Form ADV

FIRM BROCHURE

Part 2A of Form ADV

Part 2A of Form ADV (the “Brochure”) provides information about the qualifications and business practices of Ken Stern & Associates, Inc. (“KS&A” or the “Firm”). If you have any questions about the contents of this Brochure, please contact us at (800) 529-2884. The information in this Brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.

Ken Stern & Associates, Inc. is registered as an investment adviser with Securities and Exchange Commission; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.

Additional information about Ken Stern & Associates, Inc. is also available on the SEC’s website at www.adviserinfo.sec.gov.

 

ITEM 1: COVER PAGE

Please refer to previous page.

ITEM 2: MATERIAL CHANGES

Below is a summary of the material changes made to the KS&A Brochure since the Brochure was last updated:

Item 5B: Update fee schedule to remove 2.00% fee tier. KS&A’s highest billing rate is now 1.50%.

Item 15: Custody: Updated to reflect that KS&A related person, CREF II GP, LLC (the “Churchill GP”), that is the general partner of Churchill Realty Fund II, L.P. (the “Churchill Fund”), will follow sub-section (b)(4) of Rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”) in case that KS&A or its related person is deemed to have “custody” of client funds that are invested in the Churchill Fund. Therefore, the Churchill Fund will be audited (and audited financial statements delivered to the Churchill Fund limited partners) in accordance with sub-section (b)(4) of the Custody Rule, and the Churchill Fund assets will be held by a qualified custodian (to the extent required by the Custody Rule and SEC Staff guidance related to the same).

The previous Brochure was dated January 29, 2016. KS&A encourages each client to read the Brochure carefully and to call us with any questions you may have.

Pursuant to SEC Rules, KS&A will ensure that clients receive a summary of any materials changes to this Brochure within 120 days of the close of KS&A’s fiscal year-end. Additionally, as the Firm experiences material changes in the future, we will send you a summary of our “Material Changes” under separate cover. Additional information about KS&A and its investment adviser representatives is available on the SEC’s website at www.adviserinfo.sec.gov.

 

ITEM 3: TABLE OF CONTENTS
Item Number

ITEM 1: COVER PAGE

ITEM 2: MATERIAL CHANGES (Please refer to previous page)

ITEM 3: TABLE OF CONTENTS

ITEM 4: ADVISORY BUSINESS

ITEM 5: FEES AND COMPENSATION

ITEM 6: PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT

ITEM 7: TYPES OF CLIENTS

ITEM 8: METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OFLOSS

ITEM 9: DISCIPLINARY INFORMATION

ITEM 10: OTHER FINANCIAL INDUSTRY ACTIVITIES AND AFFILIATIONS

ITEM 11: CODE OFETHICS, PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS AND PERSONAL TRADING

ITEM 12: BROKERAGE PRACTICES

ITEM 13: REVIEW OF ACCOUNTS

ITEM 14: CLIENT REFERRALS AND OTHER COMPENSATION

ITEM 15: CUSTODY

ITEM 16: INVESTMENT DISCRETION

ITEM 17: VOTING CLIENT SECURITIES

ITEM 18: FINANCIAL INFORMATION

 

ITEM 4: ADVISORY BUSINESS

A. Description of Firm

Ken Stern & Associates, Inc. (“KS&A” or the “Firm”) is a San Diego, California-based investment management firm founded in 1998. As further detailed in Item 4.B., below, KS&A offers services covering the areas of financial planning, portfolio construction and asset management. The Firm typically provides its services to individuals, including high net worth individuals, corporations, non-profit organizations, private funds and pension and profit sharing plans. Some of the investment instruments KS&A advises its clientele on include, among other things, mutual funds, exchange traded funds (“ETFs”), equities, bonds, treasuries, certificates of deposit and private placements. KS&A is currently registered with the Securities and Exchange Commission (“SEC”) as an investment adviser and with the State of California as a corporation. The Firm is headquartered in California and conducts business in several jurisdictions.

KS&A’s principal owner is APS Holdings, Inc. (“APSH”). Kenneth Stern (“Mr. Stern”) is the majority shareholder of APSH, and also serves as KS&A’s Chief Executive Officer and Managing Director. For information on his and other KS&A investment adviser representatives’ qualifications and business backgrounds, please refer to their respective Form ADV Part 2B Brochure Supplements.

B. Types of Advisory Services Offered

KS&A primarily provides two types of advisory services: Investment Management Services and Financial Planning Services both of which are more fully described below.

