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1 Compliance Journal Advisor Group Journal Number: 2017-03-II. Subject: Inactive Advisory Account Supervision Executive Summary: Effective April 24, 2017 Advisor Group is transitioning its procedures for the review of inactive advisory accounts to First Line Supervisors (FLS). These procedures are designed to ensure that evidence of suitability is maintained for advisory accounts managed by Investment Advisory Representatives (IARs) of the firm's corporate RIA. I. Background Historically, the firm has maintained policies and procedures related to the suitability of inactive advisory accounts.

2 On January 1, 2016 the firm adopted additional policies and procedures that focus specifically on the volume of trading activity in a wrap account over a period of time. While these new policies and procedures strengthened the firm's regulatory Compliance , the review of inactive accounts was primarily conducted manually by the IA. Compliance department at the home office instead of First Line Supervisors. In a continuous effort to improve and automate regulatory Compliance , the Firm is launching a new review system called Account Periodic (AP).

3 With the introduction of AP, First Line Supervisors will be provided tools and supervisory procedures to monitor the suitability of inactive advisory accounts in accordance with Firm policies. The Firm is updating Chapter of the Sales Practice Manual to provide additional guidance to First Line Supervisors and Investment Advisory Representatives regarding their responsibilities for inactive account reviews. II. Overview of Firm Policy & Procedures as of April 24, 2017. Effective April 24, 2017, (hereinafter, the effective date ) the following policies and procedures will be adopted in regards to all Advisor Managed Portfolios (AMP) accounts managed by IARs of the firm's corporate RIA.

4 The policies and procedures apply to both new and existing accounts, as of the effective date. Existing accounts will be evaluated based on activity prior to the effective date. A. Account Opening - At the inception of each new client relationship, IARs and their FLS should carefully consider the account option recommended. a. Advisory accounts should be recommended only when the client will benefit 1. from ongoing investment advisory services. b. Wrap fee accounts should only be considered for actively managed strategies.

5 B. Ongoing Periodic Reviews - IARs should periodically monitor their client's advisory accounts to ensure the portfolios holdings are aligned with each client's investment objectives, and that the advisory fee option selected at account opening remains suitable. The firm currently provides IARs with a suite of tools through the Wealth Management Platform (WMP) to aid in administering periodic reviews of client accounts. These tools include: a. Portfolio monitoring of asset allocation or risk variance drift to identify when trading may be appropriate, as a result of market changes or other factors.

6 B. Reports on any accounts that have had less than four trades over the past 12. months. c. Tracking of periodic, but no less than annual, meetings with clients to review account(s). C. 15-Month Review - When account trading activity is minimal for an extended period of time (less than four transactions in the prior 15 months), the FLS and IAR will receive an alert in Account Periodic (AP) requesting evidence of ongoing portfolio management and/or supervision. This review applies to both wrap and non-wrap fee arrangements.

7 The FLS must determine whether a fee based account is still suitable for the client or if the client's needs may be better served by converting the account to another option. The FLS must make the determination based on documented evidence of suitability including but not limited to;. i. Periodic account review notes indicating a client meeting in the past year, and ii. Alignment of the portfolio's holdings with the client's documented risk tolerance and investment objectives. If the FLS does not find adequate evidence of suitability then the FLS must ensure advisory fee billing and the advisory agreement are terminated immediately.

8 D. 21-Month Warning: The FLS and IAR will be alerted by AP of wrap accounts with less than four trades over the prior 21-month consecutive period. The FLS must review the account and make a determination as to whether a wrap account remains a suitable option for that client. Moreover, at the time of this 21-month warning, the FLS, working with the IAR, must immediately implement one of the three (3). alternatives listed below which best suits the client's needs, in order to avoid policy violation: 1. Perform a suitable rebalancing or reallocation of the account, complying with the conditions specified in Paragraph A above.

9 2. Transition the wrap account to a non-wrap advisory, managed account, or retail brokerage account; or 3. Terminate billing on the account. E. 24-Month Policy: The FLS and IAR will be notified by AP of wrap accounts with less than four trades over the prior 24-month consecutive period. Such wrap accounts shall be considered in violation of Firm policies regarding the appropriate use of a 2. wrap account and billing will be terminated on the account. The client will receive a letter notifying him/her that Advisor Group is terminating his/her advisory relationship.

10 This will normally result in a pro-rated credit of advisory fees to the client for any fees collected after the 24-month inactive date. III. Further Information First Line Supervisor (FLS) / Field Supervision Department For questions regarding suitability of your clients' current accounts or questions regarding the inactive account policy & procedures. To locate your field supervisor, please refer to the field supervision directory on the Advisor Portal; Home > Office Management > Supervision. Investment Advisory Sales & Marketing - 877-773-8130.