ADV Part 2a
Item 4 – Advisory Business
Introduction
Elliott Cove Capital Management is an investment adviser registered with the United States Securities and Exchange Commission (“SEC”) and is a limited liability company (LLC) formed under the laws of the state of Washington. Ralph D Chiocco Jr, is the sole owner of Elliott Cove Capital Management, LLC. Our firm has been registered with the SEC since August 23, 2004
We are a fee-based investment advisor offering index-like asset allocation portfolios to individuals and for profit and nonprofit businesses. The nature of our services to you the client will depend on your unique financial situation, objectives, time horizons, and risk tolerance.
One of the advisor representatives of Elliott Cove is also licensed as a registered representative with Lincoln Investment, a registered broker/dealer, member FINRA/SIPC, and some of our advisor representatives are also independent insurance agents. When acting in these capacities, our advisor representatives receive commissions. These conflict of interest situations are discussed in more detail at Item 10 of this Disclosure Brochure
More information regarding our investment advisor representatives’ business and education background can be found in the respective investment advisor representative’s information required by Part 2B of Form ADV: Brochure Supplement. If you did not receive a copy of your advisor representative’s Brochure Supplement, please let us know and we will provide one.
Description of Primary Advisory Business
Through our Asset Management Services program Elliott Cove provides continuous and ongoing supervision over your specified accounts.
Elliott Cove Capital Management has developed and monitors its 7 core portfolios made up of Dimensional Fund Advisors mutual funds. They range from long time horizon, riskier portfolios to short horizon, risk adverse portfolios. Our philosophy of working with clients is to use techniques to determine their suitability, risk tolerance and time horizon and help them choose the correct allocation for their own time horizon and risk tolerance within our 7 core portfolios. We utilize E*trade Advisor Services as the custodian for these accounts due to the depth of services including performance reporting, trading platform, and other reporting services. Brokerage fees, expenses and commissions charged by E*trade Advisor Services are in addition to, and separate from, the fees charged by Elliott Cove Capital Management for its Advisory services.
Elliott Cove Capital Management utilizes an internal investment committee to develop, maintain and monitor its portfolios. Amendments can be made to the 7 core portfolios if approved by a majority of the committee members in attendance. See Item 13 for more information about how we monitor client accounts and our portfolios.
The Investment Committee will set a target allocation for each asset class, within the range set out in our Investment Policy. The Committee will meet periodically to review the target allocation and adjust the targets when deemed appropriate.
Elliott Cove Capital Management offers customized retirement plan services to pension and profit-sharing plans. These advisory services are in the form of ERISA 3(38) or 3(21) fiduciary service to employers or plan sponsors for the benefit of their employee retirement plan. Services can include some of the following services. These services are also outlined in the Retirement Advisory Agreement between Elliott Cove and the Client.
Retirement Plan Consulting (“Employers Fiduciary Liability Program”)
Elliott Cove provides customized retirement plan consulting services to its plan sponsor clients. Elliott Cove focuses on delivering services to help meet the specific needs of each Client by listening to the client to determine their needs and goals as well as the challenges they have within their employee population. Based on the determinations, the Employers Fiduciary Liability Program can include:
Plan Trust document review and recommendations for necessary liability coverage
Investment Policy Statement development, including performance measurement standards
Analysis of current investment options and integration with our 7 Core Portfolios
Benchmarking and peer group analysis
Assistance in the formation of an Investment Committee
Ongoing assistance and compliance consulting
Monitoring investment results for compliance with the IPS
Assistance in selecting or amending investment alternatives
Assistance in correcting plan failures, making sure plan administration is in line with plan documents
Keeping clients up to date on new legislation and regulatory requirements
Serve as co-fiduciary 3(21) or fiduciary 3(38) for the Client’s plan
As 3(21) fiduciary, we act as an investment advisor who assists in investment changes, building the fund lineup, reviewing the investment selection, and making investment recommendations. We are Co-fiduciaries for the plan.
As 3(38) fiduciary, we are the investment manager and have discretion to make all the changes at our own discretion. In this case we are the sole fiduciary. We generally serve as 3(38) fiduciaries with regard to our Elliott Cove portfolios. We serve as 3(21) fiduciaries with regards to funds chosen outside our portfolios and our portfolios underlying funds.
Elliott Cove evaluates and recommends vendors and investment options for its Clients following its own internal due diligence process.
