Laidlaw Group, LLC
Chapter 1 – Policy Statement
Pursuant to SEC Rule 206(4)-7, registered investment advisers are required to maintain written, comprehensive compliance programs. The purpose of this manual is to set forth all of Laidlaw Group, LLC’s (hereinafter “Laidlaw Group’s”) compliance policies and procedures in a single manual that can be used for easy reference.
Laidlaw Group is subject to strict legal and regulatory requirements and an overarching fiduciary duty to its clients. The policies and procedures adopted herein are based on concepts of fiduciary duty, the Investment Advisers Act and other securities laws.
Rule 206(4)-7 also requires the appointment of a Chief Compliance Officer. David Laidlaw serves as that officer. If you have any questions or concerns regarding the manual or a compliance issue not addressed by it, please do not hesitate to contact him.
Chapter 2 – Code of Ethics
All employees and members (“employees”) of Laidlaw Group are required to follow the Code of Ethics as described below. Each employee must act in accordance with the firm’s and each individual’s fiduciary responsibility. The main tenets of the code include the following:
- Place the interest of clients first;
- All personal securities transactions must be conducted in such a manner as to be consistent with this compliance manual and to avoid any actual or potential conflict of interest or any abuse of an employee’s position of trust and responsibility;
- All material facts concerning any conflict of interest must be disclosed;
- Employees must not take inappropriate advantage of their positions;
- Information concerning the identity of security holdings and financial circumstances of clients is confidential;
- Independence in the investment decision-making process is paramount;
- All employees must comply with applicable federal securities law; and
- All employees are to report violations of the firm’s code of ethics promptly to the chief compliance officer
Chapter 3 – Portfolio Management Process
Consistency of Portfolios with Clients’ Investment Objectives: It is the policy and practice of Laidlaw Group to manage each client’s accounts in a manner that is consistent with that client’s investment objectives. At the onset of the client relationship, Laidlaw Group will talk with each client to understand his or her total resources, short- and long-term income needs and investment objectives as well as the client’s tolerance for risk. After achieving an understanding of the foregoing, Laidlaw Group will perform its best to manage the account in such a way as to achieve those objectives. Laidlaw Group will maintain an open dialog with its clients regarding their circumstances and any changes in their investment objectives and make changes in the investment of their accounts as needed.
Chapter 4 – Advisor Disclosure
It is Laidlaw Group’s policy to disclose any required information to the SEC. In particular, Laidlaw Group will file any forms, including Form ADV, with the SEC in a timely manner and update such forms as required.
Chapter 5 – Trading Practices
- Best Execution Policies and Procedures
As an investment advisory firm, Laidlaw Group is obligated to seek the most favorable execution terms reasonably available under the circumstances of transactions within client accounts. Broadly defined, “best execution” is the execution of a transaction in such manner as to optimize the economic value of the transaction from the client’s point of view. Best execution can also be defined as placing trades intended, considering appropriate circumstances, to maximize the value of the Company’s investment decisions, and to minimize implementation costs.
Trading Designee: David Laidlaw is the trading designee responsible for setting best execution practices and ensuring overall compliance of the firm’s brokerage and trading practices.
Broker Selection Criteria: Laidlaw Group will consider the following criteria in deciding whether to use a particular broker-dealer:
- Commission rate
- Settlement Effectiveness
- Ability to Correct Failed Trades
- Trading Volume Capacity
- Systems and Technology
- Special Services
- Financial Condition
- Research and Analysis
Approximately once per year, any and all employees of Laidlaw Group with trading privileges will confer to determine the effectiveness of Laidlaw Group’s brokers according to the above-referenced criteria.
Approved List of Brokers: With the above criteria in mind, the Trading Designee will maintain a list of approved broker-dealers. The current list of approved broker-dealers is attached hereto as Exhibit A.
Soft Dollar Arrangements: Laidlaw Group strives to limit its exposure to the conflicts of interest sometimes created by soft dollar arrangements. To this end, Laidlaw Group will only accept services from brokers that directly relate to company research and analysis, including invitations to investment conferences and access to management and analysts.
- Procedures Applicable to Allocations of Equity Securities
As an investment adviser, Laidlaw Group owes a fiduciary duty to its clients and must allocate trades among them in as fair and equitable manner as possible. Laidlaw Group avoids preferential treatment with respect to client portfolios. Laidlaw Group does not have a set trading order or place its trades to favor its more profitable clients.
