Investment Advisor Code of Ethics
Charles Schwab &Co Investment Advisor Code of Ethics (Revised September 2012)
Rule 204A-1 under the Investment Advisers Act of 1940 ("Advisers Act") requires all investment advisors registered with the Securities and Exchange Commission ("SEC") to adopt codes of ethics that set forth standards of conduct and require compliance with federal securities laws. Charles Schwab & Co., Inc. ("CS&Co.") is an investment advisor registered with the SEC with respect to various investment advisor products and services, including but not limited to Schwab Private Client ("SPC") Managed Account Services, and Schwab Managed Portfolios ("SMP"). To this end, CS&Co. hereby adopts this code of ethics ("Advisor Code"). This Advisor Code incorporates by reference the Charles Schwab Corporation Compliance Manual ("Compliance Manual")*, which sets forth the standards of business conduct that are required of employees of, and individuals registered with, CS&Co.
This Advisor Code applies to all CS&Co. employees and any individual registered with CS&Co. as an Investment Advisor Representative ("IAR") as 'Supervised Persons' under the Advisers Act Rules. The Advisers Act defines "Supervised Person" to mean any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment advisor, or other person who provides investment advice on behalf of the investment advisor and is subject to the supervision and control of the investment advisor.
This Advisor Code is intended to reflect fiduciary principles that govern the conduct of CS&Co. and its Supervised Persons in those situations where CS&Co. acts as an investment advisor as defined under the Advisers Act in providing investment advice to clients ("advisory clients").
Included herein are sections on:
- A. Standard of Conduct and Compliance with Laws, Rules and Regulations
- B. Protection of Material Non-Public Information
- C. Personal Securities Trading
- 1. Level 1 Access Person Requirements
2. Level 1 (a) Access Persons - ETF Pre-Clearance Requirement
3. Level 1(b) Access Persons Requirements
4. Level 2 Access Persons Requirements
5. Holdings Reports
6. Transactions Reports (Account Statements)
7. Review of Transactions
- D. Compliance Certification
- E. Consequences for Failure to Comply and Reporting Certain Conduct
- F. Recordkeeping
A. Standard of Conduct and Compliance with Laws, Rules and Regulations
All Supervised Persons are responsible for, and have agreed as a requirement of their employment or registration as an IAR, to review, be familiar with, and comply with this Advisor Code and the Compliance Manual.
Supervised Persons must comply with all of the laws, rules and regulations applicable to the business in which they engage, including among others, securities, banking and other federal, state and local laws. Although not expected to know the details of each law governing CS&Co.'s business, each Supervised Person is expected to be familiar with and comply with the companywide policies and procedures, as they apply to his or her business unit and, when in doubt, to seek advice from supervisors, managers or other appropriate personnel.
B. Protection of Material Non Public Information
Supervised Persons must review and comply with the Inside Information and Confidentiality of Information sections of the Compliance Manual chapters: “Inside Information & Information Barriers” and “Protecting Firm Information & Information Security Requirements”. It is unlawful to trade in any security on the basis of material nonpublic (or inside) information or to
disclose such information to others who may profit from it. This applies to all types of securities, including equities, options, debt, and mutual funds. Please refer to the “Inside Information and Information Barriers” chapter of this Manual for a definition of material nonpublic (or inside) information.
C. Personal Securities Trading, Pre-Approval & Disclosure Requirements
Rule 204A-1 of the Advisers Act requires all "Access Persons" of an investment advisor registered with the SEC to report, and the investment advisor to review, their personal securities transactions and holdings periodically. The Advisers Act defines "Access Person" to mean any supervised person of an investment advisor who (1) has access to nonpublic information
regarding any advisory clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund (i.e., any mutual fund advised by an affiliate of CS&Co.), or (2) is involved in making securities recommendations to advisory clients in advisory accounts, or who has access to such recommendations that are nonpublic.
The “Employee Securities Accounts & Investments” chapter of this Compliance Manual details employee securities account disclosure obligations and in-house requirements for all employees, including but not limited to prohibitions regarding trading in IPOs and private placements. In addition to the policies outlined in the chapter, CS&Co. Access Persons are prohibited from using non public information regarding portfolio holdings, model changes, or client transactions for their personal benefit. Specifically, Access Persons are prohibited from using advance knowledge to trade ahead of or otherwise benefit from such knowledge.
The Investment Advisor Chief Compliance Officer or designee maintains a list of each level of CS&Co. Access Persons and will promptly notify any new Access Person of their responsibilities under the Advisor Code.
Access Persons are not required to separately submit Holdings Reports, Transaction Reports, trade confirms or statements for accounts held at CS&Co.
1. Level 1 Access Person Requirements
Level 1 Access Persons are identified as either Level 1(a) or Level 1(b).
Once identified, each Level 1 Access Person must disclose Holdings Reports and Transaction Reports for any account held outside of CS&Co. in which they have a direct or indirect beneficial ownership and through which mutual funds and/or ETFs can be purchased, sold or held. This includes any mutual fund account held directly with the fund company.
Level 1(a) Access Persons are those individuals who have access to information concerning pending SMP client trades (model changes) or pending SMP investment decisions for both SMPMutual Funds and SMP-ETF portfolios.
