The Private Bank, through JPMS and/or JPMCB, as applicable, provides full service brokerage services as well as discretionary investment management to clients.
J.P. Morgan earns compensation in various ways, which you should be aware of so you can better evaluate the recommendations you receive from your J.P. Morgan team and the firm. J.P. Morgan earns revenue from our clients, from our affiliates, and, for some products and services, from third parties, including product vendors, underwriters, and investment managers whose products and services are purchased by clients. We also receive compensation as a result of intercompany profit-sharing and servicing agreements.
Cash Compensation
We always have looked at financial performance as a critical factor, but not the only factor, in pay-for-performance. Financial performance alone is not a comprehensive picture of performance. Broader contributions are important, like qualitative skills such as leadership attributes, character and integrity, and management ability. This also includes recruiting, coaching and training, building better systems and fostering innovation, just to name a few.
The investment professionals on your J.P. Morgan team are paid a salary and are eligible for a discretionary bonus paid on the firm’s Incentive Compensation plan. All base salaries are determined primarily on the basis of the description of the individual’s job and his or her meritorious performance. Incentive Awards are subject to the JPMorgan Chase Performance-Based Incentive Compensation Plan and the JPMorgan Chase Bonus Recoupment Policy. Discretionary bonuses are not related directly to the sale of any specific product or services.
Scorecards assist managers in the evaluation of the individual performance of your J.P. Morgan team members, but there is no prescribed relationship between scorecards and compensation.
J.P. Morgan receives compensation directly from you for providing brokerage services as described in the fee schedule for Full Service Brokerage Accounts—United States in the Appendix. This includes, for example, standard commissions on equity transactions and securities settlement transaction charges for transactions executed through other broker-dealers.
Non-Cash Compensation
Additionally, your J.P. Morgan team members may receive certain non-cash compensation under limited circumstances. The J.P. Morgan Code of Conduct and other gift-related policies generally prohibit acceptance of any gifts, entertainment, or other non-monetary compensation in connection with the services we provide to any particular client, or in return for any business of the firm. Exceptions may be made for certain nominal non-cash gifts to J.P. Morgan employees of less than $100 meeting certain criteria (for example, birthday or holiday gift), including potentially from third-party investment managers. J.P. Morgan policies set conditions for each of these types of payments, and do not permit any gifts or entertainment unless it is clear that the gift-giving person is not trying to influence or reward the J.P. Morgan employee inappropriately in connection with any business decision or transaction and the gift is unsolicited.
Other Non-Cash Compensation and Subsidies
Third-party providers (such as fund companies) may participate in J.P. Morgan–sponsored internal training and education conferences, and meetings, seminars, and sales meetings and may make payments to, or for the benefit of, J.P. Morgan or its investment professionals to reimburse for certain expenses incurred for these events. Providers may also sponsor their own educational conferences or due diligence meetings and only pay for expenses while onsite for the event of investment professionals attending these events. J.P. Morgan’s policies require that the training or educational portion of these conferences comprises substantially all of the event, and such conferences and meetings are subject to review and approval.
Further, J.P. Morgan may provide sponsorship opportunities and access to our offices and investment professionals to such providers for educational, marketing and other promotional efforts. Any payments made by providers could potentially lead investment professionals to focus on products managed by these providers when recommending products to clients instead of those from other providers that do not commit similar resources to educational, marketing and other promotional efforts. As a general matter, you should be aware that the receipt of economic benefits from others, in and of itself, creates a potential conflict of interest.
J.P. Morgan is compensated from various sources, as described under Section 3 and more fully below, in addition to the account fees and transactions costs.
Discretionary Investment Management & Advisory Services
JPMCB receives compensation for the services provided under a managed account when you decide to open such an account. If you invest in a managed account, you will pay a management or advisory fee, which covers JPMCB’s and J.P. Morgan’s services to the managed account. The types of fees you will pay, the exact amount of fees, and any offsets depend on many factors, such as the amount invested in your managed account over time, the types of assets held in your managed account, the J.P. Morgan program in which you invest, and other J.P. Morgan managed accounts you hold. In addition, the account will bear the costs for the underlying investment products held in the accounts. For more information, please contact your J.P. Morgan team.
Custody Accounts
The Private Bank provides custody services through JPMCB. JPMCB charges asset and transaction-based fees for its custody services as disclosed on the Custody Fee Schedule provided at account opening. Unless otherwise indicated, when you open a custody account with JPMCB that is linked to brokerage services offered through JPMS, the custody fees charged by JPMCB will be in addition to, but separate from, any commissions and fees charged by JPMS for its brokerage services.
