Additional Disclosures > Services and Advice

USA Financial Formulas Corporation ("USA Financial Formulas") is a registered investment adviser with the Securities and Exchange Commission ("SEC"). We provide investment portfolio advice and supervisory services. We formed our business in 2007, with the primary objective of eliminating human emotion from the investing process. USA Financial Formulas is a wholly owned subsidiary of USA Financial Corporation ("USA Financial"). USA Financial is owned by Michael Walters and Brent Enders.

Our firm only manages client accounts on a discretionary basis. As of March 30, 2020, USA Financial Formulas had assets under management of approximately $361,907,231. We connect with our clients through solicitors or on third-party platforms. Typically, our solicitors are associated with brokerage firms, as registered representatives, and/or other investment advisers, as investment adviser representatives.

Our portfolios are called "Portformulas." Each Portformula is different, and you should choose the Portformula that best suits your investment goals and objectives. It is important for you to understand that we do not tailor our investment advice to the needs of each particular client and our investment advice is limited to the accounts on our platform. We will not give investment advice on other products or other accounts you own.

As previously mentioned, USA Financial Formulas' primary objective is to eliminate human emotion from the investing process. We do this by using a step-by-step, objective stock-selection process. We do not use money managers. We develop the stock selection criteria based on a particular portfolio's objective, and then a formula selects only those equities that meet the qualification criteria, e.g., the stocks must have a specific price-per-earnings ratio or the stocks must be issued by a large cap company. Therefore, because of the nature of USA Financial Formulas, you cannot place certain restrictions on your account. For example, each Portformula model will hold only those equities that meet the qualification criteria. This also means that we will not intervene in the event of market fluctuations. However, you may place other reasonable restrictions on your account.

Custodians

A custodian is a financial institution that can maintain possession of client funds or securities or can withdraw funds or securities from a client's account. USA Financial Formulas does not perform these services, i.e., we do not retain possession of any funds or securities deposited into your USA Financial Formulas account and we do not have the ability to withdraw funds or securities from your account. We utilize two institutional custodians: TD Ameritrade ("TD") and E*Trade Advisory Services ("EAS" f/k/a Trust Company of America). Clients are permitted to choose which custodian they want to use and can have accounts at more than one custodian, if they choose.

USA Financial Formulas also can serve as a sub-adviser for Pershing accounts. Pershing is a clearing firm and custodian utilized by USA Financial Formulas' affiliate, USA Financial Securities Corporation. Please see Other Industry Activities and Affiliations for additional details regarding this arrangement.

USA Financial Formulas Accounts

We offer several different portfolio options — each one designed with a specific investment goal. For example, our Freedom SP500 Portformula aims to capture the best performers listed on the S&P 500. The Freedom SP500 potential selection pool is any stock that is listed on the S&P 500. From there, the Portformula narrows down the stocks based on several specific criteria, eventually buying only those stocks that meet the criteria.

As referenced above, each Portformula's criteria will dictate not only which investments to purchase, but how long each investment should be held, and when the investments will be sold because they no longer meet the investment criteria. Based upon each specific Portformula's investment criteria, it may be possible that no holdings will qualify for the Portformula during a given period of time. This may result in an account maintaining a full money-market or institutional-bond position, but generally only for a limited period of time.

Accounts are established with a minimum 1 percent cash position that may exceed 1 percent based on trading activity within your account. The remaining percentage is fully invested in the Portformula's holdings. You will always be able to identify your account's holdings. Your account holdings are updated, as necessary, by reapplying the formula and rebalancing the account to achieve original asset allocations. Detailed information regarding your Portformula's selection criteria and rebalancing schedule can be found in the Portformula's hypothetical.

If you decide to remove your funds from a Portformula or, if you do not wish to participate in market fluctuations, you may direct us to place your funds in our money market account. However, we do not recommend this as a long-term strategy because you will be charged the standard account fees while your funds are sitting in the money market account.

It is possible that, in the future, we may decide to change a Portformula's investment selection criteria based on economic research or other compelling considerations.

A wrap-fee program bundles various services together and charges an all-inclusive fee, named a "wrap fee" because it wraps around all services rather than charging a separate fee for each service. Portformulas receives a portion of the wrap fee, as does the solicitor who referred you to our firm. Currently, Portformulas has relationships with two custodians: E*Trade Advisory Services ("EAS" f/k/a Trust Company of America) and TD Ameritrade¹. We also operate as a sub-adviser on USA Financial Securities' Pershing accounts. Our arrangements with TD Ameritrade and Pershing constitute wrap-fee programs. Our custodial arrangement with EAS is not considered a wrap-fee program because EAS charges clients a nominal cents-per-share charge above and beyond the assets under management ("AUM") fee.