1. Investment Management Services

KS&A provides clients with ongoing Investment Management Services, mainly through its proprietary Alpha Investment Management (“AIM”), which is a proactive three pronged approach to investment strategy and wealth management. Components include but are not limited to: “Core”, “Tactical” and “Uncorrelated/Hedge/Alternative.” Account portfolios will generally consist of equity securities, ETFs, bonds, mutual funds and other permitted securities. Custom weighted portfolios are also available upon request. Please refer to Item 8 for further details on the components and investment strategies of this program.

In some cases, KS&A uses certain unaffiliated third party advisers to affect various strategies on behalf of a client’s account and/or receive research and investment recommendations; (see 4.B.2., below regarding the use of such advisers and Item 8 for more information on KS&A’s methods of analysis and investment strategies, and their associated risks).

KS&A generally manages client assets on a fully discretionary basis (with the exception of certain alternative investments which are made on a subscription basis at the clients’ discretion), but for certain clients, may provide non-discretionary management upon request and at the sole discretion of KS&A. Please refer to Item 16 for further details.

KS&A’s advisory services are designed to provide clients with customized asset allocation within their account(s) based on each client’s specific investment objectives, goals, risk tolerance, and other relevant considerations, which are gathered and memorialized on each client’s Confidential Investor Profile (“Profile”).

KS&A shall provide each client with certain services attendant to their account(s), including, but not limited to, assisting with the selection and procurement of brokerage, reporting, custodial and/or clearing services.

Investment Management Services clients are allowed to impose reasonable restrictions on the types of securities and/or industries to be included in and excluded from their account(s). Once this information is gathered, each client is responsible for informing KS&A in writing of any changes to these restrictions or to their overall investment objectives and account information.

2. Sub-Advisory Services

KS&A also provides investment management services to clients of third-party advisers (“Primary Advisers”). All sub-advisory contracts are between KS&A and the Primary Adviser. The Primary Adviser serves as the client contact and liaison between KS&A and the client.

In such situations, the Primary Adviser typically is responsible for gathering information about a client’s financial situation and investment objectives, among other things. KS&A will implement and administer an investment program for those clients as designated by the Primary Adviser.

Unless otherwise noted in the contract between KS&A and the Primary Adviser, the Primary Adviser shall retain its powers and responsibilities with regard to the investment and reinvestment of client assets. Primary Advisers are permitted to place certain investment restrictions on accounts managed by KS&A, so long as those restrictions do not impair KS&A’s ability to effectively manage client assets.

KS&A has entered into a sub-advisory relationship with Lido Advisors, LLC (“Lido”), an SEC registered investment advisory firm. KS&A and Lido are not affiliated companies; however, certain individuals associated with KS&A, including the CEO and Managing Director Ken Stern, and IARs Brendan Van Cleve, Jeffrey Christie and Amy Boggeman, also are registered investment adviser representatives (“IARs”) of Lido. This presents a conflict in that such IARs may provide services to clients both as an IAR of Lido, and in their normal and typical duties for KS&A. KS&A attempts to mitigate such conflicts by disclosure to clients at the time of entering into an agreement with KS&A, mainly through the delivery of this Brochure and the Supplemental Brochures (ADV Part 2Bs).

3. Third-Party Advisers

Depending on a client’s needs, KS&A may delegate the active discretionary management of all or part of the assets in a client’s account(s) to one or more independent third party investment managers (“TPA”) based on the client’s stated investment objectives, guidelines, and restrictions. Access to TPAs may be provided by KS&A through a third party platform of approved investment managers that is made available by agreement between KS&A and the platform provider, through a sub-advisory relationship between KS&A and the TPA, and/or KS&A may recommend a TPA to be appointed through direct advisory contracts with client. The TPAs will have discretionary authority over those assets allocated to them for management and they will be authorized to buy, sell, and trade in securities in accordance with the client’s investment objectives. KS&A’s fees will differ, if and when it allocates a client’s assets to a TPA and such clients may be required to enter into a separate investment management agreement directly with the TPA selected in addition to the agreement entered into with KS&A.

As mentioned above, certain individuals of KS&A, including the CEO and Managing Director Ken Stern, and IARs Brendan Van Cleve, Jeffrey Christie and Amy Boggeman, also are IARs of Lido. Additionally, KS&A has entered into a “Services Agreement” whereby the Firm provides services to Lido including, but not limited to: research and investment management recommendations, prospect and client services and support to IARs of Lido. These relationships create a conflict of interest in that KS&A has an incentive to use Lido for TPA services as opposed to other advisory firms. KS&A attempts to mitigate such conflicts by disclosure to clients at the time of entering into an advisory agreement with KS&A, mainly through the delivery of this Brochure and the Supplemental Brochures (ADV Part 2Bs). Additionally, KS&A has implemented supervisory procedures to oversee and monitor the outside business activities of the IARs. Importantly, as part of KS&A’s fiduciary duty to clients, the Firm and its IARs endeavor at all times to put the interests of the clients first, and recommendations and investments will only be made to the extent that they are reasonably believed to be suitable and in the best interests of the client

KS&A will monitor the TPAs, and has the authority to add, replace or change any TPA on behalf of client, should KS&A determine such to be in the best interests of the client.