Elliott Cove acknowledges that in performing the Fiduciary Consulting Services listed above that it is acting as a “fiduciary” as such term is defined under Section 3(21)(A)(ii) of Employee Retirement Income Security Act of 1974 (“ERISA”) for purposes of providing non-discretionary investment advice only. Elliott Cove will act in a manner consistent with the requirements of a fiduciary under ERISA if, based upon the facts and circumstances, such services cause Elliott Cove to be a fiduciary as a matter of law.
Elliott Cove
To the extent we recommend you roll over your account from a current retirement plan to an individual retirement account (“Rollover IRA”), managed by Elliott Cove please know that Elliott Cove and our investment adviser representatives have a conflict of interest.
We can earn increased investment advisory fees by recommending that you roll over your account at the retirement plan to a Rollover IRA managed by Elliott Cove. We will earn fewer investment advisory fees if you do not roll over the funds in the retirement plan to a Rollover IRA managed by Elliott Cove.
Thus, our investment adviser representatives have an economic incentive to recommend a rollover of funds from a retirement plan to a Rollover IRA which is a conflict of interest because our recommendation that you open an IRA account to be managed by our firm can be based on our economic incentive and not based exclusively on whether or not moving the IRA to our management program is in your overall best interest.
We have taken steps to manage this conflict of interest. we have adopted an impartial conduct standard whereby our investment adviser representatives will (i) provide investment advice to a retirement plan participant regarding a rollover of funds from the retirement plan in accordance with the fiduciary status described below, (ii) not recommend investments which result in Elliott Cove receiving unreasonable compensation related to the rollover of funds from the retirement plan to a Rollover IRA, and (iii) fully disclose compensation received by Elliott Cove and our supervised persons and any material conflicts of interest related to recommending the rollover of funds from the retirement plan to a Rollover IRA and refrain from making any materially misleading statements regarding such rollover.
Our investment advisor representatives shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk, tolerance, financial circumstances, and a client’s needs, without regard to the financial or other interests of Elliott Cove or our affiliated personnel.
Tailor Advisory Services to Individual Needs of Clients
Elliott Cove’s advisory services are always provided based on your individual needs. This means, for example, that when we provide asset management services, you are given the ability to impose restrictions on the accounts we manage for you, including specific investment selections and sectors. We work with you on a one-on-one basis through interviews and questionnaires to determine your investment objectives and suitability information.
We will not enter into an investment adviser relationship with a prospective client whose investment objectives could be considered incompatible with our investment philosophy or strategies or where the prospective client seeks to impose unduly restrictive investment guidelines.
When managing client accounts through our firm’s Asset Management Services program, we manage client accounts in accordance with the investment models previously described in this section. When client accounts are managed using models, investment selections are based on the underlying model and we do not develop customized (or individualized) portfolio holdings for each client. However, the determination to use a particular model or models is always based on each client’s individual investment goals, objectives and mandates.
Client Assets Managed by Elliott Cove Capital Management
The amount of assets under discretionary management by Elliott Cove Capital Management totaled $214,844,795 as of December 31, 2019
Item 5 – Fees and Compensation
Elliott Cove Basic Fee Schedule:
Elliott Cove provides its investment management services for a fee that is based on a percentage of assets under management. In those cases, where the client is referred to us, variations can be made depending on the relationship between Elliott Cove and the adviser or broker introducing the client. Any such variation is disclosed and agreed to in the clients’ Investment Advisory Contract. Fees are negotiable based on the value of assets under management, complexity of the client's situation, the advisor representative providing services, and other factors determine between the firm and the client. We will waive or reduce our fee for services when provided to employees and other affiliated persons or our firm. Minimum account size is $25,000, although Elliott Cove reserves the right to accept accounts lower than our minimum account size. The fees for advisory services are payable quarterly in arrears to Elliott Cove and will be based on the average daily balance of the account, including cash, for the previous quarter or fraction thereof. Standard payment of asset management fees is by automatic deduction from the account. There will be other fees charged by the custodian/trustee not included in this fee schedule.
The setup fee for SIMPLE IRA plans set up by an employer will be $250 for initial enrollment of 10 employees or less. They will be charged an additional $250 for initial enrollment of each set of 10 additional employees. Employees that are added after the initial enrollment period, the employer will not be assessed any further fees.