Because wrap-fee accounts pay fees monthly, these accounts are typically best suited for investors who anticipate engaging in moderate to high levels of investment activity within their account. Infrequent trading is not supported by the fee structure, and clients with very little trading activity or account management are often better served in a traditional commission-based brokerage account. Because Porformulas engages in frequent, large-volume trading across all accounts monthly, we believe our clients are well suited for a wrap-fee arrangement.

TD Ameritrade and Pershing offer services to independently registered investment advisers, such as Portformulas. These services include custody of securities, trade execution, and clearance and settlement of transactions. Portformulas receives some economic benefits from TD Ameritrade through its participation in the TD Ameritrade Institutional program, such as discounts on marketing, technology, and practice management products provided to Portformulas by third-party vendors.

Investment Discretion

USA Financial Formulas exercises investment discretion on all accounts. Investment discretion occurs when an investment adviser can determine which securities should be purchased or sold within a client's account. When you open an account with USA Financial Formulas you sign our Investment Management Agreement, which grants our firm limited discretionary authority. Pursuant to this limited discretionary authority, we are permitted to rebalance your account based on your Portformula's criteria and reapply your selected asset allocations, without first obtaining your consent.

Because portfolio holdings are selected based on a formulaic process and trading is done on an omnibus or block level, you will not be able to instruct us to buy or sell specific securities within your account.

USA Financial Formulas does not utilize traditional money managers, i.e., a single person who makes decisions as to a model's holdings. When USA Financial Formulas opens your account, we allocate your assets to the specific Portformula or Portformulas you selected. From there, the Portformula chooses holdings based on the objective, investment selection criteria. USA Financial Formulas' advice is impersonal — we keep human emotion out of the investing process.

USA Financial Formulas does not utilize portfolio managers. However, you may contact our firm at any time if you have questions regarding your account or USA Financial Formulas' investment strategies.

As mentioned above, USA Financial Formulas does not use money managers. Our team creates and defines each Portformula's overall investment objectives and the investment selection criteria. Once the investment-selection criteria are defined, however, we use that criteria to determine our investment recommendations — our proprietary, formulaic process applies the investment selection criteria to a universe of stocks or investment.

Account Restrictions

USA Financial Formulas applies a carefully crafted formula to determine which securities should be held in clients' accounts. We do this in an attempt to eliminate human emotion from the investing process — our fundamental investment philosophy is founded on the premise that emotion can equate to unwise investment decisions. Therefore, using opinion or bias to change the securities chosen by the formula is antithetical to our investment philosophy.

That being said, you are permitted to impose reasonable restrictions on the management of your account. Whether a particular restriction is reasonable depends on an analysis of the relevant facts and circumstances. For example, the exclusion of an individual stock due to conflicts of interest would appear to be reasonable under ordinary facts and circumstances. In the adopting release for Rule 3a-4, however, the SEC noted that programs do not need to permit clients to direct the manager to purchase specific securities or types of securities. The SEC also noted that the restrictions imposed by a client could be unreasonable in the aggregate, even if each restriction is reasonable when considered separately. In addition, restrictions could be unreasonable if a client changes them or imposes new restrictions with excessive frequency. Therefore, USA Financial Formulas will permit you to impose reasonable account restrictions if they are reasonable in light of the relevant facts and circumstances. However, clients cannot direct USA Financial Formulas to purchase specific securities.

If your restrictions are unreasonable, USA Financial Formulas will contact you and give you an opportunity to restate the restriction more reasonably. If you are unable or unwilling to modify an unreasonable restriction, you will be removed from the program.

Given that decisions based on human emotion and/or general human intervention fly in the face of USA Financial Formulas' investment philosophy and advice, if you choose to request a reasonable restriction, you will be asked to complete USA Financial Formulas' Reasonable Restrictions Disclosure form. This form will document your desired restriction and acknowledge that the request is outside of USA Financial Formulas' standard investment advice. Please note that because restrictions fall outside of USA Financial Formulas' investment advice, USA Financial Formulas is not responsible for performance that differs from other similarly situated client accounts based on the requested restriction.

USA Financial Formulas identifies which securities will be held in the clients' accounts on or around the first of the month, prior to our standard, beginning-of-the-month trading. As a result, we will screen the clients' account to ensure that the reasonable restriction is honored. If a restricted position trades into the client's account, USA Financial Formulas will take necessary measures to ensure that the position is removed.

¹ Portformulas participates in TD Ameritrade Institutional's, Institutional Adviser Program. TD Ameritrade Institutional is a division of TD Ameritrade, Inc., member FINRA/SIPC/NFA, an unaffiliated SEC-registered broker-dealer and investment adviser. TD Ameritrade offers to independent investment advisors services which include custody of securities, trade execution, clearance and settlement of transactions. TD Ameritrade, TD Ameritrade Institutional, and Portformulas are separate and unaffiliated companies.

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