foresters equity services, inc. - cri4.com written supervisory procedurs.pdf · page 1 of 70...
Post on 08-May-2018
Embed Size (px)
Page 1 of 70
Foresters Equity Services, Inc. (Foresters Equity)
Policies and Procedures Manual
Effective August 26, 2016
Page 2 of 70
Table of Contents
Chapter 1: Registration, Licensing and Supervisory Structure
1.0 Introduction 8
1.1 Advisory Programs and Services 8
1.2 Registration and Licensing 9
1.3 Supervisory Structure 10
1.4 Additional Duties of the CCO Regarding Compliance with Risk Management 11
1.5 Procedures for Compliance with Registration and Licensing 11
Chapter 2 The Fiduciary Standard
2.1 Antifraud Provisions 13
2.2 Fiduciary Duties 13
2.3 Procedures for Compliance with Fiduciary Requirements 13
Chapter 3 Training and Supervision
3.1 IAR Training 15
3.2 Compliance Questionnaire 15
3.3 Supervision 15
3.3. 1 New Account Review 16
3.3.2 Ongoing Account Review 16
3.3.3 Political Contributions 17
Chapter 4 Code of Ethics and Insider Trading
4.1 General 18
4.1.1 Basic Principles 18
4.1.2 Chief Compliance Officer 19
4.1.3 Security 19
Page 3 of 70
4.1.4 Covered Accounts 19
4.1.5 Beneficial Ownership 20
4.1.6 Personal Account Trading and Investment Policy 20
4.1.7 Service as a Director 21
4.1.8 Gifts 21
4.1.9 Duties of Confidentiality 21
4.1.10 General Ethical Conduct 21
4.1.11 Misappropriation of Customer Funds 23
4.2 Insider Trading 23
4.2.1 Policy Statement on Insider Trading 23
4.2.2 Who is an Insider? 24
4.2.3 What is Material Information? 24
4.2.4 What is Nonpublic Information? 25
4.2.5 Types of Liability 25
4.3 Penalties for Insider Trading 25
4.4 Procedures for Compliance with Code of Ethics 26
Chapter 5 Anti-Money Laundering (AML)
5.1 Definition 29
5.2 Due Diligence 30
5.3 AML Compliance Officer 30
5.4 IAR Awareness and Training 31
5.5 Client Identification Program 31
5.5.1 ID Verification 32
5.5.2 Documentary Verification 32
5.5.3 Non-Documentary Verification 32
Page 4 of 70
5.5.4 Reliance on a Third Party for Identity Verification 33
5.5.5 Special Situation 33
5.5.6 Clients Who Refuse to Provide Information 34
5.5.7 Government List Comparison 34
5.5.8 FinCEN Requests under PATRIOT Act Section 314 34
5.6 Acceptable Types of Clients 35
5.6.1 Individual Clients 35
5.6.2 Corporations, Partnerships and Comparable Legal Entities 36
5.6.3 Domestic Operating or Commercial Entities 36
5.6.4 Domestic Trusts 36
5.6.5 Non-Resident Alien Accounts 36
5.7 Prohibited Clients 36
5.8 Suspicious Transactions and Activity 37
5.8.1 Suspicious Activity at Initial Investment 37
5.8.2 Transactions 38
5.9 Suspicious Activity Related to Transactions 38
5.10 Procedures for Compliance with Anti-Money Laundering Policies 39
Chapter 6 - Business Continuity Plan
6.1 Content of Plan 40
6.2 IAR Training 41
6.3 Procedures for Compliance with Business Continuity Planning 41
Chapter 7 Regulatory Filings
7.1 Forms 13D, 13F and 13G 42
7.2 SEC Registration 43
7.3 Procedures for Compliance with Regulatory Filing Requirements 43
Page 5 of 70
Chapter 8 Gifts and Entertainment
8.1 Procedures for Gifts and Entertainment 44
Chapter 9 Trading
9.1 Aggregation of Orders 45
9.2 Best Execution 45
9.3 Trade Errors 46
9.4 Agency Cross Transactions 46
Chapter 10 Protection of Non-Public Customer Data
10.1.1 Affiliate 47
10.1.2 Clear and Conspicuous 47
10.1.3 Consumer 47
10.1.4 Continuing Relationship 47
10.1.5 Customer 48
10.1.6 Customer Relationship 48
10.1.7 Nonpublic Personal Information 48
10.1.8 Personally Identifiable Financial Information 48
10.1.9 Publicly Available Information 48
10.2 Consumers and Customers 49
10.3 Notification Requirement 49
10.3.1 Initial Notice 49
10.3.2 Annual Notice 49
10.3.3 Content of Notice 49
10.3.4 Privacy Policies 50
Page 6 of 70
10.3.5 Customer Information 50
10.3.6 California Residents 50
10.4 Procedures for Compliance with Privacy Regulations 51
Chapter 11 Communications with the Public
11.1 Advertisements 53
11.1.1 Investment Counsel 53
11.1.2 RIA 53
11.1.3 Testimonials 54
11.1.4 Past Recommendations 54
11.1.5 Performance Data 54
11.1.6 Performance Reporting 54
11.1.7 Prohibited Advertisements 55
11.2 Correspondence 55
11.2.1 Electronic Communications 56
11.2.2 Retention 56
11.3 Social Media 56
11.4 Procedures for Compliance with Public Communications Requirements 57
Chapter 12 Regulatory and Internal Inspections
12.1 Scope of the Regulatory Inspection 58
12.2 Regulatory Exam Topics
12.3 Annual Internal Review
Chapter 13 Books and Records
13.1 Required Records 60
13.1.1 Advertising File 60
13.1.2 Annual Notice of Material Changes to Form ADV Part 2 Firm Brochure 61
Page 7 of 70
13.1.3 Associated Persons Personal Transactions Records 61
13.1.4 Financial Records 62
13.1.5 Order Tickets 62
13.1.6 Organizational Documents 62
13.1.7 Performance Advertising Supporting Documentation 63
13.1.8 Policies and Procedures 63
13.1.9 Solicitor Disclosure Document 63
13.1.10 Transition Records 63
13.1.11 Written Agreements 63
13.1.12 Written Communications 63
13.2 Custodial Advisors Records 64
13.3 Additional Records 64
13.3.1 Complaint File 64
13.3.2 Disaster Recovery 64
13.3.3 Client Lists 64
13.3.4 Organizational Chart 65
13.3.6 Regulatory Inspections 65
13.3.7 Trade Errors 65
13.3.8 Proxy Voting Records 65
13.4 Books and Records Retention 65
13.5 Electronic Maintenance of Records 66
13.6 Procedures for Compliance with Record-Keeping Policies 66
Appendix A Senior Management Approval 67
Page 8 of 70
Chapter 1 Registration, Licensing and Supervisory Structure
1.0 Introduction Foresters Equity Services, Inc. (Foresters Equity) is an SEC Registered
Investment Advisor. The Foresters Equity main office is located in San Diego, California. Foresters Equity is also a broker-dealer registered with the Financial
Industry Regulatory Authority (FINRA). As an investment advisor, Foresters Equity is a fiduciary to its advisory clients, and
has a duty of undivided loyalty to always act in utmost good faith, place its clients interests first and foremost, and to make full and fair disclosure of all material facts
including information as to any conflicts of interest. This Investment Advisor Policies and Procedures Manual (Manual) reflects the
policies and procedures that have been adopted by Foresters Equity to fulfill its obligations when providing investment advisory services. The Manual will be
updated on a periodic basis to be current with Foresters Equitys business practices and regulatory requirements.
All officers, employees and investment advisory representatives (IARs) of Foresters Equity are expected to follow the policies and procedures outlined in the
Manual, and as amended from time to time. A copy of the Manual is provided to each officer, employee and IAR, and a current copy of the Manual is posted to the
Foresters Equity internet website for easy reference at www.forestersequity.com. In addition, all IARs that are also securities registered through Foresters Equity are also expected to follow the policies and procedures outlined in the firms broker-
dealer manual entitled Written Supervisory Policies and Procedures.