4. Financial Planning Services

KS&A also has occasionally in the past provided certain clients with Financial Planning Services customizable or otherwise, although this is not standard. Financial Planning Services will only be provided by KS&A under a separate written agreement. A financial plan may include a review of a client’s net worth (including assets and liabilities), objectives, risk tolerance, cash flow and expenses, tax planning, cash management, employer sponsored retirement planning, estate planning, insurance options, investment asset allocation and multigenerational and philanthropic planning. For this service, KS&A may also hold periodic meetings with the client’s relatives or with a client’s board of directors, and render non-discretionary investment advice upon the request of a client. KS&A’s approach to providing this service typically starts with gathering information regarding the client’s circumstances, which may include some or all of the following about the client: current and anticipated income and income tax levels, current investment and non- investment assets, current and anticipated cash flow, investment risk tolerance, family situation, fringe benefits, business interests, and other necessary financial and personal information. KS&A assesses the client’s goals, objectives, time horizon, and risk tolerance to compare where the client is today in relation to the attainment of his/her stated goals. A comprehensive financial plan is then prepared to address the individual’s situation, along with various alternatives for consideration. At the end of the processes, the client will receive education about the alternatives recommended and will have the option of utilizing KS&A to implement those plan recommendations through the Firm’s Investment Management Services, described above.

Prior to engaging KS&A to provide financial planning and/or consulting services, with the exception of KS&A Investment Management Services clients for whom service is included under the Investment Management Agreement, the client is required to enter into a Financial Planning Agreement with the Firm setting forth the terms and conditions of the engagement, the scope of the services to be provided and associated fees that are due from the client prior to KS&A commencing services. In performing its services, the Firm entrusts that the client will provide accurate information and KS&A is not obligated to verify any information received from the client or from the client’s other professionals. If requested by the client, KS&A will recommend the services of other professionals for purposes of implementing the plan. The client is under no obligation to engage the services of any such recommended professional. The financial planning client retains absolute discretion over all implementation decisions and is free to accept or reject any recommendation made by KS&A. Moreover, clients are advised that it remains their responsibility to promptly notify the Firm if there is ever any change in their financial situation during the financial planning process.

5. Other Financial Services

From time to time, KS&A publishes an investment report that reviews investment and financial planning related themes. Typically, there is no charge for this type of report.

KS&A holds seminars that include presentations on various securities and insurance products or financial strategies. Seminar attendees are not viewed as advisory clients of KS&A, unless a client agreement is executed for specific services.

Certain individuals of KS&A, including Kenneth Stern (the CEO and Managing Director of KS&A), Brendan Van Cleve, Jeffrey Christie and Amy Boggeman are registered IARs of Lido, an unaffiliated advisory firm. Additionally, Kenneth Stern is a Managing Director for Lido. When the IARs conduct advisory business through Lido, they will receive separate and typical compensation for doing so. The services provided as IARs of Lido include, but are not necessarily limited to (i) general investment advice and recommendations, including research in those asset classes, including traditional and alternative assets advised by KS&A, and (ii) investment management recommendations for specific Lido client accounts (as determined by Lido). While the investment research and recommendations provided by these individuals to Lido clientele is typically similar to and provided simultaneously with investment research and recommendations made to KS&A clientele, such recommendations may be the same or different based upon the individual needs, goals and objectives of the client. All investment recommendations made by such KS&A individuals in their capacity as an IAR of Lido will be reviewed by Lido for suitability purposes and then executed by Lido directly.

C. Wrap-Fee Programs

KS&A does not provide its services to any wrap fee programs, as that term is defined the instructions to Form ADV Part 2.

D. General Information About KS&A’s Services

1. Gathering Individual Client Information

As indicated above, advisory services provided by KS&A are customizable based upon the individual needs, objectives, and other financial goals of the client. Early on in the relationship, KS&A will typically memorialize each client’s investment objectives, risk tolerance, time horizons and other important and necessary information, including any investment guidelines, in an Investor Profile. This information, together with any other information relating to the client’s overall financial circumstances, will be used by the Firm to determine an appropriate asset allocation and investment strategy to help meet the client’s financial goals. The Firm’s clients are permitted to place reasonable restrictions on the types of securities they do not want included in their account or financial plan. There may be times when certain restrictions are placed by a client which prevent the Firm from accepting or continuing to service the client’s account.

