases where we recommend the use of one or more SAMs to manage a portion of your portfolio, we will either select or assist you in the selection of the SAM(s). the SAMs may be granted trading authority for one or more accounts in the portfolio. You will enter into a separate advisory agreement with the SAM and may be charged a fee by the SAM in addition to our fee. With respect to assets managed by a SAM, our role will be to monitor your overall financial situation, the investment approach and performance of the SAM, to assist you in misunderstanding the investments of your portfolio, and to recommend whether to retain or terminate the SAM.
Other Financial Services
In addition to the services described above, we may provide other financial services to you. These services are generally provided on a project basis, and may include, without limitation, estate planning, cash flow planning for certain events such as education expenses or retirement income, tax planning analysis and review of your insurance portfolio, as well as other matters specific to you as and when requested by you and agreed to by us.
Item 5 Fees and Compensation
General Fee Information Fees paid to us are exclusive of any transaction costs, custodial fees and broker fees. Fees paid to us are also separate and distinct from any fees charged by SAMs, no-load mutual funds, ETFs (exchange traded funds) or private investment funds (which generally include a management fee and fund expenses, as described in each fund’s prospectus or offering materials). Where possible, we negotiate these fees on behalf of you. You should review all fees charged by SAMs, funds, brokers, custodians, CFS Wealth and others to fully understand the total amount of fees paid by you for investment and financial- related services.
Portfolio management fees are generally payable quarterly, in advance. If management begins after the start of a quarter, fees may be prorated accordingly. Fees are normally debited directly from your account, unless other arrangements are made.
Either you or CFS Wealth may terminate our Investment Advisory Agreement at any time, subject to any written notice requirements in the agreement. In the event of termination, any prepaid but unearned fees will be promptly refunded to you, and any fees due to us from you may be invoiced or deducted from your account prior to termination.
Pro-rated Fees – Existing Clients We do not typically pro-rate fees on capital flows in or out of existing accounts. However, in limited circumstances and by mutual consent and agreement, we may. Under these conditions, fees on additional assets received into a managed account are prorated for the number of days the additional assets are in the account. Under these conditions, for capital flows out of an account, the fee is reduced by the number of days left in the quarter after the outgoing capital flow.
Fees for Accounts Managed on a Discretionary Basis The annual fee schedule for each client is individually determined and agreed upon with the client at the inception of the relationship. Fees are calculated on a percentage of assets under management. Beginning in 2022, fee calculations will be rounded to the nearest whole dollar amount. The following fee schedule is used as a guide used for determining fees for clients:
First $1,000,000 1.00%
Next $4,000,000 0.75%
Next $5,000,000 0.65%
Over $10,000,000 0.50%
We may, at our discretion, make exceptions to the foregoing fee schedules or negotiate special fee arrangements.
Fees for Consulting Accounts Managed on a Non-Discretionary Basis When we provide investment consulting services (non-discretionary management services) to you, our fees are negotiated at the time of the engagement for such services. Fees are normally calculated based on a percentage of the value of the assets under advisement.
Separate Account Manager (“SAM”) Fees In instances where the services of a SAM are utilized, the SAM’s fees will be charged to you in addition to our fee. In this situation, you will enter a separate agreement, which details the fees to be assessed, with the SAM.
Financial Services Fees The scope and fees for these services will be negotiated with you at the time of engagement for the applicable project.
Private Investment Fund Fees In instances where you invest in private investment funds or partnerships (e.g., hedge funds or private equity funds), the funds typically charge management fees and incentive fees or a profit allocation. In these situations, you are provided with an offering memorandum or similar document that explains the general terms (including fees) and risks of the investment. In order to invest in such investments, you must meet applicable eligibility requirements that include a minimum net worth requirement, among others. In order to invest in these types of investments, you must complete and execute subscription or similar documents to evidence your qualifications and your understanding of the fees and other terms of the investment.