Purchasing J.P. Morgan Affiliated Funds and ETFs and Related Compensation
JPMS and its affiliates provide a wide range of financial services to various mutual fund companies. Some of these affiliates provide investment management and other services to J.P. Morgan Funds or ETFs, for which those affiliates will benefit from that purchase as a result of receiving investment management fees and other forms of compensation in connection with the operation of such funds, such as shareholder servicing, custody, fund accounting, administration, distribution, securities lending and other services. Therefore, because JPMS and its affiliates will in the aggregate receive more compensation if you purchase shares in a J.P. Morgan Fund or ETF than if you were to purchase shares in a non-affiliated mutual fund, there is a conflict of interest when JPMS clients purchase J.P. Morgan Funds. The prospectus, descriptive brochure, offering memorandum or similar documents for such products describe these fees and other compensation in detail.
Compensation for Other Services
J.P. Morgan or JPMS’s related persons provide financial, consulting, investment banking, advisory, brokerage (including prime brokerage) and other services to, and receive customary compensation from, an issuer of equity or debt securities that may be held by client accounts. Such compensation could include financial advisory fees, monitoring fees, adviser fees or fees in connection with restructurings or mergers and acquisitions, as well as underwriting or placement fees, financing or commitment fees, trustee fees and brokerage fees.
Margin
JPMS may earn additional compensation through such brokerage-related services it provides, such as extending margin loans to clients. When a client has a margin account with JPMS, JPMS, as permitted by federal law, may use certain securities in the client’s account for, among other things, settling short sales and lending securities for short sales. JPMS will generally be compensated in connection with these transactions. JPMS may receive additional compensation separate and distinct from interest and fees paid by the client on margin debit balances held by the client in any account. Your J.P. Morgan team does not receive compensation on margin loans. As a result, JPMS has a financial incentive for the client to incur margin debt to buy securities in the client’s account because the client will be required to pay interest and fees on the debt, and they have a further financial incentive for the client’s margin debit balance.
Blank Sweep Program
Under the bank deposit sweep program offered by JPMS, cash balances held in client accounts custodied at JPMS are “swept” or remitted for deposit by JPMS into a deposit account maintained at JPMCB (“Chase Deposit Sweep”). JPMCB benefits from cash balances credited to your JPMS account(s) that are swept into the bank deposit sweep program. For example, JPMCB may use the deposits from the sweep program to make loans and other investments. The profitability on such lending activities and investments is generally measured by the difference, or “spread,” between the interest rate paid on the deposits and other costs associated with the Chase Deposit Sweep, and the interest rate or other income earned by JPMCB on loans and investments made with the deposits. Therefore, JPMS and JPMCB have a financial incentive in the use of the Chase Deposit Sweep as the primary “sweep” option. J.P. Morgan team members are not compensated on the assets in the sweep programs.
Float Earnings
JPMCB or an affiliate may retain, as compensation for the performance of services, your account’s proportionate share of any interest earned on aggregate cash balances held by JPMCB or an affiliate with respect to “assets awaiting investment or other processing.” These “assets awaiting investment or other processing” are invested by JPMCB in a number of short-term and long-term investment products and strategies, including, without limitation, loans to clients and investment securities, though the amount of earnings retained by JPMCB on such assets—known as “float”—due to their short-term nature, is generally considered to be at the prevailing federal funds interest rate (a publicly available average rate of all federal funds transactions entered into by traders in the federal funds market on a given date), less FDIC insurance and other associated costs, if any. “Assets awaiting investment or other processing” for these purposes includes, to the degree applicable, new deposits to the account, including interest and dividends, as well as any uninvested assets held in the account caused by an instruction to purchase and sell securities. JPMCB or an affiliate will generally earn float until such time as such funds may be automatically swept into a sweep vehicle, or otherwise reinvested. “Assets awaiting investment or other processing” may also arise when JPMCB facilitates a distribution from your account. Thus, pursuant to JPMCB’s standard processes for check disbursement, cash is generally debited from the account on the date on the face of the check (also called the payable date). Such cash is deposited in a non-interest-bearing omnibus deposit account at JPMCB, where it remains until the earlier of the date the check is presented for payment or the date payment on the check is stopped at your instruction (in which case the underlying funds are returned to the account). JPMCB derives earnings (float) from use of funds that may be held in this manner, as described above.
Principal Trading and Agency Cross Transactions Compensation
When permitted by applicable federal law, JPMS may sell securities to you and buy securities from you through our own account as principal and act as agent for you and another client in the same trade without first obtaining your consent. The trading capacity is disclosed to you on the trade confirmation. When we or an affiliate act as principal in buying a security from or selling a security to a client, we earn compensation on the transaction by marking up the price of the security sold to the client and marking down the amount received by the client when selling a security to us. This spread is the firm’s compensation for taking market risk and making a market in the security.