KS&A reserves the right to not accept and/or terminate a client’s account if it feels that the client imposed restrictions would limit or prevent the Firm and/or the client from meeting or maintaining its objectives.

C. Wrap-Fee Programs

KS&A does not provide its services to any wrap fee programs, as that term is defined the instructions to Form ADV Part 2.

D. General Information About KS&A’s Services

1. Gathering Individual Client Information

As indicated above, advisory services provided by KS&A are customizable based upon the individual needs, objectives, and other financial goals of the client. Early on in the relationship, KS&A will typically memorialize each client’s investment objectives, risk tolerance, time horizons and other important and necessary information, including any investment guidelines, in an Investor Profile. This information, together with any other information relating to the client’s overall financial circumstances, will be used by the Firm to determine an appropriate asset allocation and investment strategy to help meet the client’s financial goals. The Firm’s clients are permitted to place reasonable restrictions on the types of securities they do not want included in their account or financial plan. There may be times when certain restrictions are placed by a client which prevent the Firm from accepting or continuing to service the client’s account.

KS&A reserves the right to not accept and/or terminate a client’s account if it feels that the client imposed restrictions would limit or prevent the Firm and/or the client from meeting or maintaining its objectives.

KS&A will not assume any responsibility for the accuracy of the information provided by the client. The Firm is not obligated to verify any information received from the client or from the client’s other professionals (e.g., attorney, accountant, etc.) and is expressly authorized to rely on such information. Under all circumstances, clients are responsible for promptly notifying the Firm of any material changes to the client’s financial situation, investment objectives, time horizon, tax status, risk tolerance or other material information that KS&A may have relied upon in rendering its services. In the event that a client notifies the Firm of such changes, KS&A will review the changes and may recommend revisions to the client’s financial plan and/or portfolio.

E. Amount of Client Assets Managed

As of December 31, 2015, the following represents the amount of client assets under management by KS&A on a discretionary and non-discretionary basis:

Type of Account Assets Under Management (“AUM”)
Discretionary $312,387,689
Non-Discretionary $9,815,635
Total: $322,203,234

 

ITEM 5: FEES AND COMPENSATION

A. Compensation for Financial Planning Services

KS&A provides Financial Planning Services based on a fixed fee. KS&A’s fixed fees for Financial Planning Services vary depending on the scope of the services to be provided and will be clearly indicated on the client’s Financial Planning Agreement. KS&A’s fees for Financial Planning Services are negotiable in the Firm’s discretion.

All fees paid to KS&A for Financial Planning Services are separate and distinct from and in addition to the fees and expenses charged by mutual funds to their shareholders or by other investments. These fees and expenses are described in each investment’s prospectus and will generally include a management fee, other fund expenses, and possibly a distribution fee. Certain investments may also be subject to sales charges. If so, the client may pay an initial or deferred sales charge. Should a client elect to implement the recommendations contained in their financial plan, the client will also be subject to brokerage and other transaction costs. Please refer to Item 12, below, for more information on KS&A’s brokerage practices.

Clients should review the fees charged by the investments (e.g. mutual funds) and the fees charged by KS&A and any other third-parties helping to service the client’s account, in order to fully understand the total amount of fees that will be paid by the client. Only then will a client be able to fully evaluate the advisory services being provided and the fees being paid.

In certain circumstances, in addition to financial planning fees, KS&A will earn advisory fees when all or a portion of the plan is implemented through KS&A. Clients are under no obligation to enact the recommendations contained in their financial plans. Please see Item 5.B., below, for a full description of the Firm’s fees for Investment Management Services.

B. Compensation for Investment Management Services

For Investment Management Services, including implementation of a client’s financial plan, KS&A will charge an annual investment management fee, paid quarterly in arrears, based upon a percentage of the assets under management with the Firm. Fees are generally calculated as follows:

Assets UnderManagement Advisory Fee (% AUM)
$0 – $1,000,000 1.50%
$1,000,001 – $2,000,000 1.25%
$2,000,001 – $3,000,000 1.00%
$3,000,001 – 5,000,000 0.75%
$5,000,001 and above 0.50%
Non-Supervised Asset Fee 0.25%

 

The above fee schedule is tiered at a beginning fee level of 1.5%. For example, a client with $2.5 Million in assets under management will be charged 1.50% for the first $1,000,000 under management, 1.25% for the next $1,000,000, and 1.00% for the final $500,000.