The initial account investment and all subsequent additions will be invested in cash upon receipt by the Custodian for the benefit of the investor, pending transfer to Elliott Cove portfolio(s). Elliott Cove will invest the funds into the selected Elliott Cove portfolio(s) on or before the first Elliott Cove regularly scheduled trading day following receipt of funds by the Custodian. Portfolio trades are processed daily, and in all cases will occur within five business days following receipt of funds by Custodian.
The maximum annual basic advisory fee structure for accounts is tiered and is currently:
Assets Managed* Maximum Annual Fee
* Minimum account size is $25,000
A client can cancel his or her Investment Advisory Contract at any time by providing Elliott Cove and/or the custodian, Etrade Advisor Services approved paperwork for distribution or transfer. A client can withdraw from this contract without penalty or fees, as it applies to Elliott Cove, within 5 business days of receipt of his or her Investment Advisory Contract.
Clients should be aware that mutual funds whose shares are held in client accounts pay advisory and other fees and expenses out of the funds’ assets. These are referred to as operating expenses by mutual fund companies. These operating expenses are charged by the mutual fund companies regardless of which Investment Advisor you select and are assessed by and for the benefit of the mutual fund company. Elliott Cove does not share in any fees assessed by mutual fund companies.
NOTICE TO INVESTOR
IMPACT OF FIXED FEES
Our minimum account size is $25,000, however we reserve the right to accept accounts below the minimum account size. As an investor, you should be aware of the impact of fixed fees on account balances below the $25,000 minimum.
The Elliott Cove Advisory Fee for assets up to $25,000 is 1.50% per year. The actual dollar amount in fees is adjusted according to the account balance. .
The Etrade Advisors’ Custodial Fee is .18% or $50 a year whichever is greater. In addition, should you close your account, Etrade Advisors will assess a termination charge (not reflected in the table below).
Refer to our full ADV part 2a for a chart on the effects of fees on accounts under $25,000.
Elliott Cove Institutional Retirement Fee Schedule:
Elliott Cove also provides investment management services to institutional retirement programs for a fee that is based on a percentage of assets under management. In those cases, where the retirement program is referred to us, variations in allocation of the fee can be made depending on the relationship between Elliott Cove and the adviser or broker introducing the client. Any such variation is disclosed and agreed to in the retirement program’s Investment Advisory Contract. Fees are negotiable based on the value of assets under management, complexity of the client's situation, the advisor representative providing services, and other factors determined between the firm and the client. We will waive or reduce our fee for services when provided to employees and other affiliated persons or our firm. There is no minimum account size since Elliott Cove does work with start-up retirement programs. Depending on the third-party administrator employed by a plan sponsor, fees will be billed and assessed on a quarterly basis either in arrears or in advance. Fees payable in arrears for advisory services will be based on the end of quarter balance of the account, including cash, for the previous quarter. Fees payable in advance for advisory services will be determined on the following basis: As of the origination date of the account, the fee for the initial quarterly period, payable in advance, will be based upon the opening valuation of the account, including cash and cash equivalents, and will be billed on a pro-rata basis for the number of days remaining in the quarter. The fee at the beginning of the next calendar quarter will be billed in advance based on the end of quarter balance of the account for the previous quarter, including cash. Subsequent quarterly management fees, calculated based on last end of quarter balance as just described, will be deducted from the account. Standard payment of asset management fees is by automatic deduction from the account.
The maximum annual retirement program fee for accounts is currently stepped and is:
Assets Managed Maximum Annual Fee
$ 0 to $ 250,000 1.25%
$ 250,001 to $ 500,000 0.90%
$ 500,001 to $ 750,000 0.80%
$ 750,001 to $1,000,000 0.70%
$1,000,001+ 0.60%
A retirement plan can cancel its Investment Advisory Contract by providing Elliott Cove with 30-days prior written notice executed by the trustee (or equivalent) of the plan. The account can be liquidated or transferred in less than 30-days. However, the notice period will serve as the basis for the computation of any pro-rata refund that is due on any unused portion of a prepaid quarterly management fee or in calculating advisory fees that will be due in the case of fees paid in arrears. A client can withdraw from this contract without penalty or fees, as it applies to Elliott Cove fees, within 5 business days of receipt of its Investment Advisory Contract.