1.1 Advisory Programs and Services
Foresters Equity offers three types of advisory services to clients as described below.
Third Party Money Management. Foresters Equity refers clients to third party investment advisory firms for management services. IARs of Foresters Equity will
assist the client in determining his/her investment objective for the account, and recommend an appropriate portfolio or management style offered by the third party advisor. The third party advisor will buy and sell mutual funds, exchange traded
funds (ETFs), or variable annuity subaccounts in the clients account on a discretionary basis. Neither Foresters Equity nor the IAR have any discretionary
authority over the accounts managed by the third party advisor. For a list of approved third party management firms, IARs should refer to the firms website at www.forestersequity.com.
Advantage. Foresters Equity also offers the Advantage program sponsored by
Hilltop Securities, Inc. (Hilltop), an investment advisor, through which Foresters
Page 9 of 70
Equity will provide non-discretionary investment advice that is tailored to the needs of the client. The IAR will assist the client in determining his/her risk tolerance and
investment objective for the account through completion of a client profile. The IAR will also assist the client in selecting an asset allocation model for the account.
Based upon the goals of the client and the asset allocation model selected, the IAR will recommend investments for the client. These investments may include no-load or load-waived mutual funds, ETFs, and cash or cash equivalents. The client will be
responsible for selection of the investments in the account. Hilltop will then periodically rebalance the assets on an as needed basis in order to maintain the
clients target asset allocation among the investments. Financial Planning Services. Foresters Equity offers financial planning services
consistent with the clients financial and tax status, risk profile and investment objective.
The CCO and/or his or her designee is responsible for the initial and ongoing due diligence and selection of the third party investment advisory firms. This includes,
among other things, a review of the firms disciplinary history, Form ADV, custody procedures, compliance program, etc. A due diligence review of each third party
investment advisory firm will be conducted no less than annually.
1.2 Registration and Licensing Foresters Equity is a federally registered investment advisor. To affect its
registration, Foresters Equity has registered with the SEC through the Investment Advisors Registration Depository (IARD). Through the IARD, Foresters Equity has
submitted Form ADV Part 1 and paid all relevant fees. Foresters Equity has also created a Form ADV Part 2 Firm Brochure and keeps up with the requirements to update this document annually and whenever it becomes materially inaccurate.
The IARs affiliated with Foresters Equity must also maintain the proper licenses and
registration before soliciting clients. Although the approach to licensing individual IARs (including those in supervisory roles) differs from state to state, Foresters
Equity as a firm requires its IARs to maintain an active 65 or 66 license or a state-approved designation, including the Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC) designations, or other proficiency exam. Compliance
with these requirements may generally be reported through disclosures on the IARD system during the application process. Each IAR must be registered as an IAR within
each state in which the IAR has a place of business as defined by the SEC, unless otherwise required by the state(s) by notifying the Foresters Equity Registration Department and paying the appropriate fees.
Foresters Equity is required to maintain current registration data through the IARD
system. Under federal regulations, Foresters Equity is required to file an annual updating amendment through IARD within 90 days following the end of its fiscal year. This process is handled by the Registration Department.
Page 10 of 70
Foresters Equity is required to keep the information in its Form ADV (Parts 1 and Part 2) current. All amendments to Form ADV Parts 1 and 2 are processed through the
The IARs of Foresters Equity are also required to maintain an up-to-date Brochure Supplement, created by the back office of Foresters Equity. The information contained in the Brochure Supplement provides details regarding the IARs
educational history, business background, current business activities as well as disclosure regarding any sanctions for violating securities law or entering into
bankruptcy. The Form ADV Part 2 Firm Brochure along with the IARs Brochure Supplement form
a written disclosure statement that provides information about business practices, fees, and conflicts of interest Foresters Equity and its IARs may have with its clients.
Foresters Equity must maintain its Form ADV Part 2 and Brochure Supplements in paper format, upload a PDF copy in electronic format through IARD, and ensure that its IARS provide a copy to all of its clients upon entering into an investment advisory
Foresters Equity requires its IARs deliver the Form ADV Part 2 Firm Brochure and relevant Brochure Supplement to the client (1) at least 48 hours prior to entering
into the advisory relationship, or (2) at the time of entering into a contract with Foresters Equity, provided the client can terminate the contract without penalty within 5 business days after entering the contract. It is the obligation of the IAR to
provide these documents to the client. Clients acknowledge receipt of these documents in the Disclosure and Acknowledgement of Receipt of Documents when
entering into an advisory relationship with a third party money manager or for the Mutual Fund Advantage program. For clients receiving financial planning services, the acknowledgement of receipt is included within the Financial Planning and Consultation
At least once annually Foresters Equity must advise each of its clients of the material changes that were made to the ADV Part 2 Firm Brochure throughout the year, and that a current Form ADV Part 2 Firm Brochure is available if desired by the client. The
firm shall maintain a record of the clients to whom the material changes and updated form is offered, the date and form of the offer (by representative sample copy), and
of those accepting the offer. For those clients requesting a copy of the offered Form ADV Part 2 Firm Brochure, Foresters Equity shall also maintain evidence that such copy was provided.
1.3 Supervisory Structure Foresters Equity has established a supervisory structure that includes the designation
of personnel in key positions and a description of those positions. In a separate file maintained by Foresters Equity, it has identified and maintains current a list of key personnel and their duties and supervisory obligations, as applicable.
Page 11 of 70
Foresters Equity has designated one employed individual to act as its Chief Compliance Officer (CCO), whose duty it shall be to administer Foresters Equity
compliance policies and procedures. The CCO has full responsibility and authority to develop and enforce all appropriate compliance related policies and procedures for
Foresters Equity. Foresters Equity identifies its CCO in its organizational chart and through the IARD system as required.
Foresters Equity's senior management includes but is not limited to principals such as the President/CEO, the CCO, Vice President Finance and Administration and others
properly licensed and designated . These individuals are responsible for Foresters Equity's compliance, control and supervisory system, including its implementation, maintenance and ongoing review as more fully described below. Foresters Equity's
principal officers may directly supervise other officers, employees, branch managers, Registered Representatives and IARs. Foresters Equitys principal officers are
responsible for the duties performed by all personnel. Foresters Equity's President/CEO and CCO are responsible for development and enforcement of Foresters Equity's compliance program.
1.4 Additional Duties of the CCO Regarding Compliance with Risk
In addition, the CCO is charged with responsibility for assessment of the primary areas of Foresters Equity's risk exposure. This assessment will include asking
questions about such topics as the firm's affiliations, business lines, business continuity, firm viability and personnel, strategic direction, corporate governance, privacy, trading and portfolio management, custody, proxy voting, unethical behavior
and insider trading, anti-money laundering, record-keeping, and disclosures, among others.
Following an assessment of the risk areas, the CCO will:
Examine the policies, procedures, day-to-day business processes and/or systems surrounding the risks
Determine the level of risk to the firm and its clients Propose reasonable compliance solutions to eliminate or decrease the risk, if
1.5 Procedures for Compliance with Registration and Licensing Foresters Equity has designated an individual who is responsible for the ongoing
maintenance of accurate and current registration data, both for the firm and for the individual IARs. A list of the individual(s) so designated is maintained separately among the central advisory files of the firm, including the date the individual(s)
accepted and were granted such authority. This review shall include, but is not limited to, a review of the IARD Form ADV Part 1 filed with the states and Part 2,
review of the underlying criteria and supporting information for the Form, licensing of its IARs, and related supporting documentation and information. Records of these activities shall be retained among Foresters Equitys central records.
Page 12 of 70
Foresters Equity requires that each individual providing investment advice is required
to maintain all applicable licenses, and has in place controls including the designation of a qualified supervisor to implement its policies. An associated person must be
registered as an IAR in those states that require IAR registration before the IAR can open or solicit a managed money account.
To ensure that its supervisory structure is adequately formed and adhered to, Foresters Equity maintains an updated record of its supervisory chain of command
among its central files and records. The record is periodically distributed to individuals named as supervisors, to ensure that they will remain at all times informed of the supervisory requirements attributed to them.