In some cases, “non-supervised” assets (“Non-Supervised Assets”) may be held in the client’s account. Non-Supervised Assets will generally be excluded from the standard account fees outlined above, but may be charged a separate, quarterly asset value-based fee for inclusion in consolidated reports, which is generally 0.25%, as indicated above. Non-Supervised Assets will not be included in the “Assets Under Management” total used in the calculation of fees for the above fee schedule. KS&A is not responsible for Non-Supervised Assets.

As stated above, Investment Management Services fees are billed quarterly in arrears. By signing the Firm’s Investment Management Agreement, the client authorizes KS&A to request that the custodian remit payment for Investment Management Services fees from the client’s account(s). The amount due is calculated the first day of each calendar quarter based on the client’s account(s) value at the close of business on the last business day of the preceding quarter. Based on specific client circumstances, certain exceptions may apply.

Should a client open an account during the quarter, Investment Management Service fees will be prorated for assets held for a partial quarter based on the number of days that the account was open during the quarter. In the event that KS&A’s services are terminated mid-quarter, the Firm’s fee shall be prorated through the date of termination and any earned, unpaid balance will be immediately due and payable by the client.

Fees may be negotiable under certain circumstances at the sole discretion of KS&A. In addition, KS&A has full discretion to waive its advisory fees in their entirety.

C. Sub-Advisory Fees

KS&A does not currently provide any sub advisory services, however, it may in the future. For its contemplated sub-advisory services, KS&A expects to typically receive an annualized quarterly management fee of 0.25% of the total AUM of all designated Primary Adviser client accounts then receiving investment advisory services by KS&A. The total AUM is determined as of the close of business on the last business day of the preceding calendar quarter and paid quarterly in advance. Such fees may vary depending on the range of services KS&A provides and/or the assets under management of the Primary Adviser. The specific fees and services are negotiable and are set forth in the applicable agreement between KS&A and the Primary Adviser.

As mentioned in Item 4 above, KS&A has entered into a sub-advisory relationship with Lido whereby certain individuals of KS&A, including the CEO and Managing Director Ken Stern, and IARs Brendan Van Cleve, Jeffrey Christie and Amy Boggeman, also are registered investment adviser representatives (“IARs”) of Lido. This presents a conflict in that such IARs are eligible to receive a percentage of fees both as IARs of Lido and KS&A. KS&A attempts to mitigate such conflicts by disclosure to clients at the time of entering into an agreement with KS&A, mainly through the delivery of this Brochure and the Supplemental Brochures (ADV Part 2Bs).

D. Other Fees and Expenses

Clients should understand that the advisory fees described in the sections above do not include certain charges imposed by third parties such as custodial fees, mutual fund fees and expenses, fees charged by TPAs, and Private Fund management and performance/incentive fees. Client assets may also be subject to transaction costs, retirement plan administration fees (if applicable), deferred sales charges on mutual funds initially deposited in the account, 12b-1 fees, odd-lot differentials, transfer taxes, wire transfer and electronic fund fees, and other fees and taxes on brokerage accounts and securities transactions.

Client assets invested in mutual funds will be subject to certain fees and expenses imposed directly by mutual funds to their shareholders, which shall be described in each fund’s prospectus. These fees will generally include a management fee, other fund expenses, and a possible distribution fee. If the sponsor also imposes sales charges, a client may pay initial or deferred sales or surrender charge.

In addition, client assets invested with TPAs recommended by KS&A will be subject to management fees charged by those TPAs, as described in each TPA’s disclosure brochure. Client assets invested in hedge funds or other Private Funds will be also be subject to management fees, performance fees and other expenses as described in each fund’s offering materials.

These fees and expenses are separate from and in addition to the fees charged by KS&A. Accordingly, the client should review the fees charged by any TPAs, mutual funds and hedge funds or other Private Funds in which the client’s assets are invested, together with the fees charged by KS&A, to fully understand the total amount of fees to be paid by the client and to thereby evaluate the advisory services being provided.

Additionally, clients will incur brokerage commissions and other execution costs charged by the custodian or executing broker-dealer in connection with transactions for a client’s account. Clients should further understand that all custodial fees and any other charges, fees and commissions incurred in connection with transactions for a client’s account will be paid out of the assets in the account and are exclusive of and in addition to the fees charged by KS&A. KS&A does not share in any of these fees. Please refer to Item 12 of this Brochure entitled “Brokerage Practices” for additional important information about the brokerage and transactional practices of KS&A.