When CFS Wealth clients invest in a private fund(s) for which we or a related person serves as Manager, Adviser, General Partner or in some similar capacity and receive a fee from the fund, you will not be assessed our Portfolio Management fee on the assets in the Fund(s). You will bear a proportionate share of the fees assessed to all investors in the Fund(s), however.
Item 6 Performance Based Fees and Side by Side Management
CFS Wealth Management does not provide services with performance-based fees.
Item 7 Types of Clients
We serve individuals (including High Net Worth individuals), family offices, trusts, institutions, endowments, pension and profit-sharing plans, corporations, other pooled investment vehicles, estates and charitable organizations.
With some exceptions, the minimum portfolio value eligible for conventional investment advisory services is $50000. Under certain circumstances and in our sole discretion, we may negotiate such minimums.
Item 8 Methods of Analysis, Investment Strategies and Risk of Loss
Methods of Analysis
We utilize individual equity securities, Separate Account Managers (“SAMs”), shares of registered no-load mutual funds, ETFs, index funds and fixed income securities for your account. When appropriate, alternative investments (hedge funds, private equity funds) may also be used.
In selecting individual securities for your account, we generally apply traditional bottom-up fundamental research. Our analysis generally may include a review of the business, industry, management and financial information about an issuer. Financial strength ratios, price-to-earnings, price to cash flow (free cash flow yield), price to book, dividend yield, payout ratio, earning strength and consistency, sustainable competitive advantages and other factors may be considered.
SAMs, mutual funds, ETFs and private investment funds or partnerships are generally evaluated and selected based on a variety of factors, including, without limitation, past performance, manager tenure, philosophy, process, culture, fee structure, overall ratings for risk adjusted returns and other factors.
Investment Strategies
We manage your portfolio on an individual basis, based on our understanding of your goals, risk tolerance, liquidity needs and other factors. As appropriate for you, assets are allocated among various asset classes (small cap, large cap, value, growth, domestic and international fixed income, including global and high yield if appropriate) and rebalanced periodically as needed or as your situation changes.
The following strategies may be used in varying combinations over time for you, depending upon your individual circumstances.
Long Term Purchases Securities purchased with the expectation that the value of those securities will grow over a relatively long period of time, generally greater than one year.
Short Term Purchases Securities purchased with the expectation that they will be sold within a relatively short period of time, generally less than one year, to take advantage of the securities’ short term price fluctuations.
Short Sales A securities transaction in which an investor sells securities he or she borrowed in anticipation of a price decline. The investor is then required to return an equal number of shares at some point in the future. A short seller will profit if the stock goes down in price.
Margin Transactions A securities transaction in which an investor borrows money to purchase a security, in which case the security serves as collateral on the loan.
Options Trading/Writing A securities transaction that involves buying or selling (writing) and options. If you write an option, and the buyer exercises the option, you are obligated to purchase or deliver a specified number of shares at a specified prices at the exercise of the option regardless of the market value of the security at expiration of the option. Buying an option gives you the right to purchases or sell a specified number of shares at a specified prices until the date of expiration of the option regardless of the market value of the security at expiration of the option. Buying an option gives you the right to purchase or sell a specified number of shares at a specified price until the date of expiration of the option regardless of market value of the security at expiration of the option.
Risk of Loss
While we seek to diversify your investment portfolio across various asset classes in an effort to reduce risk of loss, all investment portfolios are subject to risks (defined as volatility or permanent loss of capital). Accordingly, there can be no assurance that your investment portfolio will be able to fully meet your investment objectives and goals, or that investments will not lose money.
Below is a description of several of the principal risks that your investment portfolio faces.