The CCO is responsible for implementation and ongoing oversight of these
procedures, including the oversight of individuals to whom certain procedures may be delegated.
No less frequently than annually, the CCO will oversee the renewal of Foresters Equity's registration. No less frequently than annually (within 90 days of the fiscal
year end of Foresters Equity), the CCO will oversee the filing of an annual amendment, and reviewing the related forms and records as necessary.
Page 13 of 70
Chapter 2 The Fiduciary Standard
As an investment advisor, Foresters Equity is a fiduciary to its advisory clients and has a duty of undivided loyalty to always act in utmost good faith, place its clients interests first and foremost, and to make full and fair disclosure of all material facts
including information as to any conflicts of interest.
2.1 Antifraud Provisions Whereas Registered Representatives have transaction-based responsibilities to their
customers, IARs have relationship- type responsibilities to their clients. This standard becomes important across Foresters Equitys activities imposing fiduciary standards
on each client relationship and even beyond the nature of each individual transaction. The CCO, other principals and IARs are all extensions of Foresters Equity. As such, all
these individuals must act in the best interests of Foresters Equity and its clients. Failure to do so can personally subject the individuals associated with Foresters
Equity to enforcement action(s).
2.2 Fiduciary Duties In general, the fiduciary duty owed by Foresters Equity and its IARs to its clients will
guide IARs, officers and directors in avoiding conflicts of interest where possible, providing full and fair disclosure of services and fees, seeking best execution, and a
number of other areas. Foresters Equity and its IARs are prohibited to carry out any of the following:
1. Employ any device, scheme, or artifice to defraud a client or prospective client
2. Engage in any transaction, practice, or course of business which defrauds or deceives a client or prospective client
3. Knowingly sell any security to or purchase any security from a client when acting as principal for his or her own account, or knowingly to effect a purchase or sale of a security for a client's account when also acting as broker
for the person on the other side of the transaction, without disclosing to the client in writing before the completion of the transaction the capacity in which
Foresters Equity is acting and obtaining the client's consent to the transaction 4. Engage in fraudulent, deceptive or manipulative practices
2.3 Procedures for Compliance with Fiduciary Requirements
The CCO or designee is the individual charged with monitoring Foresters Equitys performance of services in the context of its fiduciary duties.
The CCO or designee shall take steps designed to ensure that IARs perform their job duties and responsibilities within the context of its fiduciary responsibility. Among
these, each IAR will be required to complete an annual attestation of compliance.
Page 14 of 70
Record of the completion shall be maintained among Foresters Equitys central compliance files.
Page 15 of 70
Chapter 3 Training and Supervision
3.1 IAR Training Foresters Equity intends to offer training to its IARs on at least an annual basis
through online training resources. All IARs will be required to take the mandatory training each year, and failure to complete the training will be grounds for
disciplinary action up to and including termination from Foresters Equity. It is anticipated that the training topics to be covered will include, but not
necessarily be limited to, the following:
Fiduciary Duty of Investment Advisors Importance of Adhering to Policies and Procedures Manual Outside Business Activities
Anti-Money Laundering Protection of Non-Public Customer Data
Code of Ethics, Insider Trading and Personal Securities Transactions Political Contributions
The Compliance Department will be responsible for producing the training materials or locating a third party resource that is appropriate for IARs.
3.2 Compliance Questionnaire On an annual basis, the Compliance Department will send a questionnaire to each IAR asking for certain information and responses regarding the IARs understanding
of the policies and procedures of Foresters Equity. In some cases, the IAR may be required to make certain representations or attestations regarding his/her
compliance with specific policies and procedures. It is the responsibility of each IAR to complete and return the questionnaire to Foresters Equity in a timely fashion.
The Compliance Department will use this questionnaire to monitor the activities of its IARs and to tailor its future training programs for IARs.
3.3 Supervision Foresters Equity and its IARs have an obligation to ensure that an advisory relationship being established is appropriate for the client. At the time of
establishing an advisory relationship with a client, the IAR collects certain information from the client that may include the following: annual income, net
worth and other financial information, investment experience, financial goals, and account restrictions. This data collection process assists the IAR in helping the
client determine an investment objective for the account or services. It also assists the IAR and Foresters Equity in determining the appropriateness of the account or services for the client. The advisory services offered through Foresters Equity are
designed for clients who wish to invest assets in accordance with long term
Page 16 of 70
investment objectives. The IAR should not recommend advisory services for the client if the services are not suitable for the client or if the client does not intend to
take a long term view toward investing.
3.3.1 New Accounts Depending on the account type, it is Foresters Equitys policy that clients meet
certain investment needs and have the appropriate level of sophistication. An IAR is responsible for determining that any recommendation he or she makes is consistent
with the investment objectives and risk profile provided by the client. As fiduciaries, IARs have a duty to serve the best interests of their clients, including
the obligation not to subordinate any clients interests to those of Foresters Equity or the IAR. Included in the fiduciary standard are the duties of loyalty and care.
Moreover, an investment adviser or IAR that has an actual or potential material conflict of interest must either eliminate the conflict or fully disclose to the client all material facts relating to the conflict. Section 206 of the Investment Advisers Act of
1940, as amended (Advisers Act), sets forth in general terms a non-exhaustive number of prohibited practices upon which the case law on the fiduciary standard is
based. Because IARs are typically dually registered (i.e., as IARs and Registered Representatives), they are subject to the fiduciary standard when providing
advisory services to their clients and the suitability standard when recommending that clients sell securities or other investments to fund an investment advisory account.
FINRA requires that a member firm or an associated person must have a
reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the client. Under FINRAs general principles on applying the suitability standard, implicit in all member and associated
person relationships with clients and others is the fundamental responsibility for fair dealing. Sales efforts must therefore be undertaken only on a basis that can be
judged as being within the ethical standards of FINRAs rules, with particular emphasis on the requirement to deal fairly with the public.
Technically, FINRAs suitability standard does not apply when opening an investment advisory account, since IARs are fiduciaries and thus subject to a higher
standard. Nevertheless, FINRA may examine the source of funding for investment advisory accounts to the extent a client uses proceeds from the sale of securities to fund a new investment advisory account or transfers a security from a brokerage
account to an investment advisory account.
IARs have an obligation to determine whether or not an investment advisory account is suitable for a client before making a recommendation. The staff of the Securities and Exchange Commission (SEC) Division of Investment Management
has made it clear that an investment adviser must carefully consider whether a wrap-fee arrangement is suitable and appropriate for its client before [emphasis
added] entering into such an arrangement. The SEC staff has also made it clear that an investment adviser must consider each clients investment goals and
Page 17 of 70
amount of assets to be invested in determining whether a wrap fee arrangement is suitable for the client.
IARs must conduct an initial suitability review of a client prior to recommending an
investment advisory account. To assist in this review, Foresters Equity has created the Advisory Recommendation Form (ARF), which IARs must complete when meeting with prospective clients.
As noted earlier, IARs must adhere to the fiduciary standard which is a higher
standard than the suitability standards for broker-dealers and Registered Representatives. IARs must determine the overall suitability of all recommendations, and consider such factors as the clients age, investment
objectives, risk profile, financial status, types of securities to be sold, tax consequences of selling those securities, etc.
IARs must submit the following required documentation to the Foresters Equity home office in order to open an investment advisory account relationship:
New Account Application
Disclosure and Acknowledgement of Receipt of Documents ARF
Copy of the IARs Brochure Supplement provided to the client The third party advisors required documents (e.g., Solicitation Agreement,
Program Selection, etc)
Any additional account documents (i.e., Trustee Certification, Power or Attorney, etc.)
A principal at the home office will review the submitted documentation, sign the documents as evidence of approval and ensure that the required originals are
forwarded to the third party money manager.
For financial planning accounts, IARs must submit the following documents to the Foresters Equity home office:
New Account Application Financial Planning and Consultation Agreement
Copy of financial plan delivered to client Invoice Any additional account documents (e.g., Trustee Certification, Power of
Copies of the above items must also be maintained in the appropriate client file in the IARs office. The IAR must also maintain any additional documentation related to clients including the reviewed copies of the client quarterly reports, and
completed corresponding third party risk tolerance questionnaire.