We have adopted policies and procedures that govern transactions for our principal accounts and the accounts of our employees. These policies and procedures are designed to prevent, among other things, improper or abusive conduct when there is a potential conflict with interests of clients.
JPMS also has the authority to effect “agency cross” transactions (i.e., transactions for which JPMS or one of its affiliates acts as a broker for both the account and the counterparty to the transaction) when permitted by applicable federal law. JPMS or its affiliates may receive compensation from each party to the transaction, and for that reason, we will have a potentially conflicting division of loyalties and responsibilities regarding the parties to the transaction.
Order Flow, ECNs, Trading Systems Payments
JPMS may receive payment for order flow in the form of discounts, rebates, reductions of fees or credits. This does not alter JPMS’s policy to route client orders to the market where it believes clients will receive the best execution, taking into account price, reliability, market depth, quality of service, speed and efficiency.
In addition, JPMS may effect trades on behalf of your account(s) through exchanges, electronic communications networks, alternative trading systems and similar execution systems and trading venues (collectively, “Trading Systems”), including Trading Systems in which J.P. Morgan may have a direct or indirect ownership interest. J.P. Morgan may receive indirect proportionate compensation based on its ownership percentage in relation to the transaction fees charged by such Trading Systems in which it has an ownership interest. Please contact your J.P. Morgan representative to request an up-to-date list of all Trading Systems through which we might trade. Such Trading Systems (and the extent of our ownership interest in any Trading System) may change from time to time.
J.P. Morgan Acting in Multiple Commercial Capacities
J.P. Morgan is a diversified financial services firm that provides a broad range of services and products to its clients and is a major participant in global currency, equity, commodity, fixed income, and other markets. J.P. Morgan is typically entitled to compensation in connection with these activities. In providing services and products to clients other than JPMS’s clients, J.P. Morgan, from time to time, faces conflicts of interest with respect to activities recommended to, or performed for, JPMS LLC clients on the one hand and other JPMS LLC clients and/or J.P. Morgan's other clients on the other hand. J.P. Morgan also advises and represents potential buyers and sellers of businesses worldwide. JPMS client accounts have invested in, and in the future may invest in, such entities represented by J.P. Morgan or with which J.P. Morgan has a banking, advisory or other financial relationship. In addition, certain clients of J.P. Morgan, including JPMS clients, invest in entities in which J.P. Morgan holds an interest, including a J.P. Morgan Fund or J.P. Morgan ETF.
In providing services to its clients and as a participant in global markets, J.P. Morgan, from time to time, recommends or engages in activities that compete with or otherwise adversely affect a J.P. Morgan client account or its investments. It should be recognized that such relationships can preclude J.P. Morgan clients from engaging in certain transactions and can also restrict investment opportunities that would otherwise be available to J.P. Morgan clients. J.P. Morgan is often engaged by companies as a financial adviser, or to provide financing or other services in connection with commercial transactions that are potential investment opportunities for J.P. Morgan clients. J.P. Morgan reserves the right to act for these companies notwithstanding the potential adverse effect on JPMS’s clients. J.P. Morgan derives ancillary benefits from providing investment advice, custody, administration, prime brokerage, transfer agency, fund accounting and shareholder servicing and other services to J.P. Morgan clients. Providing such services to J.P. Morgan clients enhances J.P. Morgan’s relationships with various parties, facilitates additional business development, and enables J.P. Morgan to obtain additional business and generate additional revenue.
J.P. Morgan’s Proprietary Investments
J.P. Morgan and any of its directors, partners, officers, agents or employees also buy, sell or trade securities for their own accounts or for the proprietary accounts of J.P. Morgan within their discretion, and can make different investment decisions and take other actions with respect to their proprietary accounts than those made for client accounts, including the timing or nature of such investment decisions or actions. Furthermore, J.P. Morgan is not required to purchase or sell for any client account securities that it, J.P. Morgan, and any of its employees, principals or agents may purchase or sell for their own accounts or the proprietary accounts of J.P. Morgan. J.P. Morgan, and its respective directors, officers and employees face a conflict of interest as they will have income or other incentives to favor their own accounts or the proprietary accounts of J.P. Morgan.