Overall Investment Risk. All securities investments risk the potential loss of capital. The nature of the securities to be purchased and traded by you and the investment techniques and strategies to be employed by us may increase such risk. The identification of investment opportunities is a difficult task, and there can be no assurance that such opportunities will be successfully recognized. While we will devote our best efforts to the management of your portfolio, there can be no assurance that you will not incur losses. Returns generated from your investments may not adequately compensate you for the business and financial risks assumed. You should be aware that you may lose all or part of your investment in an account. Many unforeseeable events, including actions taken by various government agencies and domestic and international economic and political developments may cause sharp market fluctuation, which could adversely affect your portfolio’s performance.
Management Risks. While we manage your investment portfolio based on our experience, research and proprietary methods, the value of your investment portfolio will change daily based on the performance of the underlying securities and mutual fund managers, SAMs and ETFs and the securities in which it is invested. Accordingly, your investment portfolio is subject to the risk that we allocate your assets to individual securities and/or asset classes that are adversely affected by unanticipated market movements, and the risk that our specific investment choices could underperform their relevant indexes.
Risks of Investments in Separate Account Managers, Sub-Advisors, Mutual Funds, ETFs and Other Investment Pools. As described above, we may invest your portfolio with SAMs or may invest in mutual funds, ETFs and other investment pools (“pooled investment funds”). Investments in pooled investment funds are subject to risks associated with the markets in which they invest. In addition, pooled investment funds’ success will be related to the skills of their particular managers and their performance in managing their funds. Pooled investment funds are also subject to risks due to regulatory restrictions applicable to registered investment companies under the Investment Company Act of 1940.
Equity Market Risks. We will generally invest portions of your assets directly into equity investments, primarily stocks, or into pooled investment funds that invest in the stock market. As noted above, while pooled investments have diversified portfolios that may make them less risky than investments in individual securities, funds that invest in stocks and other equity securities are nevertheless subject to the risks of the stock market. These risks include, without limitation, the risks that stock values will decline due to daily fluctuation in the markets, and that stock values will decline over longer periods (e.g. bear markets) due to general market declines in the stock prices for all companies, regardless of any individual security’s prospects.
Risks Related to Alternative Investment Vehicles. The value of your portfolio will be based in part on the value of alternative investment vehicles in which it is invested, the success of each of which will depend heavily upon the efforts of their respective managers. When the investment objectives and strategies of a Manager are out of favor in the market or a manager makes unsuccessful investment decisions, the alternative investment vehicles managed by the manager may lose money. Your account may lose a substantial percentage of its value if the investment objectives and strategies of many or most of the alternative investment vehicles in which it is invested are out of favor at the same time, or many or most of the managers make unsuccessful investment decisions at the same time.
Fixed Income Risks. We may invest portions of your assets directly into fixed income instruments, such as bonds and notes, or may invest in pooled investment funds that invest in bonds and notes. While investing in fixed income instruments, either directly or through pooled investment funds, is generally less volatile than investing in stock (equity) markets, fixed income investments nevertheless are subject to risks. These risks include, without limitation, interest rate risks (risks that changes in interest rates will devalue the investments), credit risks (risks of default by borrowers), or maturity risk (risks that bonds or notes will change value from the time of issuance to maturity).
Foreign Securities Risks. We may invest portions of your assets into pooled investment funds that invest internationally. While foreign investments are important to the diversification of your investment portfolio, they carry risks that may be different from U.S. investments. For example, foreign investments may not be subject to uniform audit, financial reporting or disclosure standards, practices or requirements comparable to those found in the U.S. Foreign investments are also subject to foreign withholding taxes and the risk of adverse changes in investment or exchange control regulations. Finally, foreign investments may involve currency risk, which is the risk that the value of the foreign security will decrease due to changes in the relative value oof the U.S. dollar and the security’s underlying foreign currency.
General Economic Conditions. The success of any investment activity will be affected by general economic conditions which affect the level and volatility of prices as well as the liquidity of the markets. The prices of many securities are highly volatile. The price movements of investments will be influenced by, among other things, interest rates, changing supply and demand relationships, the trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events. Governments from time to time intervene, directly and by regulation, in certain markets. Unexpected changes (in either direction) in the volatility or liquidity of the markets could cause significant losses.