No investment (e.g., mutual fund, variable annuity, etc.) may be placed into a new or existing investment advisory account if Foresters Equity or any of its IARs or
Page 18 of 70
Registered Representatives has received a portion of any commission, sales charge, dealer concession or other similar compensation on the investment within the
past 2 years, with the exception of any variable annuity designed for fee-based accounts (i.e., no-load variable annuities) and approved in advance by the CCO or
his or her designee. Once the 2 years have lapsed, the investment may be placed in an investment advisory account and fees may be assessed pursuant to the applicable fee schedule. Any investment advisory account submitted in
contravention of this policy will be not be processed and may subject the IAR to disciplinary action up to and including the termination of the IARs affiliation with
Foresters Equity. 3.3.2 Ongoing Account Review
As an investment advisor, Foresters Equity is responsible for ensuring that clients
receive ongoing management that is consistent with the clients stated investment objectives and risk tolerance. In that regard, IARs are required to contact each client at least annually to review the clients account and determine if there has
been any change to the clients financial situation, investment objectives or risk profile. IARs are further encouraged to update the client profile as appropriate and
send the original updated client profile to the home office for review, approval and forwarding to the third party money manager. In addition, a copy must be
maintained in the IARs office in the client file. Furthermore, a registered principal in the Foresters Equity home office who has
either a Series 65 or Series 66 registration conducts a review of no less than 15 investment advisory accounts per calendar quarter to help ensure that the ongoing
investment management the clients are receiving remains consistent with each clients stated investment objective and risk tolerance, and documents the results of each quarterly review on a Quarterly Review of Investment Advisory Accounts
log, which must be submitted to the CCO or his or her designee within 10 business days after the end of each calendar quarter.
3.3.3 Political Contributions
SEC Rule 206(4)-5 (the Rule) under the Advisers Act prohibits investment advisors from receiving compensation for providing advice to a government entity within 2 years after a contribution to an official of the government entity has been made by the investment advisor or by any of its covered associates advisory business.
A de minimus provision permits associated persons to make contributions of up to $350 per election per candidate if the contributor is entitled to vote for the candidate and up to $150 per election per candidate if the contributor is not entitled to vote for the candidate.
Foresters Equity prohibits all covered associates from making a contribution to an official, as defined above, in excess of the de minimus exemption. All covered associates must report all contributions to the compliance department at or prior to the time of the contribution on the Investment Advisor Representative Political Contribution Disclosure form. The time of the contribution is defined as no less than 24 hours prior to the contribution being paid to an official.
Page 19 of 70
It is the policy of Foresters Equity to separately identify all government entity accounts on its books and records. Each covered associate is required to notify compliance at the time of the account opening for this account type, if applicable.
As part of Foresters Equity books and records, the firm maintains a log of all
political contributions by its investment adviser representatives evidencing whether
the contribution was approved or not approved
Regarding cash solicitors, it is the policy of Foresters Equity to not accept referrals
for government entity clients or any other form of direct or indirect solicitation.
Covered associate is defined as any executive officer or other individual with a similar status or function, any employee who solicits a government entity for the investment adviser and any person who supervises directly or indirectly such employee, and any political action committed controlled by any covered associate.
Violation of this policy as denoted above is subject to disciplinary action by
Page 20 of 70
Chapter 4 Code of Ethics and Insider Trading
4.1 General Foresters Equity maintains and enforces a written code of ethics, a copy of which is maintained under separate cover and available on the firms website, www.forestersequity.com.
In an effort to ensure that Foresters Equity Services, Inc. (Foresters Equity)
maintains a reputation for integrity and high ethical standards, it is important that
Foresters Equity and its supervised persons comply with federal securities laws and
also maintain high standards of personal and professional conduct. The Code of
Ethics (the Code) is designed to help ensure that Foresters Equity conducts its
business consistent with these high standards.
All Foresters Equity investment advisor representatives (IARs) and employees are
covered by the Code and are required to acknowledge receipt of a copy of the Code in writing, as well as any amendments that may be provided in the future. It is the
responsibility of all IARs to read, understand and comply with the requirements of the Code. Failure to comply with the Code may result in disciplinary action, including termination of employment
4.1.1 Basic Principles
This Code is based on a few basic principles that should pervade all investment related activities of all associated personnel: (1) the interests of Foresters Equity's
clients come before its or any IARs interests; (2) each IARs professional activities and personal investment activities must be consistent with this Code and avoid any
actual or potential conflict between the interests of clients and those of Foresters Equity or the IAR; and (3) those activities must be conducted in a way that avoids any abuse of an IARs position of trust with and responsibility to Foresters Equity and
its clients, including taking inappropriate advantage of that position.
The IAR shall in all respects comply with applicable federal and state securities laws, and other laws, rules and regulations, any applicable laws of foreign jurisdictions, and the firm policies and procedures as may be amended from time to time,
including without limitation those prohibiting insider trading and front running of client accounts.
Page 21 of 70
Fiduciary Duty. As a fiduciary, Foresters Equity has an affirmative duty of care,
loyalty, honesty, and good faith to act in the best interests of its clients. This
includes the obligation to place the interests of clients ahead of its own. Foresters
Equity requires that IARs place client transactions ahead of any transactions for the
account of an IAR. Foresters Equity requires all IARs to conduct business in an
Conflicts of Interest. IARs should try to avoid any situation that has even the
appearance of conflict or impropriety, and should fully disclose to the client all
material facts concerning any conflict of interest that does arise.
Standards of Conduct. All IARs must comply with all federal securities laws. IARs
are not permitted, in connection with the purchase or sale, directly or indirectly, of
a security held or to be acquired by a client:
To defraud such client in any manner
To mislead a client, including by making a statement that omits material facts
To engage in any act, practice or course of conduct, which operates or would operate as a fraud or deceit on a client
To engage in any manipulative practice with respect to such client
To engage in any manipulative practice with respect to securities, including price manipulation
4.1.2 Chief Compliance Officer
Many of the specific procedures, standards, and restrictions described in this Code involve consultation with the CCO.
For purposes of this Code, the term "security" includes not only stocks, but also options, rights, warrants, futures contracts, convertible securities, mutual funds or
other securities that are related to securities in which Foresters Equity's clients may invest or as to which Foresters Equity may make recommendations (sometimes also
referred to as "related securities"). 4.1.4 Covered Accounts
Many of the procedures, standards and restrictions in this Code govern activities in
"Covered Accounts." Covered Accounts consist of:
1. Securities accounts of which Foresters Equity is a beneficial owner, provided
that (except where the CCO otherwise specifies) investment partnerships or other funds of which Foresters Equity or any affiliated entity is the general
partner, investment advisor or investment manager or from which Foresters Equity or such affiliated entity receives fees based on capital gains are
Page 22 of 70
generally not considered Covered Accounts, despite the fact that Foresters Equity or associated person may be considered to have an indirect beneficial
ownership interest in them. 2. Each securities account registered in an IARs name and each account or
transaction in which an IAR has any direct or indirect "beneficial ownership interest" (other than accounts of investment limited partnerships or other investment funds not specifically identified by the CCO as "Covered
4.1.5 Beneficial Ownership The concept of "beneficial ownership" of securities is broad. It includes not only
securities a person owns directly, and not only securities owned by others specifically for his or her benefit, but also (i) securities held by his or her spouse, minor children
and relatives who live full time in his or her home, and (ii) securities held by another person if by reason of any contract, understanding, relationship, agreement or other arrangement the IAR obtains benefits substantially equivalent to ownership.
Note: This broad definition of "beneficial ownership" does not necessarily apply for
purposes of other securities laws or for purposes of estate or income tax reporting or liability. An IAR may declare that the reporting or recording of any securities
transaction should not be construed as an admission that he or she has any direct or indirect beneficial ownership in the security for other purposes.
4.1.6 Personal Account Trading and Investment Policy
It is Foresters Equity's policy to impose specific requirements related to each covered person's personal trading and investment activity.