Retirement program participants should be aware that mutual funds whose shares are held in client accounts pay advisory and other fees and expenses out of the fund’s assets. These are referred to as operating expenses by mutual fund companies. These operating expenses are charged by the mutual fund companies regardless of which Investment Advisor you select and are assessed by and for the benefit of the mutual fund company. Elliott Cove does not share in any fees assessed by mutual fund companies.
Item 10 – Other Financial Industry Activities and Affiliations
In a capacity separate from Elliott Cove your investment adviser representative will also serve as an insurance agent under the affiliated insurance agency Elliott Cove Insurance Agency and Elliott Cove Capital Insurance Agency. When acting in his or her separate capacity as an insurance agent, your investment adviser representative will commonly recommend insurance and/or annuity products that generally pay commissions to the insurance agent which vary depending upon the particular product recommended. Consequently, your investment adviser representative of Elliott Cove Capital Management has an economic incentive to recommend the insurance and annuity products with a higher commission rate, which is a conflict of interest.
The receipt of commissions on insurance products also presents a conflict of interest because it can create an incentive for your investment adviser representative to place your assets in insurance products rather than advisory accounts, depending on which pays more. Consequently, the advice rendered to you could be biased. You are under no obligation to implement any insurance or annuity transaction through your investment adviser representative.
Elliott Cove Capital Management has taken steps to manage these conflicts of interest by requiring that each in-vestment adviser representative (i) only recommend insurance and annuities when in the best interest of the client and without regard to the financial interest of Elliott Cove Capital Management and its investment adviser representative, (ii) not recommend insurance and/or annuities which result in investment adviser representative and/or Elliott Cove Capital Management receiving unreasonable compensation related to the recommendation, and (iii) disclose in writing to a client any material conflicts of interest related to insurance or annuity recommendations.
Insurance Companies Elliott Cove Capital Management works with may offers special incentive compensation while our investment adviser representatives act in their separate capacity as insurance agents, if they meet certain overall sales goals by placing annuities and/or other insurance products through the Company. A client could perceive that the receipt of commissions and additional incentive compensation itself creates a conflict of interest and would affect our independent judgment. However, this conflict is mitigated by the fact that we have a fiduciary responsibility to place the best interest of the client first and clients are not required to purchase any insurance products through us in our separate capacity as insurance agents.
Registered Representative of a Broker/Dealer
Neither Elliott Cove nor any of its management persons is registered or has an application pending to register as a broker‐dealer, futures commission merchant, commodity pool operator, commodity trading adviser, or associated person of the foregoing, and Elliott Cove does not anticipate such affiliations in the future. However, one of our employees William Schatz is a Registered Representative of, Lincoln Investment, a broker-dealer not related to Elliott Cove.
You can work with Mr. Schatz in his separate capacity as a registered representative of Lincoln Investment.
Item 14 – Client Referrals and Other Compensation
As a result of the relationships described above, the employees of non-affiliated banks have a conflict of interest when recommending Elliott Cove. A prospective client referred by a non-affiliated bank is under no obligation to utilize the investment advisory services of Elliott Cove. A prospective client referred to Elliott Cove is urged to make his or her own independent investigation and evaluation of Elliott Cove.
Moreover, a client referred to Elliott Cove by a non-affiliated bank should understand the following:
- Elliott Cove is not a bank or any other type of financial depository institution. Thus, your investment advisory account and the underlying investments that are recommended/selected do not receive the same protections that are provided through a bank or other depository institution.
- The assets held in an investment advisory account at Elliott Cove are not considered deposits or obligations of a bank.
- Assets held in investment advisory accounts established through Elliott Cove are subject to investment risk, including fluctuations in value and earnings and possible loss of principal amount invested
- With respect to the securities recommended or selected by Elliott Cove, such securities
- Are not insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA);
- Are not endorsed or guaranteed by the bank; and
- Are subject to investment risks, including possible loss of principal invested.
Item 16 – Investment Discretion
When providing asset management services, Elliott Cove Capital Management maintains trading authorization over your account(s). It is our practice to provide management services on a discretionary basis. When discretionary authority is granted, we will have the authority to determine the type of securities and the amount of securities that can be bought or sold for your portfolio without obtaining your consent for each transaction.
Provisions for discretionary trading will be memorialized, in writing, in our Advisory Agreement.
You will always have the ability to place reasonable restrictions on the types of investments purchased in your account(s). You can also place reasonable limitations on the discretionary power granted to Elliott Cove Capital Management as long as the limitations are specifically set forth or included as an attachment to the client agreement.