Short Sales. As described above, we may use short sales as an investment strategy. You generally will be required to pay a brokerage commission or interest which will increase the cost to you of selling such securities. The proceeds of the short sale plus additional cash or securities must be deposited as collateral with the lender of the securities to the extent necessary to meet margin requirements; the amount of the required deposit will be adjusted periodically to reflect any change in the market price of the securities which you are required to return to the lender. You generally will be entitled to receive payments from the lender with respect to the short sale proceeds and additional cash on deposit with the lender, at negotiated rates typically based on the lender’s short-term borrowing costs. You will be obligated to return securities equivalent to those borrowed at any time on demand of the lender of the securities borrowed by purchasing them at the market price at the time of replacement. Until the securities are replaced, you will be required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan of the securities
Margin Transactions. Fluctuations in the market value of a leveraged portfolio can have a disproportionately large effect in relation to the capitalof that portfolio. Any event which may adversely affect the value of positions held by you could significantly affect the value of your account.
Options Trading/Writing. Use of options for your account may result in losses to you. An adverse price movement may result in unanticipated losses to you.
Item 9 Disciplinary Information
Neither CFS Wealth nor any of our management persons has been involved in any legal or disciplinary action that would affect one of our client’s or prospective client’s evaluation of our advisory business or the integrity of our management.
Item 10 Other financial industry activities and affiliations.
Mr. Steve Anderson is a registered representative with Purshe Kaplan Sterling Investments (PKS). This creates a potential conflict of interest since Mr. Anderson may receive compensation as a result of recommendations to purchase products and services through PKS. CFS Wealth does not charge advisory fees for client accounts held through this broker/dealer affiliation.
Item 11 Code of Ethics, Participation or Interest in client Transactions and Personal Trading
Code of Ethics and Personal Trading
We have adopted a Code of Ethics (“the Code”), the full text of which is available to you upon request. Our Code has several goals. First, the Code is designed to assist us in complying with applicable laws and regulations governing our investment advisory business. Under the Investment Advisers Act of 1940, we owe fiduciary duties to our clients. Pursuant to these fiduciary duties, the Code requires our associated persons to act with honesty, good faith and fair dealing in working with clients. In addition, the Code prohibits associated persons from trading or otherwise acting on insider information.
Next, the Code sets forth guidelines for professional standards for our associated persons (managers, officers and employees). Under the Code’s Professional Standards, we expect our associated persons to put the interests of our clients first, ahead of personal interests. In this regard, our associated persons are not to take inappropriate advantage of their positions in relation to our clients.
Third, the Code sets forth policies and procedures to monitor and review the personal trading activities of associated persons. From time to time our associated persons may invest in the same securities recommended to you. Under our Code, we have adopted procedures designed to reduce or eliminate conflicts of interest that this could potentially cause. Our Code’s personal trading policies include procedures for limitations on personal securities transactions of associated persons, reporting and review of such trading and pre-clearance of certain types of personal trading activities. These policies are designed to discourage and prohibit personal trading that would disadvantage clients. The Code also provides for disciplinary action as appropriate for violations.
Participation or Interest in Client Transactions
Because associated persons may invest in the same securities as those purchased in your accounts, we have established a policy requiring our associated persons to pre-clear transactions in some types of securities with our Chief Compliance Officer. The goal of this policy is to avoid any conflicts of interest that arise in these situations. Some types of securities, such as index funds/ETSs, CDs, treasury obligations and open-end mutual funds are exempt from this pre-clearance requirement. However, in the event of the other identified potential trading conflicts of interest, our goal is to place your interests first.
Consistent with the foregoing, we maintain policies regarding participation in initial public offerings (“IPOs”) and private placements in order to comply with applicable laws and avoid conflicts with your transactions. If our associated person wishes to participate in an IPO or invest in a private placement, he or she must submit a pre-clearance request and obtain the approval of our Chief Compliance Officer.