Level 1(b) Access Persons are those individuals who have access to information concerning pending SMP-Mutual Fund client trades (model changes) or pending mutual fund investment decisions only.
2. Level 1(a) Access Persons - ETF Pre-Clearance Requirement
Charles Schwab Investment Advisory (“CSIA”) maintains a list of ETFs for use within SMPETF; this list is known as the Pre-Clearance List.
CS&Co. Level 1(a) Access Persons are required to pre-clear and receive approval from their supervisor or designee prior to buying or selling ETFs on the Pre-Clearance List. The Level 1(a) Access Persons seeking pre-clearance authorization must contact CSIA in accordance with the pre-clearance procedures detailed in their business unit’s policies and procedures.
If pre-clearance is not requested, authorized, and received, the Level 1(a) Access Person may be in violation of this Code.
3. Level 1(b) Access Persons Requirements
Charles Schwab Investment Advisory (“CSIA”) maintains a list of Mutual Funds for use within SMP-Mutual Fund. This list is shared with Level 1(b) Access Persons. Once identified, each Level 1(b) Access Person must disclose Holding Reports and Transaction Reports for any account held outside CS&Co., including accounts held directly with the fund company, in which they have a direct or indirect beneficial ownership.
4. Level 2 Access Persons Requirements
Level 2 Assess Persons are those client facing Investment Advisor Representatives (IAR's) identified as having access to pending individualized investment recommendations provided to SPC clients.
Once identified, each Level 2 Access Person must disclose Holdings Reports and Transaction Reports for any account held outside CS&Co in which they have a direct or indirect beneficial ownership, and through which securities can be purchased, sold or held. Level 2 Access Persons are not required to submit Holdings Reports or Transaction Reports for mutual fund accounts held directly with the fund company.
5. Holdings Reports
This report must be submitted to the Investment Advisor Chief Compliance Officer or designee:
- no later than 10 days after the person becomes an Access Person, and the information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person; and
- thereafter, no later than the end of the first calendar quarter every year.
The report must reflect current holdings, and at a minimum include:
- the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each mutual fund and ETF;
- the name of any firm in which any mutual funds or ETFs are held; and
- the date the Access Person submits the report.
6. Transaction Reports (Account Statements)
This report must be submitted to the Investment Advisor Chief Compliance Officer or designee no later than 30 days after the end of each calendar quarter.
Monthly or quarterly account statements can be used to satisfy the Transaction Report disclosure requirements, provided the account statement(s) includes all transactions effected during the period and includes, at a minimum, all of the following:
- the date of each transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, number of shares and principal amount of each mutual fund and/or ETF involved;
- the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
- the price at which each mutual fund and ETF transaction was effected; and
- the name of the firm through which the transaction was effected.
7. Review of Transactions
The Compliance Department will review personal securities transactions and holdings of all access persons periodically, but no less than quarterly.
D. Compliance Certification
The Compliance Department will provide each Supervised Person with a copy of this Advisor Code and any material amendments, and all Supervised Persons are required to provide Compliance with a written acknowledgment of their receipt of the Advisor Code and any amendments.
In addition, all Access Persons must certify each quarter that they have disclosed all outside applicable investment accounts, and whether any transaction was executed in those accounts.
E. Consequences for Failure to Comply and Reporting Certain Conduct
A Supervised Person can be subject to discipline, up to and including termination of employment, (or in instances involving franchisees, termination of the franchise agreement) if he or she violates this Advisor Code. (IBLs and their employees who violate this Code may be subject to recourse by Schwab, up to and including termination of the Franchise Agreement (FA).) Any Supervised Person who knows of, or reasonably believe there is, a violation of applicable laws or this Advisor Code, must report that information immediately to the Corporate Responsibility Officer or the Ombudsperson. A Supervised Person should not conduct preliminary investigations, unless authorized to do so by the Compliance Department. Anyone who in good faith raises an issue regarding a possible violation of law, regulation or company policy or any suspected illegal or unethical behavior will be protected from retaliation. If you have violated this Code, however, making a report will not protect you from the consequences of your actions. You can be subject to discipline up to and including termination of employment, or termination of your franchise agreement, if you violate this Code or fail to report violations that come to your attention.
Rule 204-2(a) (12) and (13) of the Advisers Act requires advisors to keep copies of all relevant
material relating to the Advisor Code. Supplemental policies are reflected in the CS&Co.
Investment Advisor Compliance Program.
*For Independent Branch Leaders (IBL) and their employees, any reference to the Compliance Manual
denotes the Independent Branch Services Compliance Manual.
1. “Beneficial Ownership” is interpreted in the same way as in determining whether a person has beneficial ownership of a security for purposes of Section 16 of the Securities Exchange Act of 1934, and includes ownership by any person who, directly or indirectly, through any contract, arrangement understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security. For example, a person should consider himself or herself the beneficial owner of securities held by his or her spouse, his or her minor children, a relative who shares his or her home, or other persons by reason of any contract, arrangement, understanding or relationship that provides him or her with sole or shared voting or investment power. If any Access Person has a question about whether he or she beneficially owns a security, he or she should consult the Investment Advisor Chief Compliance Officer.