Bunching of Transactions: In allocating purchase and sale transactions made on a combined basis, the authorized trades will seek to achieve the same unit price of the securities for each account. Laidlaw Group’s clients custody their assets with either banks or brokerage houses. The bank relationships generally allow unfettered trades with executing brokers and trades for all bank custodied assets will be grouped together. With the brokerage relationships, however, it is usually not economically efficient to trade outside of the brokerage which provides custody. Consequently, Laidlaw Group will use several different outlets when trading. Laidlaw Group strives for equity among these outlets, however, and will rotate the trading sequence in a fair manner.
De minimis Allocations and Other Special Situations: Because there may be special situations where a pro rata allocation does not permit full allocations, Laidlaw Group has the discretion in certain circumstances to allocate trades in another manner so long as there is a reasonable and justifiable basis for the allocation and one client is not unduly favored over another as a result of the allocation. These circumstances include de minimus trade values.
Purchases in New Issues: Where applicable Laidlaw Group will purchase New Issues (Initial Public Offerings or “IPO”) in a manner consistent with its fiduciary duty.
Timing of Allocation: All securities trades will be allocated to client accounts upon execution, and if not, by the close of the trading day at the latest. There may be rare instances where the trade may be allocated on the next trading day following execution.
Sub-Advisory Relationships: With respect to sub-advisory relationships, Laidlaw Group views the sub-advisory and associated trading activity as a separate account. Sub-advisory trades and recommendations will be made in a similar randomized manner between the other portfolio groups under its management.
- Employee Trading
Laidlaw Group acts as a fiduciary and owes undivided loyalty to its clients. Client interests take priority over all non-client members of the company (including employees and members of their immediate family). Neither the firm nor any affiliate, principal or employee should directly or indirectly engage in any activity which jeopardizes the firm’s ability to render unbiased investment advice.
To avoid conflicts of interest with client accounts, the following policy is adopted:
1. Record of Transactions
Rule 204-2 under the Investment Advisor Act of 1940 requires:
A record of every transaction in a security in which the investment advisor representative (which, by definition, includes all employees and members of the firm) of such investment advisor, has, or by reason of such transaction acquires, any direct beneficial ownership.
“Beneficial ownership” generally covers securities:
- held for the representative’s benefit, regardless of how registered;
- held by the representative’s spouse, or minor children, or any relative of yours or your spouse who is presently sharing their home except where they are a bona fide client, or anyone in whom you can obtain title to his or her account at some future time;
- held by the representative as trustee when the employee or members of his or her family have a beneficial interest in the trust; and
- held by another person or entity, if by reason of any agreement, relationship or other relationship, the representative obtains benefits substantially equivalent to those of ownership.
Each firm member or employee should log his or her trades into an employee transaction blotter and provide copies of the sales confirmations to document those trades. Trade data provided should include employee name, related account name, type of activity, security name, quantity of security, cost of security, net amount of the trade, brokerage firm name and executing broker.
2. Trading Procedures: No firm member or employee should purchase or sell securities before or during periods when such purchases or sales are taking place in client accounts. The prohibited period extends two days before or after client transactions.
3. Initial Public Offerings: Members and employees are prohibited from participating in initial public offerings.
4. Private Placements: Members and employees should receive prior approval from the firm’s chief compliance officer before participating in private equity or debt placements.
5. Short-Term Trading: All firm personnel are strongly discouraged from trading their investment accounts for short-term gains. Securities should be bought and held for a year absent extraordinary circumstances.
6. Short Selling: Employees are prohibited from selling a security short which is held long in any client’s account, except for those securities which are unmanaged, held in advisory accounts or retained because of tax considerations.
7. Insider Trading: Employees are prohibited from trading on material non-public information. Material non-public information is defined as any information about a company or the market for its securities that has not been disclosed to the marketplace, the dissemination of which is likely to affect significantly the market price of the company’s securities or is likely to be considered important by reasonable investors in determining whether to trade in such securities. This prohibition extends to passing that information along to others who may then use that information to their benefit.
Chapter 6 – Marketing Practices
Integrity of Marketing Claims:
Laidlaw Group will fairly and honestly explain the services that it provides for clients and the results obtained. Laidlaw Group aims to educate clients and prospective clients regarding historical returns of our management and the market in general. When computing performance returns, especially in composite form, Laidlaw Group will follow industry standards and any applicable laws and regulations to ensure the proper measurement of such returns. Laidlaw Group strives to follow the Global Investment Performance Standards adopted by the Investment Performance Standards Policy Group of the CFA Institute. This standard has been developed to ensure fair representation and full disclosure of investment performance data.