Foresters Equity's policy is to consider the effects of various types of trading, including short term trading and trading in new issues as a potential conflict of
interest. Similarly, Foresters Equity may impose specific requirements related to investments in private placements.
Approval may be refused for any proposed trade by an IAR when the trade:
Involves a security that is being or has been purchased or sold by Foresters Equity on behalf of any client account or is being considered for purchase or sale
Is otherwise prohibited under any internal policies of Foresters Equity (such as Foresters Equity's Policy and Procedures to Detect and Prevent Insider Trading)
Breaches the IARs fiduciary duty to any client Is otherwise inconsistent with applicable law, including the Advisers Act and
the Employee Retirement Income Security Act of 1974, as amended
Creates an appearance of impropriety
The Procedures section shall address Foresters Equity's specific procedures for these types of investments and trading.
Page 23 of 70
4.1.7 Service as a Director
No IAR may serve as a director of a publicly-held company without prior approval by
the CCO (or a senior principal, if the CCO is the proposed board member) based upon a determination that service as a director would not be adverse to the interests of any client. In the limited instances in which such service is authorized, IARs serving
as directors will be isolated from other IARs who are involved in making decisions as to the securities of that company through procedures determined by the CCO to be
appropriate in the circumstances. These practices may also constitute illegal "insider trading." Some of the specific trading rules described below are also intended, in part, to prevent front running and scalping. If an account is managed by an
investment advisor, other than Foresters Equity, to which full investment discretion has been granted, these rules will not apply for so long as the IAR(s) who has (have)
a beneficial ownership interest in the account do not have or exercise any discretion. Such accounts will remain subject to the reporting requirements set forth in the next section of this Code.
4.1.8 Gifts and Entertainment
An IAR may not accept inappropriate gifts, favors, entertainment, or other things of
value that could influence decision-making or make the IAR feel beholden to the person or firm. Similarly, IARs may not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous or aimed at influencing
decision-making or making a client feel beholden to Foresters Equity or the IAR. It is Foresters Equitys policy that the receipt or giving of any gift of more than nominal
value ($100 per year) from or to any person or entity that does business with or on behalf of any client is prohibited, except as otherwise authorized in writing by the CCO.
4.1.9 Duties of Confidentiality
Information concerning the security holdings and financial circumstances of clients, among other items, is confidential. All information about clients must be kept in strict
confidence. IARs are prohibited from disclosing any information about any client, the investment made by Foresters Equity on behalf of any client, information regarding
Foresters Equitys trading strategies, except as required to provide services to client or for other legitimate business purposes. All information relating to clients' portfolios and activities and to proposed recommendations is strictly confidential. Consideration
of a particular purchase or sale for a client account may not be disclosed, except to authorized persons.
4.1.10 General Ethical Conduct:
The following are potentially compromising situations that must be avoided:
Causing Foresters Equity, acting as principal for its own account or for any account in which Foresters Equity or any person associated with Foresters
Page 24 of 70
Equity (within the meaning of the Advisers Act) to sell any security to or purchase any security from a client in violation of any applicable law, rule or
regulation of a governmental agency Communicating any information regarding Foresters Equity, Foresters Equity's
investment products or any client to prospective clients, journalists, or regulatory authorities that is not accurate, true or omitting to state a material fact necessary in order to make the statements Foresters Equity has made to
such person materially complete Engaging in any act, practice, or course of business that is fraudulent,
deceptive, or manipulative, particularly with respect to a client or prospective client
Engaging in any conduct that is not in the best interest of Foresters Equity or
might appear to be improper Engaging in any financial transaction with any of Foresters Equity's vendors,
clients or IARs, including but not limited to: providing any rebate, directly or indirectly, to any person or entity that has received compensation from Foresters Equity; accepting, directly or indirectly, from any person or entity,
other than Foresters Equity, compensation of any nature such as a bonus, commission, fee, gratuity or other consideration in connection with any
transaction on behalf of Foresters Equity; beneficially owning any security of, or have, directly or indirectly, any financial interest in, any other organization
engaged in securities, financial or related business, except for beneficial ownership of not more than one percent (1%) of the outstanding securities of any business that is publicly owned
Engaging in any form of harassment Improperly using or authorizing the use of any inventions, programs,
technology or knowledge that are the proprietary information of Foresters Equity
Investing or holding outside interest or directorship in clients, vendors,
customers or competing companies, including financial speculations, where such investment or directorship might influence in any manner a decision or
course of action of Foresters Equity. In the limited instances in which service as a director is authorized by Foresters Equity, IARs serving as directors will be isolated from other IARs who are involved in making decisions as to the
securities of that company through procedures determined by Foresters Equity to be appropriate according to the circumstances
Making any unlawful agreement with vendors, existing or potential investment targets or other organizations
Making any untrue statement of a material fact or omitting to state to any
person a material fact necessary in order to make the statements Foresters Equity has made to such person materially complete
Participation in civic or professional organizations that might involve divulging confidential information of the company
Unlawfully discussing trading practices, pricing, clients, research, strategies,
processes or markets with competing companies or their associated persons Using any device, scheme or artifice to defraud, or engaging in any act,
practice, or course of business
Page 25 of 70
Conduct that operates or would operate as a fraud or deceit upon, any client or prospective client or any party to any securities transaction in which
Foresters Equity or any of its clients is a participant
4.1.11 Misappropriation of Customer Funds Misappropriation, stealing, or conversion of customer funds is prohibited and
constitutes serious fraudulent and criminal acts. Examples of such acts include (1) unauthorized wire or other transfers in and out of customer accounts; (2) borrowing
customer funds; (3) converting customer checks that are intended to be added or debited to existing accounts; and (4) taking liquidation values of securities belonging to customers.
4.2 Insider Trading Foresters Equity has adopted the following policies and procedures to detect and
prevent the misuse of material, nonpublic information by IARs of Foresters Equity. 4.2.1 Policy Statement on Insider Trading
The term "insider trading" is not defined in the federal securities laws, but generally
is used to refer to the use of material nonpublic information to trade in securities (whether or not one is an "insider") or to communications of material nonpublic information to others.
While the law concerning insider trading is not static, it is generally understood that
the law prohibits the following:
Trading by an insider while in possession of material nonpublic information
Trading by a non-insider, while in possession of material nonpublic information, where the information either was disclosed to the non-insider in
violation of an insider's duty to keep it confidential or was misappropriated Communicating material nonpublic information to others in violation of one's
duty to keep such information confidential Foresters Equity prohibits any officer, director or IAR from trading a security, either
personally or on behalf of others, while in possession of material, nonpublic information about the security or communicating material nonpublic information to
others in violation of the law. Additionally, IARs are prohibited from communicating, sharing, or tipping such material, non-public information to others. Material information includes any information that a reasonable investor would consider in
making an investment decision. Non-public information is information that has not been disseminated in a manner that would make it generally available to investors.
This conduct is frequently referred to as "insider trading." Foresters Equity's policy applies to every officer, director and IAR and extends to activities within and outside
their duties at Foresters Equity. Each officer, director and IAR must read this policy statement and acknowledge his or her understanding of it. An IAR that believes
Page 26 of 70
he/she or a client may be in possession of material, non-public information, should immediately contact Foresters Equity CCO. Any questions regarding Foresters
Equity's policy and procedures should be referred to the CCO.
4.2.2 Who Is An Insider? The concept of an "insider" is broad. It includes officers, directors and IARs of a
company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of Foresters Equitys affairs and as a
result is given access to information solely for the firm's purposes. A temporary insider can include certain "outsiders" such as, among others, Foresters Equitys attorneys, accountants, consultants, bank lending officers, and the associated
persons of such organizations. According to the United States Supreme Court, before such an "outsider" may be considered a "temporary insider", the firm's relationship
with the outsider must be such that the firm reasonably expects him or her to keep the disclosed nonpublic information confidential.
4.2.3 What Is Material Information?
While covered persons are prohibited from trading on inside information, trading on inside information is not a basis for liability unless the information is "material."