Item 12 Brokerage Practices
Best Execution and Benefits of Brokerage Selection
When given discretion to select the brokerage firm that will execute orders in your account, we seek “best execution” for your trades, which is a combination of a number of factors, including, without limitation, quality of execution, services provided and commission rates. Therefore, we may use or recommend the use of brokers who do not charge the lowest available commission in the recognition of research and securities transaction services, or quality of execution.
Research services received with transactions may include proprietary or third-party research (or any combination), and may be used in servicing any or all of our clients. Therefore, research services received may not be used for the account for which the particular transaction was affected.
We recommend that you establish a brokerage account with Fidelity Institutional Wealth Services (“Fidelity”) division of Fidelity Investments all FINRA registered broker-dealer, member SIPC to maintain custody of your assets. We may also place trades for your accounts at the Custodians, or may in some instances, consistent with our duty to seek best execution and specific agreement with you, elect to execute trades elsewhere. Although we may recommend that you establish an account at the Custodians or another qualified custodian, it is ultimately your decision as to where your assets are held in custody. We are independently owned and operated and are not affiliated with the Custodians or any other qualified custodian.
The Custodians provide us with access to their institutional trading and custody services, which are typically not available to Custodians’ retail investors. These services generally are available to independent investment advisers on an unsolicited basis, at no charge to them. The Custodians’ brokerage services include the execution of securities transactions, custody, research, and access to mutual funds and other investments that are otherwise generally available only to institutional investors or would require significantly higher minimum initial investment. These services are not soft dollar arrangements, but are part of the institutional platform offered by the Custodians.
For our client accounts maintained in their custody, the Custodians generally do not charge separately for custody services but are compensated by account holders through commissions or other fees on trades that they execute or that settle into your Custodian account. Certain trades may not incur Custodian commissions or transaction fees. The Custodians are also compensated by earning interest on the uninvested cash in your account. The Custodians also make available to us other products and services that benefits us but may not directly benefit our client’s account. Many of these products and services may be used to service all or a substantial number of our accounts, including accounts not maintained at the Custodians.
The Custodians’ products and services that assist us in managing and administering your accounts include software and other technology that (i) provide access to client account data (such as trade confirmations and account statements); (ii) facilitate trade execution and allocate aggregated trade orders for multiple client accounts; (iii) provide research, pricing and other market data; (iv) facilitate payment of our fees from your accounts; and (v) assist with back-office functions, recordkeeping and client reporting.
The Custodians also offer other services intended to help us manage and further develop our business enterprise.
These services may include: (i) compliance, legal and business consulting; (ii) publications and conferences on practice management and business succession; and (iii) access to employee benefits providers, human capital consultants and insurance providers. The Custodians may make available, arrange and/or pay third-party vendors for the types of services rendered to us. The Custodians may discount or waive fees it would otherwise charge for some of these services or pay all or a part of the fees of a third-party providing these services to us. The Custodians may also provide other benefits such as educational events or occasional business entertainment of our personnel. In evaluating whether to recommend that client’s custody their assets at the Custodians, we may take into account the availability of some of the foregoing products and services and other arrangements as part of the total mix of factors we consider and not solely on the nature, cost or quality of custody and brokerage services provided by the Custodians, which may create a potential conflict of interest. While it may be possible to obtain similar custodial, execution and other service elsewhere at a lower cost, we believe that the Custodians provide an excellent combination of these services.
Directed Brokerage
You may direct us to use a particular broker for custodial or transaction services on behalf of your portfolio. In directed brokerage arrangements, you are responsible for negotiating the commission rates and other fees to be paid to the broker. Accordingly, if you choose to direct brokerage, you should consider whether such designation may result in certain costs or disadvantages to you, either because you may pay higher commissions or obtain less favorable execution, or the designation limits the investment options available to you.