E. General Information on KS&A’s Compensation and Fees

There are times when KS&A invests certain KS&A clients in non-publicly traded investments. These include non-publicly traded real estate investment trusts (“REITs”) and business development companies (“BDCs”), along with various private pooled investment vehicles (private funds) (collectively referred to as “Private Investments”). Please refer to Item 10 for additional information regarding firm affiliations and the conflicts surrounding these affiliations.

As mentioned in Item 4 above, certain individuals associated with KS&A (including Ken Stern, Brendan Van Cleve, Jeffrey Christie and Amy Boggeman) also are IARs of Lido, an unaffiliated registered investment advisory firm. When performing services as an IAR of Lido, these individuals shall receive separate and typical compensation for such services. Additionally, Mr. Stern in his role as a Managing Director of Lido will receive additional compensation in the form of overrides on all fees received by KS&A IARs also serving as IARs of Lido. Any such fees are in accordance with the terms of the agreement signed between these individuals and Lido, and are in accordance with Lido’s client agreement and Form ADV. Further, KS&A clientele will not be charged any fees for any services performed by these individuals in their capacity as IARs of Lido.

Several of KS&A’s IARs are also licensed insurance agents of various insurance companies. In the course of providing investment advisory services, these individuals may recommend that certain clients purchase products or policies underwritten by certain insurance carriers. Please note that a conflict of interest exists to the extent that certain recommendations could result in a commission being paid to these individuals by the insurance company should a client purchase that company’s insurance products or policies. The amount paid is the normal commission paid for services rendered as an insurance representative. To mitigate this potential conflict of interest, commissions that may be paid to these individuals in their capacity as licensed insurance agents will be disclosed to the client at the time such insurance product or policy is recommended. Furthermore, clients should be aware that they are under no obligation to purchase insurance products or policies recommended by KS&A or any of the Firm’s investment adviser representatives.

While the IARs devote as much time to the business and affairs of KS&A as is necessary to perform their duties, they do devote a portion of their time performing services as an IAR of Lido and as a licensed insurance agent (as applicable). These multiple roles and additional compensation create conflicts of interest. For example, in addition to the conflicts outlined in the paragraphs above regarding receipt of additional compensation, performing their outside business activities takes time away from their day to day duties performed for KS&A.

Additionally, as stated in Item 4 above, KS&A has entered into a Services Agreement with Lido whereby KS&A provides services to Lido including, but not limited to: research and investment management recommendations, prospect and client services and support to IARs of Lido, and such other services as Lido and KS&A may agree, provide and/or accept between them from time to time. For these services, KS&A receives a fixed-fee of $60,000 annually.

The conflicts surrounding these outside business activities are disclosed to clients at the time of entering into an advisory agreement with KS&A, mainly through the delivery of this Brochure and the Supplemental Brochures (ADV Part 2Bs). Additionally, KS&A has implemented certain controls to help mitigate these conflicts, including having supervisory procedures to oversee and monitor the outside business activities of the IARs. Importantly, as part of KS&A’s fiduciary duty to clients, the Firm and its IARs endeavor at all times to put the interests of the clients first, and recommendations and investments will only be made to the extent that they are reasonably believed to be suitable and in the best interests of the client.

Through APSH, Mr. Stern also is an owner, Managing Member and Managing Director of APS/Hill Street Partners, LLC (“APS/HSP”) which is a real estate syndication firm. Among other things, APS/HSP is the sole and managing member of the CREF II GP, LLC (the “Churchill GP”), that is the general partner of Churchill Realty Fund II, L.P. (the “Churchill Fund”) APS/HSP, and receives compensation in connection therewith which may be significant. There are times when advisers of KS&A will recommend that clients invest in the Churchill Fund, thus an inevitable conflict of interest exists. For those clients who invest in the Churchill Fund, KS&A will reduce the investment management fees collected on assets invested in the Churchill Fund such that the fees shall be the lesser of: (i) 0.75% of the assets under management invested in the fund; or (ii) a 25% reduction on the client’s applicable investment management fee (as described in the fee schedule in Item 5.B. above) for assets invested in the Churchill Fund. Thus, in no case will a client be assessed fees that exceed 0.75% on assets invested in the Churchill Fund. Please see Item 10 below for additional information regarding fees and conflicts of interest concerning these relationships.

For more information on the compensation KS&A’s IARs may receive in their capacities outside of KS&A and the conflicts surrounding these arrangements, including how KS&A addresses such conflicts, please refer to Item 10, below.

The advisory fees charged for KS&A’s Investment Management Services and Financial Planning Services are calculated as described above and are not charged on the basis of a share of capital gains or the performance of the client’s account.