Use of Solicitors:
From time to time, Laidlaw Group enters into contractual agreements with third parties who solicit clients on Laidlaw Group’s behalf. Such arrangements are disclosed to any potential clients and incorporated into the client contract with Laidlaw Group. Moreover, Laidlaw Group’s solicitor contract requires that solicitors also make those same disclosures to potential clients.
Chapter 7 – ERISA Proxy Voting Policy
The Department of Labor has set out a number of requirements for proxy voting by ERISA (Employee Retirement Income Security Act of 1974, as amended) fiduciaries. Unless a trustee or other fiduciary of an ERISA covered plan expressly reserves voting rights, Laidlaw Group is required to vote proxies. Moreover, Laidlaw Group must make “a reasonable attempt” to ensure that all proxies have been received from custodial organizations and maintain records of all proxy votes. Laidlaw Group ERISA clients must notify Laidlaw Group in writing if they wish to retain proxy voting responsibility.
Laidlaw Group will vote proxies in the best interests of the plan participants and beneficiaries. We will consider only those factors which affect the economic value of the plan’s investments and will vote based solely on the ultimate economic interest of the plan.
Proxies will generally be classified into two categories as indicated below:
Routine – For routine proxy proposals, in which shareholders are asked to vote only on management’s nominations for the Board of Directors and its selection of an auditor, Laidlaw Group will usually vote in favor of management’s recommendations. Laidlaw Group considers the following factors when proposals for board members are made:
- Independence: Vote primarily for independent directors (not current or former employees; not employed by a related business that could lead to insider dealing)
- Commitment: Ensure board member is not over-extended in other activities; and
- Size of Board: Laidlaw Group considers a small board to be more efficient
Non-Routine – For non-routine proxy proposals, which require shareholder votes on issues other than the election of the Board of Directors and selection of an auditor, Laidlaw Group will vote to retain shareholder rights and maximize economic interest as follows.
Laidlaw Group will always vote against proposals that:
- create more than one class of Directors;
- create staggered terms for Board members or non-annual election of Directors; and
- eliminate preemptive rights
Laidlaw Group will usually vote against proposals that:
- make the acquisition of the company more difficult, including requiring a “Fair Price” in the acquisition of the company;
- change the state of incorporation (e.g. from California to Delaware), if it is the stated intention of this proposal to implement changes in voting requirements, in the classification of directors, and/or other provisions which, by stated policies, are not considered to be in best long-range economic interests of the shareholders and which are typically not voted in favor of by management;
- amend a corporate charter to limit or eliminate liability for monetary damages of Directors & Officers for violating the duty of care;
- obtain shareholder authorization for the repurchase of shares from one or more major shareholders;
- increase the number of authorized shares if it is the company’s intention to utilize these shares to reduce the likelihood of a future takeover;
- create, or in effect create, a class of stock with superior voting power which over time may concentrate the voting power within a smaller group of shareholders; and
- are non-business related as such items typically do not directly benefit shareholders and are usually best left to management’s discretion
Laidlaw Group will usually vote for proposals that:
- allow large shareholders equal access to management’s proxy to discuss management proposals, Director nominees, or shareholder nominees to the Board;
- establish confidential voting;
- repeal “Poison Pill” provisions or give shareholders the right to approve or repeal such provisions;
- eliminate cumulative voting; and
- require a supermajority approval of the acquisition of the company by another entity.
Unique proposals, especially those regarding mergers and acquisitions, will be reviewed individually and voted to maximize long-term shareholder value.
A majority of Laidlaw Group’s proxies will be electronically voted. Reports summarizing proxy decisions are kept electronically but will also be available to clients if desired. An officer of Laidlaw Group will review the firm’s vote on each proxy issue.
Laidlaw Group is committed to safeguarding the personal information that it obtains from its clients. This policy describes how Laidlaw Group protects personal information collected about individuals and institutions that retain its investment services. The provisions of this policy apply to former clients as well as current clients.
Personal Information Collected
Laidlaw Group collects personal information about its clients to evaluate their financial needs, manage their accounts, and provide individualized investment advice. The personal information obtained includes:
- information provided on applications and other forms (such as name, contact information, social security number, occupation, assets, and income) and any additional information communicated to the Company which impacts clients’ financial circumstances;
- information about clients’ assets and transactions such as custodial statements and trade confirmations; and
- information obtained from clients in connection with providing financial services such as correspondence and notes from telephone conversations or meetings
Protection of Personal Information
Access to clients’ personal information is limited to those employees who need to know that information to service clients’ accounts and help them accomplish their financial objectives. Employees are required to maintain and protect the confidentiality of all personal information and must follow established procedures to do so. To comply with applicable laws and regulations, Laidlaw Group maintains physical, electronic, and procedural safeguards to protect this information. Laidlaw Group also employs technology consultants who help maintain the firm’s network and software systems.