Investing in Securities in Which J.P. Morgan or a Related Person Has a Material Financial Interest
J.P. Morgan and its related persons may recommend or invest in securities on behalf of its clients that J.P. Morgan and its related persons may also purchase or sell. As a result, positions taken by J.P. Morgan and its related persons will be the same as or different from, or be made contemporaneously with or at different times than, positions taken for clients of J.P. Morgan. As these situations involve actual or potential conflicts of interest, J.P. Morgan has adopted policies and procedures relating to personal securities transactions, insider trading, and other ethical considerations. These policies and procedures are intended to identify and mitigate actual and perceived conflicts of interest with clients and to resolve such conflicts appropriately if they do occur. The policies and procedures contain provisions regarding pre-clearance of employee trading, reporting requirements, and supervisory procedures that are designed to address potential conflicts of interest with respect to the activities and relationships of related persons that might interfere or appear to interfere with making decisions in the best interest of clients, including the prevention of front-running. In addition, J.P. Morgan has implemented monitoring systems designed to ensure compliance with these policies and procedures.
Other Financial Services Provided by JPMS and Its Affiliates
In addition to the services provided by J.P. Morgan to its brokerage clients, J.P. Morgan and its affiliates provide other financial services to individuals, corporations, and municipalities. Those companies provide a wide variety of financial services to each other and third parties to facilitate servicing clients. These services may include, but are not limited to, banking and lending services, sponsorship of deferred compensation and retirement plans, investment banking, securities research, institutional trading services, investment advisory services, and executing portfolio securities transaction for funds and other clients. J.P. Morgan and its affiliates receive compensation for these services.
Transfer of Assets to JPMS
When you transfer assets from another firm to JPMS, including rollover of assets from retirement accounts, we earn compensation on the assets; please note that we will not earn this compensation if the assets are not transferred to JPMS. We may also earn more, and your J.P. Morgan team will begin to earn compensation, if your assets are transferred from a You Invest Trade account and placed in a JPMS investment advisory account or a full service brokerage account. J.P. Morgan team members are not compensated on You Invest accounts. Thus, you should be aware that we do have an economic interest in you transferring your assets to JPMS.
Allocation
Potential conflicts of interest may arise in the process of allocating securities to full service brokerage accounts for the purchase of securities that are distributed through syndicate transactions, particularly with regard to some Equity IPO securities. JPMS may have an incentive to allocate syndicate securities to certain accounts or clients, particularly in cases where the client demand for the syndicate offering exceeds the supply. For example, JPMS has an incentive to allocate to one account over another account because it may receive more revenue from one account than it does from a similar account. This could incentivize JPMS to allocate opportunities of limited availability to the account that generates more revenue for JPMS.
JPMS has established policies, procedures and practices to manage the conflict described above. JPMS’s syndicate allocation practices are designed such that syndicate allocation decisions are made following established procedures that require consideration of multiple factors and are designed to comply with securities laws and other applicable regulations. Syndicate allocation decisions that may give rise to material actual, potential or perceived conflicts of interest will be identified and escalated for review and resolution.
Non-U.S. Investments
International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the United States can raise or lower returns. Also, the volatility of some non-U.S. markets may be higher due to the instability associated with their local political and economic environments.
Ownership Interest in J.P. Morgan Stock
Certain asset management firms (each, an "asset manager") through their funds and separately managed accounts currently hold a 5% or more ownership interest in J.P. Morgan publicly traded stock. This ownership interest presents a conflict of interest when JPMCB, JPMS, JPMPI and J.P. Morgan recommends or purchases the publicly traded security of the asset manager or the separately managed accounts or funds that are managed or advised by the asset manager. J.P. Morgan addresses this conflict by disclosing the ownership interest of the asset manager and by subjecting the asset manager’s separately managed accounts and funds to a research process. Additionally, the financial advisers and portfolio managers that may purchase or recommend securities, separately managed accounts and funds of an asset manager that has an ownership interest in J.P. Morgan do not receive any additional compensation for that purchase or recommendation. A fund ownership interest in J.P. Morgan can cause the fund and its affiliates to determine that they are unable to pursue a transaction, or that the transaction will be limited or the timing altered. J.P. Morgan monitors ownership interests in J.P. Morgan for regulatory purposes, and to identify and mitigate actual and perceived conflicts of interest. As of December 31, 2019, both Vanguard and BlackRock hold more than a 5% interest in J.P. Morgan.
Non-Traditional Mutual Funds and Exchange Traded Products
For additional information regarding non-traditional mutual funds and ETPs, please consult with your J.P. Morgan team, or go to https://www.jpmorgan.com/content/dam/jpm/securities/documents/investing-in-non-traditional-funds.pdf.
At J.P. Morgan, we believe in doing first-class business in a first-class way. We are thankful for each and every one of our clients and appreciate your time and consideration. For additional information on any J.P. Morgan product and service, please visit our website, www.jpmorgan.com/privatebank.