ITEM 6: PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT

KS&A does not charge performance-based fees (i.e., fees calculated based on a share of capital gains upon or capital appreciation of the funds or any portion of the funds of an advisory client). Consequently, the Firm does not engage in side-by-side management of accounts that are charged a performance-based fee with accounts that are charged another type of fee (such as assets under management). As described in Item 5, above, KS&A provides its investment advisory services for a fixed fee, hourly charges and/or based upon a percentage of assets under management.

Importantly, some of the Private Investments that KS&A clients invest in do charge performance or incentive fees, which are outlined in the respective product’s offering documents and should be reviewed by investors. KS&A does not receive any portion of these fees. However, Mr. Stern, as owner of APS/HSP (as defined in Item 10 below), individually or through APSH and its affiliated entities, does indirectly participate in the compensation received by APS/HSP, including manager compensation and performance based compensation paid by the Churchill Fund (as defined in Item 10 below), and other persons associated with KS&A may share in such compensation as well. Please refer to Item 10 below for additional information on Mr. Stern’s association with APS/HSP and Item 8 below regarding risks surrounding these products and other investments made by KS&A.

ITEM 7: TYPES OF CLIENTS

A. Description

KS&A provides its services to individuals, including high net worth individuals, corporations, non-profit organizations and pension and profit sharing plans.

B. Conditions for Managing Accounts

For the Firm’s Investment Management Services, KS&A typically requires a minimum balance of $500,000 to open an account. This minimum may be waived or varied in the Firm’s discretion.

KS&A also reserves the right to accept or decline a potential client for any reason. Prior to engaging KS&A to provide Investment Management Services and/or Financial Planning Services described in this Brochure, the client will be required to enter into one or more written agreements with KS&A setting forth the terms and conditions under which the Firm will render its services.

ITEM 8: METHODS OF ANALYSIS, INVESTMENT STRATEGIES AND RISK OF LOSS

A. Methods of Analysis and Investment Strategies

KS&A generally uses a variety of analytical information to assist with its security analysis. However, the primary types of methods of analysis used by KS&A are quantitative, fundamental and technical analysis. The sources of information used by KS&A include, but are not limited to, software, market news reports, financial publications, outside research reports, annual reports, prospectuses, SEC filings and company press releases. As described in Item 4 above, certain individuals of KS&A also serve as IARs of Lido, an unaffiliated investment advisory firm. In doing so, such individuals provide certain investment research and recommendations to Lido clientele. The investment research and recommendations may be the same or different than the research and recommendations KS&A provides to its own advisory clients and often will be provided at the same time KS&A provides investment recommendations to its clients.

KS&A provides clients with ongoing Investment Management Services. KS&A offers strategies that seek aggressive growth, growth, growth and income and/or balanced allocations. Account portfolios will generally consist of equity securities, ETFs, bonds, mutual funds, and other permitted securities. Custom weighted portfolios are also available upon request.

Unless otherwise limited by a specific client, KS&A will manage each of these accounts on a discretionary basis. The investment strategies KS&A may pursue on behalf of clients may include long- and short-term purchases, short-term trading and, although discouraged, trading on margin. The Firm may, on occasion, reallocate portfolios to help ensure that they remain aligned with target weighting and stated objectives. KS&A may also recommend specific securities to increase sector weighting and/or dividend potential, or may recommend employing cash positions as a possible hedge against market movement which may adversely affect the portfolio. Additionally, KS&A may recommend selling positions for reasons that include, but are not limited to, harvesting capital gains or losses, business or sector risk exposure to a specific security or class of securities, overvaluation or overweighting of the position(s) in the portfolio, change in the risk tolerance of the client, or any risk deemed unacceptable for the client’s risk tolerance.

KS&A typically structures its clients’ portfolios using an investment methodology that aims for diversification so that clients may potentially benefit from having a portfolio of holdings invested in a variety of assets classes. Using analytics, including, but not limited to correlation, deviation and beta, KS&A seeks to provide long-term investments in line with stated risk tolerances and objectives. KS&A offers a selection of modeled portfolios which offer a range of equity and fixed income exposure levels. KS&A assists clients in selecting a portfolio based upon the client’s Investor Profile.

Under our system, we utilize strategies including but not limited to Core, Tactical and Uncorrelated/Hedge/Alternative strategies in our client portfolios as is appropriate.

Core – seeks to capitalize on both macro trends and value strategies. Both are aimed at long term growth with a goal of similar performance to a broad market index such as Standard and Poor’s 1500 Index with similar volatility ratios. We use macro portfolio analytics to accomplish these objectives.