Information Sharing with Affiliates
Laidlaw Group currently does not have any affiliates (defined as companies controlled or under common control or ownership). In the event that we have affiliates in the future, we may share the personal information described above as permitted by applicable law. Any future affiliates would be prohibited from sharing that information with non-affiliates.
Disclosure to Nonaffiliated Third Parties
Laidlaw Group may share the personal information described above for business purposes with the following companies not affiliated with us:
- Financial Service Providers – such as banks and brokers that provide custody and trade execution necessary to manage clients’ portfolios;
- Professionals – such as accountants, lawyers, actuaries and trust officers who may be involved in providing ancillary financial services only if clients request or consent to the dissemination of this information; and
- Data Service Providers – such as third party technology consultants.
Also, the Company may disclose personal information with non-affiliated companies and regulatory authorities as required by law. For example, Laidlaw Group may disclose personal information to cooperate with regulatory authorities and law enforcement agencies as necessary to protect its rights.
Accessing and revising personal information
Chapter 9 – Business Continuity Plan
The owner of Laidlaw Group is David Laidlaw. Should anything happen to him personally, Robert Laidlaw would intercede and run operations to ensure continuity of service. Robert Laidlaw was one of the founding members of Laidlaw Group and still serves as a consultant to the Company.
Chapter 10 – Record Keeping Safeguards
Since the security and integrity of our clients’ nonpublic information is vital to us, we follow strict procedures to ensure that all client information is protected. Prior to engaging in a relationship with a third party, it is understood that information we share with third parties is purely for purposes of managing client accounts. Furthermore, we maintain physical, electronic, and procedural safeguards to protect nonpublic personal information.
Any information that Laidlaw Group collects from clients may be kept in hard copy and/or electronic format. Hard copy information is kept in a secure office that is only accessible by employees of Laidlaw Group, LLC for purposes of business. Information that is kept electronically by each employee is stored on a central server that has a firewall to deter any possible remote intrusion or on remote servers managed by an outside application service provider.
Banks and brokers may keep this information online to help facilitate the management of client accounts. It is understood that information that is held online by banks and brokers is held privately and will only be used for the purposes of managing client accounts.
Records of transactions and a client’s account history and information may also be stored in a hard format within the office. The office is locked at all times when it is not occupied by an employee of the company. Digital storage of transactions and a client’s account history and information may be used. All digital information will be securely stored on the firm’s server and/or in a secure fashion on the Internet. All client information that is stored in digital format is backed-up on a daily basis.
In addition, account information stored with a custodian over the Internet is only accessible by employees of Laidlaw Group, LLC who are the only people who have knowledge of the pass codes required to access the information.
Chapter 11- Client Asset Safeguards
Laidlaw Group, LLC believes its clients should have confidence in the safety of their securities and cash held by their custodial banks and brokerage firms. Following are a number of ways in which our clients are protected.
Laidlaw Group is a privately held investment advisory company registered with the Securities Exchange Commission (“SEC”). The SEC has long been concerned with safeguarding client assets from conversion or improper use. To address this concern, the SEC has imposed certain requirements on investment advisers that have custody or possession of client assets under Investment Advisers Act rule 206(4)-2. Except for the purpose of deducting its quarterly fee, Laidlaw Group never obtains custody of client assets.
Laidlaw Group will assist clients with selecting a custodian. It only recommends qualified custodians, defined as regulated financial institutions that customarily provide custodial services, including banks, trust companies and broker-dealers. The accounts are always titled under a client’s name or under the adviser’s name as agent or trustee for its clients. The custodians used by Laidlaw Group’s clients report at a minimum on a quarterly basis, and their statements are reconciled against internal records to ensure no improper activity by the custodian. Reports issued by the custodian are sent to both Laidlaw Group and the client.
Laidlaw Group receives requests for cash and security transfers from its clients. Laidlaw Group’s service-oriented business allows for close client contact. All Laidlaw Group employees know that they are only permitted to take instructions from the client. Depending on the custodian’s procedures, the custodian either honors the request or requires client signatures to effectuate the request.