Information generally is material if there is a substantial likelihood that a reasonable client would consider it important in making his or her investment decisions, or if public dissemination of the information is reasonably certain to have a substantial
effect on the price of a company's securities. Information that should be presumed to be material includes, but is not limited to: dividend changes; earnings estimates;
changes in previously released earnings estimates; significant merger or acquisition proposals or agreements; commencement of or developments in major litigation; liquidation problems; and extraordinary management developments.
Questions one might ask in determining whether information is material include:
Is this information that a client would consider important in making his or her
Is this information that would substantially affect the market price of the securities if generally disclosed?
Is the information nonpublic? To whom has this information been provided? Has the information been effectively communicated to the marketplace by being published in a recognized national distribution agency or publication
such as Reuters, The Wall Street Journal or other such widely circulated publications?
Caution must be exercised, however, because material information does not necessarily have to relate to a company's business. The Supreme Court of the United
States has broadly interpreted materiality in some cases, and has asserted criminal liability associated with inappropriate disclosures.
Page 27 of 70
4.2.4 What Is Nonpublic Information?
Information is nonpublic until it has been effectively communicated to the market place. One must be able to point to some fact to show that the information is
generally public. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public.
4.2.5 Types of Liability
Actions by the US courts, including the Supreme Court, have resulted in findings that assert liability to fiduciaries in the context of trading on material nonpublic
information. In some cases it has been found that a non-insider can enter into a confidential relationship with the company through which they gain information or
they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are aware or should have been aware that they have been given confidential information by an insider who has violated his fiduciary duty to the company's
shareholders. This is a circumstance into which an associate of Foresters Equity may fall.
In the "tippee" situation, a breach of duty occurs only if the insider personally
benefits, directly or indirectly, from the disclosure. It is important to note that the benefit does not have to be monetary; it can be a gift, and can even be a 'reputational' benefit that will translate into future earnings. Another basis for insider
trading liability is the "misappropriation" theory, where trading occurs on material nonpublic information that was stolen or misappropriated from any other person.
This theory can be used to apply liability to individuals not previously thought to be encompassed under the fiduciary duty theory.
4.3 Penalties for Insider Trading
Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in the trading (or tipping) and their employers. A person
can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:
Civil injunctions Damages in a civil suit as much as three times the amount of actual damages
suffered by other buyers or sellers Disgorgement of profits Jail sentences
Fines for the person who committed the violation of up to three times the profit gained or loss avoided, whether or not the person actually benefited, and
Fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided
Prohibition from employment in the securities industry
Page 28 of 70
In addition, any violation of this policy statement by an IAR can be expected to result in serious disciplinary measures by Foresters Equity, including dismissal of the IAR
4.4 Procedures for Compliance with Code of Ethics
The CCO has determined that all associated persons are covered by Foresters Equity's Code of Ethics. In the following procedures all such persons shall be referred to as "covered persons."
The CCO or designee will maintain in an accessible place the following materials:
Copy of this Code of Ethics Record of any violation of these procedures for the most recent five years and
a detailed synopsis of the actions taken in response Copy of each transaction report submitted by each officer, director and
associated person of Foresters Equity for the most recent five years List of all persons who are or have been required to file transaction reports.
In an effort to prevent insider trading, through his/her own efforts or as delegated to qualified covered persons under his/her supervision, the CCO will do the following:
Answer questions and document responses regarding Foresters Equity's policy
Provide no less than annually an educational program to familiarize covered persons with Foresters Equitys policy and procedures
Require each IAR to acknowledge his or her receipt and compliance with this policy and procedures regarding insider trading on an annual basis, and retain acknowledgements among Foresters Equitys central compliance records
Resolve issues of whether information received by an associated person of Foresters Equity is material and nonpublic and document findings
Review on a regular basis and update as necessary Foresters Equity's policy and procedures and document any resulting amendments or revisions
When it is determined that an IAR of Foresters Equity has material nonpublic information, implement measures to prevent dissemination of such information and if necessary, restrict covered persons from trading in the
In an effort to detect insider trading, through his/her own efforts or as delegated to qualified covered persons under his/her supervision, the CCO or designee will perform the following actions:
Review the trading activity reports filed by each officer, director, and IAR of
Foresters Equity, documenting findings by initialing and dating the forms or reports reviewed
Review the duplicate confirmations and statements and related documentation
of personal and related accounts maintained by officers, directors and covered persons versus the activity in the fund(s) advised by Foresters Equity
Page 29 of 70
Require officers, directors and covered persons to submit periodic reports of personal trading activity, and to attest to the completeness of each individual's
disclosure of outside accounts at the time of hiring and at least annually thereafter
To determine whether Foresters Equity's covered persons have complied with the rules described above (and to detect possible insider trading), the CCO will have
access to and will review transactions effected in Covered Accounts within 30 days after the end of each month. The CCO will compare transactions in Covered Accounts
with transactions in client accounts for transactions or trading patterns that suggest violations of this policy or potential front running, scalping, or other practices that constitute or could appear to involve abuses of covered persons' positions. Annually
each covered person must certify that he or she has read and understands this Code, that he or she recognizes that this Code applies to him or her, and that he or she has
complied with all of the rules and requirements of this Code that apply to him or her. The CCO or designee is charged with responsibility for collection, review, and retention of the certifications submitted by covered persons.
Although covered persons are not prohibited under this policy from trading securities
for their own accounts at the same time that they are involved in trading on behalf of Foresters Equity, they must do so only in full compliance with this policy and their
fiduciary obligations. At all times, the interests of Foresters Equity's clients will prevail over the covered person's interest. No trades or trading strategies used by a covered person may conflict with Foresters Equity's strategies or the markets in
which Foresters Equity is trading. Personal account trading must be done on the covered person's own without placing undue burden on Foresters Equity's time. No
transactions should be undertaken that are beyond the financial resources of the covered person.
No IAR may purchase new publicly offered issues (IPO) of any securities ("New Issue Securities") for any covered account in the public offering of those securities
without the prior written consent of the CCO. At the onset of firm association and immediately following subsequent events
involving the acquisition of securities (marriage, inheritance, etc.), each covered person must, disclose to the CCO the identities, amounts and locations of all
securities he/she owns. On an annual basis, each IAR will be required to confirm the location of all Covered Accounts. In all cases, duplicate statements must be sent directly to the CCO or designee from the custodian. All statements of holdings,
duplicate account statements, and monthly and quarterly reports will generally be held in confidence by the CCO or designee(s). However, the CCO or designee(s) may
provide access to any of those materials to other members of Foresters Equity's management in order to resolve questions regarding compliance with this policy and regarding potential purchases or sales for client accounts, and Foresters Equity may
provide regulatory authorities with access to those materials where required to do so under applicable laws, regulations, or orders of such authorities.
Page 30 of 70
To prevent the misappropriation, theft or conversion of customer funds, Foresters Equity will implement one or more of the following procedures:
Verify changes of address with the customer by requesting such changes in
writing from the customer or by verifying the change through a telephone call or email to the customer.
Require supervisory review of changes of address or customer account
information to ensure that associated persons do not independently change customers' addresses and account information.
Ensure IARs do not have the ability to alter account statements online. Closely analyze customers' use of any address other than their home
address. Use of P.O. boxes, "in care of" addresses, and other- than- home
addresses are prohibited absent a valid reason for their use. All transfers, withdrawals, or wires from the customer's account require the customer's
authorization and confirmation of the customers identity, typically by having the client give the last 4 digits of their social security number. If possible, provide customers with access to their account statements on a secure firm
website so that customers can easily verify activity in their accounts. The use of personal electronic devices (e.g., personal computers, Blackberries) to
conduct firm business is prohibited unless the use of personal electronic devices is pre-approved and the devices can be linked with the firm's system
to allow for supervisory review.
Require each associated person who has knowledge of misappropriation, stealing or
conversion of customer funds to promptly report the situation to the CCO.