Tactical – seeks opportunities which are shorter in term. Market cycles tend to create situations where the foolishness of the “herd” causes specific asset classes to bubble or create what we believe to be, substantial shorter interim, mispriced (either upside or downside) opportunities. Panic trades often cause assets to bid up to potentially unsustainable levels, and/or companies and sectors to trade at discounts to what we perceive to be fair value. These windows of opportunity are usually shorter interim and often less than 2 years. We look to capitalize on these opportunities.

Uncorrelated/Hedge/Alternative – Not all asset classes move in the same direction at the same time. If two types of assets move in tandem, they are highly correlated. If they move independently of one another, then they are uncorrelated. In this portion of the portfolio, we look to invest in asset classes that have low, negative or no correlation to the stock market, depending on market trends and investment objectives. This could include real estate, market neutral strategies, fixed income, or even private equity. The goal of the uncorrelated allocation is to provide a lower correlation to the rest of the portfolio and add Alpha (excess returns of a security relative to the return of a benchmark index) during times of stock market declines.

B. Risk of Loss

Investing in securities involves risk of loss that clients should be prepared to bear. Prior to entering into an Investment Management Agreement with KS&A, a client should carefully consider: 1) committing to management only those assets that the client believes will not be needed for current purposes and that can be invested on a long-term basis, usually a minimum of three to five years, 2) that volatility from investing in the stock, bond, fund, alternative investment, and other markets can occur, and 3) that over time the client’s assets may fluctuate and at any time be worth more or less than the amount invested. KS&A cannot make any guarantee that a client’s investment objectives will be achieved.

Some of the risks of loss that a client should be aware of include, but are not limited, to the following:

  • Interest-Rate Risk: Fluctuations in interest rates may cause investment prices to fluctuate. For example, when interest rates rise, yields on existing bonds become less attractive, causing their market values to decline.
  • Market Risk: The price of a stock, bond, mutual fund or other security may drop in reaction to tangible and intangible events and conditions. This type of risk is caused by external factors independent of a security’s particular underlying circumstances.
  • Inflation Risk: When any type of inflation is present, a dollar today will not buy as much as a dollar next year, because purchasing power is eroding at the rate of inflation.
  • Currency Risk: Overseas investments are subject to fluctuations in the value of the dollar against the currency of the investment’s originating country. This is also referred to as exchange rate risk.
  • Political and Legislative Risks: Companies face a complex set of laws and circumstances in each country in which they operate. The political and legal environment can change rapidly, without warning and with significant impact. This is especially true for companies operating outside of the United States or that conduct a portion of their business outside of the United States.
  • Reinvestment Risk: This is the risk that future proceeds from investments may have to be reinvested at a potentially lower rate of return (i.e. interest rate). This primarily relates to fixed income securities.
  • Business Risk: These risks are associated with a particular industry or a particular company within an industry. Generally, business risk is that a company will go bankrupt or perform below expectations. Every company carries the business risk that it will produce insufficient cash flow in order to maintain operations. Business risk can come from a variety of sources, some systemic and others unsystemic. That is, every company has the business risk that the broader economy will perform poorly and therefore that sales will be poor, and also the risk that the market simply will not like its products.
  • Liquidity Risk: Liquidity is the ability to readily convert an investment into cash. Generally, assets are more liquid if there is an active market for the asset. For example, Treasury Bills are highly liquid, while real estate properties are not.
  • Financial Risk: Excessive borrowing to finance a business’ operations increases the risk of profitability, because the company must meet the terms of its obligations in good times and bad. During periods of financial stress, the inability to meet loan obligations may result in bankruptcy and/or a declining market value.

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Ken Stern & Associates (“KS&A”) is an SEC Registered Investment Adviser. However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.Asset Planning Solutions is a Licensed Insurance Agency CA Insurance # OB95262

KS&A and its employees are not tax professionals, information provided in this publication is not to be considered tax advice.
KS&A recommends that you consult a tax or an estate planning professional if you feel that these services are necessary for your situation. Information provided reflects the views of KS&A as of the date of this presentation. Such views are subject to change at any point without notice. KS&A obtained the information provided herein from third party sources believed to be reliable but it is not guaranteed. Information contained herein is provided for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any securities. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No investment decision should be made based solely on any information provided herein. KS&A has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is no assurance that any financial strategy will be profitable or successful in achieving your financial objectives. Investments in foreign securities may be affected by currency fluctuations, differences in accounting standards and political instability. These risks are more significant in emerging markets (or concentrations within a single country) and are subject to greater risk of loss and volatility and may not be suitable for all investors. Past performance is no guarantee of future returns.
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