The arrangements that we have with the Custodians are designed to maximize efficiency and to be cost effective. By directing brokerage arrangements, you acknowledge that these economies of scale and levels of efficiency are generally compromised when alternative brokers are used. While every effort is made to treat clients fairly over time, the fact that you choose to use the brokerage and/or custodial services of these alternative service providers can in fact result in a certain degree of delay in executing trades with your accounts and otherwise adversely affect management of your account(s).
By directing us to use a specific broker or dealer, clients who are subject to ERISA confirm and agree with us that they have the authority to make the direction, that there are no provisions in any client or plan document which are inconsistent with the direction, that the brokerage and other goods and services provided by the broker or dealer through the brokerage transactions are provided solely to and for the benefit of the client’s plan, plan participants and their beneficiaries, that the amount paid for the brokerage and other services have been determined by the client and the plan to be reasonable, that any expenses paid by the broker on behalf of the plan are expenses that the plan would otherwise be obligated to pay, and that the specific broker or dealer is not a party in interest of the client or the plan as defined under applicable ERISA regulations.
Aggregated Trade Policy
We typically direct trading in your account as and when trades are appropriate, without regard to activity in other client accounts. However, from time to time and consistent with our duty of best execution, we may aggregate trades together for multiple client accounts. Moreover, such aggregated or “blocked” trades may include shares or units intended to be purchased or sold for accounts that are affiliated with our principals or employees (“Affiliated Accounts”).
Each client that participates in an aggregated order at one of the executing brokers will participate at the average share price obtained in that block trade, with transaction costs generally shared pro-rata based on each client’s participation in the transaction. On occasion, owing to the size of a particular account’s pro rata share of an order or other factors, the commission or transaction fee charged could be above or below a breakpoint in a pre-determined commission or fee schedule set by the executing broker, and therefore transaction charges may vary among accounts. Note that in 2020 the Custodians eliminated transaction fees on most equity transactions.
Our books and records will separately reflect, for each client account included in a block trade, the securities held by and bought and sold for that account. Funds and securities of clients whose orders are aggregated will be deposited with one or more banks or broker-dealers, and neither the clients’ cash nor their securities will be held collectively any longer than is necessary to settle the transaction on a delivery versus payment basis; cash or securities held collectively for clients will be delivered out to the custodian bank or broker-dealer as soon as practicable following the settlement , and we will receive no additional compensation or remuneration of any kind as a result of the proposed aggregation.
Item 13 Review of Accounts
Account reviews are conducted on an ongoing basis by an officer of the firm to ensure that your needs and objectives are being met. In addition, your portfolio is reviewed quarterly for performance in comparison to relevant benchmarks. We will adjust cash needs as necessary. You are advised that it remains your responsibility to advise us of any changes in your investment objectives and/or financial situation.
We may also conduct account reviews based upon the occurrence of a triggering event, such as a change in your investment objectives and/or financial situation, market corrections, at your request, and any other time deemed necessary or advisable by us.
Account custodian (Fidelity) is responsible for providing monthly or quarterly account statements, directly to you, which reflect the positions (and current pricing) in each account as well as transactions in each account, including fees paid from an account. Fidelity will also provide prompt confirmation of all trading activity, and year-end tax statements, such as 1099 forms directly to you.
Item 14 Client Referrals and other compensation
We do not have any financial arrangements for referrals.
Item 15 Custody
CFS Wealth Management does not have custody of client funds or securities.
Item 16 Investment Discretion
As described in the Advisory Business section, we will accept clients on either a discretionary or non- discretionary basis. For discretionary accounts, you give us the authority to carry out various activities in your account, generally including the following; trade execution; the ability to request checks on your behalf; and, the withdrawal of advisory fees directly you’re your account. We then direct investment of your portfolio using our discretionary authority. You may limit the terms of our activities to the extent consistent with your investment advisory agreement with us and the requirement of your custodian.