Page 31 of 70
Chapter 5 - Anti-Money Laundering (AML)
In compliance with financial industry regulations and the USA PATRIOT ACT, Foresters Equity has:
Established and implemented policies and procedures that can be reasonably expected to detect and cause the reporting of transactions that raise a
suspicion of money laundering Established and implemented policies, procedures and internal controls
reasonably designed to achieve compliance with the Bank Secrecy Act and
regulations thereunder Designated an individual or individuals responsible for implementing and
monitoring the day-to-day operations and internal controls of the program Provided and will continue to provide ongoing training for appropriate
Provided for independent compliance testing by Foresters Equitys personnel or a qualified outside party on a regular schedule but no less than annually
Senior Management is committed to the goals of the USA PATRIOT ACT. Further, anti-money laundering compliance is the responsibility of every IAR, and any IAR
that detects activity that seems to be suspicious is instructed to report such activity to the AML Compliance Officer (AML CO). The responsibility of IARs to participate in
the AML Compliance Program is reinforced through training, no less frequently than annually, and through ongoing oversight performed by or at the instruction of the AML CO.
Foresters Equity will periodically update its AML Policies and Procedures to conform to
regulatory changes and firm growth. Foresters Equity will continue to seek guidance from the Department of Treasury, the states and others regarding effective AML Policies and Procedures.
5.1 Definition Money laundering is engaging in acts designed to conceal or disguise the true origins
of criminally derived proceeds so that the unlawful proceeds appear to have been derived from legitimate origins or to constitute legitimate assets. Generally, money
laundering occurs in three stages. Cash first enters the financial system at the "placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited
into accounts at financial institutions. At the "layering" stage, the funds are transferred or moved into other accounts or other financial institutions to further
separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses. Terrorist financing may not involve
the proceeds of criminal conduct, but rather an attempt to conceal the origin or intended use of the funds, which will later be used for criminal purposes.
Page 32 of 70
In addition, money laundering may include (1) willfully ignoring ("willful blindness")
the source of a client's assets or the nature of client transactions; and/or (2) failing to report suspected money laundering activities and failing to maintain required
records of transactions in order to hide and transfer assets. Money launderers require the intentional or unintentional assistance of an associated person or a financial institution.
Foresters Equity has adopted the following policies and procedures, to be adhered to
by every IAR of Foresters Equity.
5.2 Due Diligence It is Foresters Equity's policy to prohibit and actively prevent money laundering and
any activity that facilitates money laundering of the funding of terrorist or criminal activities. Accordingly, Foresters Equity requires a corresponding commitment by its
IARs, irrespective of job duty or assignment. Foresters Equity requires every IAR to diligently protect Foresters Equity from money launderer's exploitation. Foresters Equity and its IARs could be subject to civil, criminal and disciplinary action, and
harm to their reputation.
The purpose of Foresters Equity's AML policies and procedures is to:
1. Uphold the law
2. Protect Foresters Equity and its IARs from persons who would misuse Foresters Equity facilities and resources
3. Safeguard Foresters Equity and its IARs from the appearance of impropriety and from the violation of anti-money laundering laws
4. Maintain Foresters Equity's high level of service to clients and counter-parties
without disruption or inconvenience
5.3 AML Compliance Officer
Foresters Equity has assigned an individual, noted at the end of this chapter, as Foresters Equity's AML CO. Foresters Equity will provide the appropriate regulator with AML COs contact information, including name, title, mailing address, email
address, telephone number and facsimile number. Firm personnel should contact the AML CO if they have any questions regarding Foresters Equity's AML Policies and
Procedures or how to implement them. The AML CO will:
Implement Foresters Equity's AML Policies and Procedures. Ensure appropriate firm personnel attend periodic AML training.
Ensure the accuracy of third party reports on which Foresters Equity relies in complying with these policies and procedures.
Ensure that Suspicious Activity Reports (SAR-SFs) are filed when necessary.
Page 33 of 70
Because the relationship between Foresters Equity and its clearing firm (or any custodian) may divide responsibilities related to AML, or may overlap causing
complication or confusion regarding its AML Policies and Procedures implementation, Foresters Equity and its clearing firm or custodian(s) remain in ongoing
communication and understanding regarding the responsibilities of each entity. In most cases, Foresters Equity is in the best position to know its client, and understands that it is responsible for reviewing anti-money laundering.
The AML CO is responsible for knowing about and procuring any and all available
reports that may be utilized in connection with these procedures.
5.4 IAR Awareness and Training Foresters Equity requires existing IARs to periodically acknowledge receipt of these
procedures, as deemed appropriate by the AML CO. Foresters Equity shall establish a training program to include periodic training related to AML.
5.5 Client Identification Program Foresters Equity has implemented a Client Identification Program ("CIP") to ensure that Foresters Equity and its IARs can form a reasonable belief that they know the
true identity of each individual accepted as a client. Further, the CIP shall ensure that Foresters Equity and its IARs know the identity of individuals underlying any entity
that is accepted as a client. Underlying the CIP is the policy that requires that the AML CO be involved in the acceptance of each and every new client.
Foresters Equity will verify the identity of each of the following:
New clients and persons to whom any client grants investment authority Existing clients for whom Foresters Equity has not previously checked the
identity, and those granted investment authority subsequent to any initial
investment Any clients whose identity the AML CO deems should be verified
Prior to opening an account, IARs must obtain from the client the following:
Client's name Date of birth, for an individual
An address, which will be: (1) for an individual, a residential or business street address; (2) for an individual who does not have a residential or business street address, an Army Post Office (APO) or Fleet Post Office (FPO) box
number, or the residential or business street address of next of kin or another contact individual; or (3) for a person other than an individual (such as a
corporation, partnership, or trust), a principal place of business, local office, or other physical location
An identification number, which will be: (1) for a U.S. person, a taxpayer identification number or (2) for a non-U.S. person, a taxpayer identification number and one or more of the following: (a) a passport number and country
Page 34 of 70
of issuance; (b) an alien identification card number; or (c) the number and country of issuance of any other government-issued document evidencing
nationality or residence and bearing a photograph or similar safeguard
5.5.1 ID Verification Foresters Equity will determine what and how much identification it will require a
client to provide based on Foresters Equity's perceived client risk. Foresters Equity will determine the client's risk using the following factors, among others at the
discretion of the AML CO:
Types of identifying information available about the client and or parties
associated with the client Input by qualified third parties, such as the custodian, fund administrator, or
other such counter-party Foresters Equity will verify the client's identity within a reasonable time before it
opens the client's account. Foresters Equity will use documentary, non-documentary, or a combination of both methods to verify client's identities.
5.5.2 Documentary Verification
Foresters Equity will use the following documents and others based on its client's perceived risk to verify the client's identity:
For an individual, an unexpired government-issued identification evidencing
nationality or residence and bearing a photograph or similar safeguard, such as a driver's license or passport
For a person other than an individual (such as a corporation, partnership, or
trust), documents showing the existence of the entity, such as certified articles of incorporation,
a government-issued business license, a partnership agreement, or a trust instrument
In certain instances, Foresters Equity's account opening documents may require the client to: (1) represent and covenant that all evidence of identity provided is genuine
and all related information furnished is accurate; (2) agree to provide any information deemed necessary by Foresters Equity in its sole discretion to comply with its anti-money laundering responsibilities and policies; and (3) represent that it
is investing solely as principal and not for the benefit of any third parties.
5.5.3 Non-Documentary Verification Foresters Equity will use the following non-documentary methods and others based
on the perceived risk to verify client's identity:
Contacting the client
Page 35 of 70
Independently verifying the client's identity through the comparison of information provided by the client with information obtained from a consumer
reporting agency, public database, or other source Checking references with other financial institutions
Obtaining a financial statement Foresters Equity will use this information to determine whether there is a logical
consistency between the client's identifying information, such as name, street address, zip code, telephone number, date of birth, and taxpayer identification
number. 5.5.4 Reliance on a Third Party for Identity Verification
Foresters Equity may, under the following circumstances, rely on the performance by
another financial institution (including an affiliate) of some or all of the elements of CIP with respect to any client that is opening an account or has established in account or similar business relationship with the other financial institution to provide
or engage in services, dealings, or other financial transactions:
When such reliance is reasonable under the circumstances When the other financial institution is subject to a rule implementing the anti-
money laundering compliance program requirements When the other financial institution has entered into a contract with Foresters
Equity requiring it to certify annually to us that it has implemented its anti-
money laundering program, and that it will perform specified requirements of the fund client identification program
5.5.5 Special Situations
If a client or potential client is unable to present an unexpired government-issued identification document that bears a photograph or similar safeguard, Foresters
Equity will attempt to use other documentary and non-documentary methods to verify the person's identity.
If Foresters Equity is unfamiliar with the documents the client presents, Foresters Equity will verify the authenticity of the document and/or use other methods to verify
the person's identity. If Foresters Equity opens a client account without obtaining the required documents,
Foresters Equity will discontinue transacting business for the client until Foresters Equity obtains identifying information.
If Foresters Equity opens the client account without the client appearing in person, Foresters Equity will use documentary and non-documentary verification methods as
If the client's circumstances increase the risk that Foresters Equity will not be able to verify the client's identity, Foresters Equity will attempt to verify the person's identity
Page 36 of 70
with documentary methods and if Foresters Equity is unable to verify the person's identity, Foresters Equity will use non-documentary methods or not open the
Until Foresters Equity verifies the client's identity, Foresters Equity will determine whether each transaction is appropriate without client identity verification. If Foresters Equity fails to verify the client's identity, it will close the client's account
and not reopen the account until it positively identifies the client. If Foresters Equity suspects that clients are not who they purport to be, Foresters Equity will not open
accounts on those clients' behalf, and Foresters Equity will file a suspicious activity report in accordance with the SAR section of these policies and procedures.
5.5.6 Clients Who Refuse to Provide Information
If a potential or existing client either refuses to provide the information described above when requested, or appears to have intentionally provided misleading information, Foresters Equity will not transact business for the client and, after
considering the risks involved, Foresters Equity will consider closing any existing account. In either case, the AML CO will be notified so that a determination can be
made regarding reporting the situation via a Form SAR-SF. The AML CO shall be the final determinant of the client's status.
5.5.7 Government List Comparison
Foresters Equity will verify within a reasonable time after the client opens an account, or earlier if required, that the client does not appear on any list of known or
suspected terrorist or terrorist organization. Foresters Equity will follow all Federal directives issued in connection with such lists.
On an ongoing basis, Foresters Equity will check the OFAC list to ensure, before transacting any business with them, that potential clients and existing clients are not
prohibited persons or entities and are not from embargoed countries or regions. From time to time, Foresters Equity may receive notice that a government agency
has issued a list of known or suspected terrorists. Within a reasonable period of time after an account is opened (or earlier), Foresters Equity will determine whether a
client appears on any such list of known or suspected terrorists or terrorist organizations issued by any government agency. Foresters Equity will follow all directives issued in connection with such lists.
Foresters Equity will continue to comply with the Treasury's Office of Foreign Asset
Control rules prohibiting transactions with certain foreign countries or their nationals. 5.5.8 FinCEN Requests under PATRIOT Act Section 314
Foresters Equity responds to Financial Crimes Enforcement Network (FinCEN)
requests about accounts or transactions by immediately searching its records at its head office to determine whether Foresters Equity maintains or has maintained any
Page 37 of 70
account for, or have engaged in any transaction with, each individual, entity, or organization named in FinCEN's request. Upon receiving an information request, the
AML CO will designate one person to be the point of contact regarding the request and to receive similar requests in the future. Unless otherwise stated in FinCEN's
request, Foresters Equity is required to search current accounts, accounts maintained by a named suspect during the preceding 12 months, and transactions conducted by or on behalf of or with a named subject during the preceding six months. If Foresters
Equity finds a match, Foresters Equity will report it to FinCEN by completing FinCEN's subject information form. This form can be sent to FinCEN by electronic mail at
[email protected], or by facsimile transmission to 703-905-3660. If the search parameters differ from those mentioned above (e.g., if FinCEN requests longer periods of time or limits the search to a geographic location), Foresters Equity
will limit its search accordingly.
If Foresters Equity searches its records and does not uncover a matching account or transaction, then Foresters Equity will not reply to the FinCEN request.
Foresters Equity will not disclose the fact that FinCEN has requested or obtained information, except to the extent necessary to comply with the information request.
Foresters Equity will maintain procedures to protect the security and confidentiality of requests from FinCEN.
Foresters Equity will direct any questions it has about the request to the requesting Federal law enforcement agency as designated in the FinCEN request.
Unless otherwise stated in the information request, Foresters Equity will not be
required to treat the information request as continuing in nature, and Foresters Equity will not be required to treat the request as a list for purposes of the fund clients identification and verification requirements. Foresters Equity will not use
information provided to FinCEN for any purpose other than (1) to report to FinCEN as required under Section 314 of the PATRIOT Act; (2) to determine whether to
establish or maintain an account, or to engage in a transaction; or (3) to assist the firm in complying with any requirement of Section 314 of the PATRIOT Act.
5.6 Acceptable Types of Clients
Generally Foresters Equity will accept the following types of clients, subject to the final review and acceptance of an appropriately licensed registered principal.
5.6.1 Individual Clients
At minimum, Foresters Equity will obtain the client's:
Name and address Date of birth Investment experience and objectives
Social Security Number Names of all persons authorized to trade on the account
Page 38 of 70
5.6.2 Corporations, Partnerships and Comparable Legal Entities
In order to confirm the identity of a legal entity, Foresters Equity will obtain
satisfactory evidence of the entity's name and address and its authority to make the contemplated investment. Where the client is neither a publicly traded company listed on a major, regulated exchange (or a subsidiary or a pension fund of such a
company) nor a regulated institution organized in a FATF-Compliant Jurisdiction, Foresters Equity may wish to gain additional comfort regarding the client's identity by
obtaining certain of the following, as appropriate under the circumstances:
Evidence that the client has been duly organized in its jurisdiction of
organization If Foresters Equity believes it would be reasonable to rely upon a certification
from the client, a certification ("AML Certificate") from the client that it has implemented and complies with anti-money laundering policies, procedures and controls that seek to ensure that none of its directors, officers or equity
holders are prohibited clients, as set forth in a certificate or other list
5.6.3 Domestic Operating or Commercial Entities
For all commercial entities, Foresters Equity will verify the business identity and verify that the person investing has authority to transact business with Foresters Equity.
5.6.4 Domestic Trusts
For all domestic trusts, Foresters Equity will identify the principal owner of the trust and confirm that the individual establishing the investment has authority to transact
business on behalf of the trust. Foresters Equity may accept evidence of the trustee's authority to make the contemplated investment in the form of either an AML
Certificate from the trustee or the identities of beneficiaries, the provider of funds (e.g., settler(s)), those who have control over funds (e.g., trustee(s)) and any persons who have the power to remove trustees.
5.6.5 Non-Resident Alien Accounts
In addition to resident requirements, Foresters Equity should obtain from non-resident alien clients a current passport number or other valid government ID
number, and any necessary U.S. tax forms.
5.7 Prohibited Clients
Foresters Equity will not accept an investment from or on behalf of the following:
Any client (a "Listed Client") whose name appears on the List of Specially
Designated Nationals and Blocked Persons maintained by the U.S. Office of
Page 39 of 70
Foreign Assets Control ("OFAC") or such other lists of prohibited persons and entities as may be mandated by applicable law or regulation
Foreign Shell Bank (with respect to clients that are Foreign Banks, Foresters Equity may wish to consider obtaining a representation that the bank either
(1) has a physical presence; or (2) does not have a physical presence, but is a regulated affiliate.)
Senior Foreign Political Figure, any member of a Senior Foreign Political
Figure's immediate family, and any close associate of a Senior Foreign Political Figure
Any client resident in, or organized or chartered under the laws of, a non-cooperative country or territory
Any client resident in, or organized or chartered under the laws of, a
jurisdiction that has been designated by the USA PATRIOT Act as warranting special measures