For some non-discretionary accounts, you may retain the authority to place trades. However, in accordance with the investment advisory agreement between you and CFS Wealth, we do not implement trading recommendations or other actions in your account unless and until you have approved the recommendation or action. As with discretionary accounts, you may limit the terms of our activities, subject to our agreement with you and the requirements of your custodian.
Item 17 Voting Client Securities
We do not vote client securities. We can assist clients in evaluating their proxies.
Item 18 Financial Information
We are unaware of any financial condition that is reasonably likely to impair our ability to meet our contractual commitments relating to our authority over your accounts, and have not been the subject of a bankruptcy petition.
ANY QUESTIONS: Wade Chapman remains available to address any questions that you may have regarding any information disclosed in this document.
Item 19 State Registration Questions
A. Our firm’s sole owner and managing member is Mr. Wade Chapman. In the Part 2B sections that follow this Item 19 there is a Part 2B for Mr. Chapman in which his post-High School education and his work history are disclosed.
B. The firm’s associates can and do provide advice on insurance products and are able to obtain such products for interested advisory clients. CFS does not charge advisory fees in addition to insurance commissions on assets held in insurance company products. The amount of time spent on insurance matters is less than 5 hours per month per person.
C. Neither the firm nor any supervised persons receive performance-based compensation from client portfolios managed by CFS Wealth Management. Mr. Chapman, the firm's principal, is the sole owner of separate entity CFS Capital Advisors which may receive performance based compensation as the general partner to a private a fund. Performance-based compensation may create an incentive for the adviser to recommend an investment that may carry a higher degree of risk to the client. The private fund only accepts accredited investors, some of whom may also be clients of CFS Wealth Management. CFS Wealth Management does not collect fees on those assets.
D. Neither any management person nor the firm has been involved in any of the arbitration, civil or regulatory proceedings or other events listed in this section.
E. Mr. Chapman is the sole owner and officer of CFS Capital Advisors LLC which is, in turn, the general manager of CFS Partners Real Asset Fund, which Georgia regards as a security. CFS Wealth Management does not recommend investment in the Real Asset Fund to advisory clients.
FORM CRS
CFS Wealth Management, LLC Client Relationship Summary – March 2023 (Form CRS/Form ADV Part 3)
Item 1. Introduction
We are CFS Wealth Management, LLC (“CFS”, “we”, “our” or “us”), registered with the U.S. Securities and Exchange Commission (“SEC”) as a registered investment advisor. Clients and prospective clients should be aware that advisory services and fees differ between investment advisor and broker-dealers and it is important for retail investors to understand the differences. Free and simple tools are available to research firms and financial professionals at investor.gov/CRS, which also provides educational materials about broker-dealers, investing and investment advisors.
Item 2. Relationship and Services
What investment services and advice can you provide me?
Services: CFS offers investment advisory services to retail investors through individually managed accounts using equity securities such as common and preferred stocks and investment company securities such as exchange traded funds, mutual funds, and closed end funds. We provide our services through the investment account you maintain with an account custodian, such as Fidelity, which holds your assets. CFS does not have custody or take possession of your assets. We typically have discretionary authority over your account to determine the securities or the amount of securities to be bought or sold, without your prior approval. Our discretion is active from the beginning of our relationship and will continue for the duration of our agreement. However, you may set restrictions such as a cash position to be left uninvested or certain investments to avoid.
Opening and Maintaining Accounts: CFS Does not require a minimum account size or investment amount to open or maintain an account. Through an inquiry about you current financial situation and financial goals, risk tolerance and investment time horizon, we develop an investment profile to meet your individual needs and invest your account accordingly. As part of our service, we routinely monitor accounts. We conduct periodic portfolio reviews and rebalancing (no less than annually) to ensure that our investment profile and investments are suitable for your objectives and goals.
Additional Information: Additional information on relationships, fees and services can be found in the CFS Firm Brochure, Form ADV Part 2A (Items 4-7) which is available at https://advisorinfo.sec.gov/firm/summary/135579.
Given my financial situation should I choose an investment advisory service? At CFS, we begin working with our clients by listening to them. We want to understand our personal and financial goals and concerns. Once we have helped you prioritize our objectives, we develop an investment strategy to help you achieve success. If we cannot add value to the relationship, we will refer you to someone who may be able to help you.
What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean? Additional information on each of the Members of CFS can be found in our Form ADV, Part 2B which can be provided upon request at wade@cfswealth.com.
Item 3. Fees, Costs, Conflicts and Standard of Contact
What fees will I pay?
Principal Fees and Costs: CFS is paid for investment advisory services strictly through investment management fees that are based on a percent of all assets in your account. Our general fee schedule begins at 1% of assets annually and is included in the CFS Firm Brochure, Form ADV Part 2A (Item 5). At our discretion, we may negotiate a lower fee. Fees are paid quarterly in advance.
Other Fees and Costs: You may be charged fees in addition to what you pay CFS. Examples are fees for mutual funds and variable annuities and brokerage commissions, transaction fees, wire transfer, and other related costs and expenses which you may be charged by your account custodian and/or broker- dealer either directly or indirectly. Commissions and transaction fees vary by broker-dealer and may be less at other brokerage houses.
Additional Information: You will pay fees and costs whether you make or lose money on your investments. Fees and costs will reduce any amount of money you make on your investments over time. Please make sure you understand what fees and costs you are paying. Additional information on our Code of Ethics can be found in our Form ADV, Part 2A Item 11 and additional information on our conflicts of interest can be found in our Form ADV, Form 2A (Item 7, 8, 10, 11 and 12) which can be found at https://advisorinfo.sec.gov/firm/summary/135579.
Help me understand how these fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me? Our fee on $10,000 would be 1% annually ($100) billed quarterly at 25 basis points ($25 per quarter). The balance would be invested for you.
What are your legal obligations to me when acting as my investment advisor? How else does your firm make money and what conflicts of interest do you have?
When we act as your investment advisor, we must act in your best interest and not put our interests ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the services and investment advice which we provide you. Here are some examples to help you understand what this means.
Examples of Conflicts of Interest: 1) We make money through our asset-based fees that we charge for our services. The more assets there are in your account, the more you will pay in fees. 2) CFS employees may own some of the same securities that are in your investment account.
How might your conflicts of interest affect me, and how will you address them? We have a fiduciary responsibility to you to place your interests ahead of ours. To prevent securities trading conflicts of interest, we have adopted a Code of Ethics with procedures in place for personal transactions in personal accounts and a quarterly monitoring system.
Additional information: Additional information on conflicts of interest can be found in our Form ADV, Part 2A (Items 7, 8, 10, 11 and 12) which can be found at https://advisorinfo.sec.gov/firm/summary/135579.
How do your financial professionals make money?
CFS employees are compensated based on individual performance and the net profitability of the firm.
Item 4. Disciplinary History
Do you of your financial professionals have legal or disciplinary history?
No. There is no disciplinary information to report regarding CFS professionals.
Additional information can be found in our form ADV, Part 2A (Item 9) which can be found at https://www.cfswealth.com/adv-part-2. You may also visit investor.gov/CRS for free and simple search tools to research us and our financial professionals.
Item 5. Additional Information
If you have any questions about our services or if you wish to request a copy of the relationship summary, please contact us at 888-471-1875 or at wade@cfswealth.com. Additional information is also available on the SEC’s website at Sec.gov.
Who is my primary contact person? Is he or she a representative of an investment advisor? CFS serves clients through a team approach. However, each client is assigned a lead advisor. Clients may contact any member of the firm for assistance as they so choose.
Who can I talk to if I have concerns about how this person is treating me? Clients may contact the owner and President of CFS, Wade Chapman, or our Client Coordinator, Lesley Worsham, for any concerns about they are treated by employees of CFS.