Disclosures & Policies

Form CRS

To participate in Financial Advisor Network, Inc.’s First Trust Deed Investment Opportunities clients must fulfill one of two requirements: attend a live first trust deed informational session (for client education on how first trust deeds function) or view the video of the presentation. This video was posted to client FAN portals in the Documents/Statements/Video Statement section of client FAN Portals. After viewing the presentation in one of the two specified forms above, clients must indicate an interest in pursuing participation in a first trust deed investment as an allocation in their FAN portfolio.

Financial Advisors Network, Inc. (FAN) is a registered investment advisory firm. As such, FAN is not offering first trust deeds. It may recommend first trust deeds as an investment, on a non-discretionary basis, to clients under their advisory agreement with FAN as a portion of the fixed income allocation of a client’s FAN managed portfolio.

Recognizing the need for diversification in FAN portfolios and that each client has their own agreed-upon risk tolerance, FAN is limiting the amount of FAN managed assets allowed to be invested in first trust deeds to 20% of a client household’s overall FAN managed portfolio. FAN will not allow these investments in client portfolios as a stand-alone investment. To ensure diversification within first trust deed investments, FAN will be limiting participation in each individual first trust deed investment to 5% of the client household’s overall FAN portfolio.

Further, there is a limit of ten investors in each individual first trust deed investment. While investment opportunities are limited to a maximum of ten investors, they may include fewer participants.

Based on the above limitations, FAN has developed the below table to determine the maximum investment in each individual first trust deed investment opportunity, subject to the 20% overall limitation for all first trust deed investments.

First trust deed investments are intended to provide monthly interest payments while the loans are performing. However, first trust deed investments are illiquid and have unique risks as disclosed in the ADV of Financial Advisors Network, Inc., a registered investment advisor, which can be found on the SEC’s website under the Investment Advisor Public Disclosure and below under ADV Firm Brochures.

Periodically, first trust deeds may become delinquent and, in some instances, may enter default, at some point, which could impair a client’s capital investment. Default risk is mitigated by requiring the borrower to initially provide a minimum of 30% protective equity in the property used as collateral for the individual first trust deed investment.

First Trust Deed Investments

Investment Opportunity Size Formula for FAN Client Participation

First trust deed disclosures as mentioned below in FAN’s September 2018 Wrap Fee Program Brochure and Firm Brochure

When appropriate for the client, our firm will recommend that the client invest a portion of portfolio assets in a first trust deed investment. A first trust deed involves investing in a loan secured by real estate. First trust deeds may be undivided fractionalized interests in whole notes secured by real estate or whole notes secured by real estate. All investments in first trust deeds are arranged through an unaffiliated, licensed real estate broker and require the client to complete various documentation regarding the transaction. Our firm is not responsible for arranging the first trust deed investments and does not act on a discretionary basis with respect to first trust deed investments; however, we will assist the client with the completion of the documents. First trust deeds are complicated transactions, and as such are not appropriate for all clients. It is the responsibility of the client to understand first trust deed investments and be comfortable with the risks prior to investing. Clients are encouraged to read the California Department of Real Estate publication entitled “Trust Deed Investments: What You Should Know!!” prior to investing in a first trust deed.

Portfolio assets invested in first trust deeds are considered assets of your wrap fee program portfolio and will be charged our normal advisory fee on the value of the investment according to the wrap fee program fee schedule noted above. In addition, the client will pay fees imposed by the real estate broker and loan servicing agent for the first trust deed. The real estate broker will charge upfront points on the amount of the first trust deed investment and an ongoing servicing fee that is deducted from the loan payments received from the borrower. The servicing fee is a “spread” between the interest rate payable by the borrower on the loan (“borrower rate”) and the interest rate the client receives as an investor (“investor rate”). The loan servicing agent also receives an ongoing servicing fee that is deducted from the loan payments received from the borrower. These fees are separate from and in addition to our advisory fee and will be disclosed in the documentation that clients sign at the time of investing in the first trust deed. There will be additional fees involved in situations where foreclosure by the client is necessary.

First trust deed investments will be held by Millennium Trust Company (“MTC”), a qualified custodian. MTC imposes additional fees for administrative and custodial services. For example, MTC imposes an annual holding fee for each first trust deed investment as follows: $175 for one holding, $325 for two holdings, $450 for three holdings, and $550 for four or more holdings. These fees are not charged to the client; rather, we pay the first $100, and the licensed real estate broker that arranges the first trust deed investment pays the remainder. MTC also charges fees for certain processing activities including, but not limited to, account termination fees, outgoing wire or overnight delivery fees, and outgoing asset transfer or registration fees. These fees are charged to the client.

Risk of Loss

First trust deed investing involves investing in loans secured by real estate. First trust deeds may be undivided fractionalized interests in whole notes secured by real estate or whole notes secured by real estate. Most trust deed investments are intended to be a relatively short term, typically between one and five years, and made to individual real estate investors. The following are some of the risks associated with investing in first trust deeds. Not all clients are appropriate for first trust deed investing.

Fractionalized Interests – If you own an undivided fractionalized interest in a first trust deed, you will be a joint beneficiary with others on the note. The beneficiaries holding more than 50% interest in the note will govern the actions to be taken on behalf of all holders in the event of default or other matters.

Credit Risk – Investments in notes secured by first trust deeds and real property sales contracts are subject to a risk of loss of principal and monthly income. If the borrower stops making payments on any investments you make, you will not receive income, therefore, you cannot rely on this income.

Illiquid Investments – First trust deed investments are not liquid. Clients need to be willing to keep the investment until the borrower pays off the loan, or, in the case of default, until the client and other joint beneficiaries have foreclosed and sold the underlying property. Foreclosure proceedings will require a consensus of a majority of beneficiaries on the note.

No Capital Appreciation – With first trust deed investing there is no chance for capital appreciation. Typically, the only returns that the client will be entitled to will come from the interest income generated from the loan.

Complex Investment – Directly investing in first trust deeds requires that the client identify borrowers, assess deals on their merit, and conduct due diligence on the borrower and the property. This requires knowledge that the client must acquire. There is also a risk that a flaw in documentation could increase the risk. For example, litigation or title problems could cause problems if the borrower or some other party make a credible claim that the first trust deed instruments are not valid or that they have some interest in the underlying property. This may require the client to take legal action at additional expense to protect his/her interests.

Failure to Record Title – The first trust deed investments that you will make will either name you and your percentage interest in the investment or will be assigned to you. Your first trust deed investment is not secured by the real estate collateral unless your interests in those investments are recorded.

Balloon Payment – A balloon payment is any installment payment (usually the payment due at maturity) which is greater than twice the amount of the smallest installment payment under the promissory note. The borrower is under no obligation to pay off the loan prior to the maturity date. Further, in the case of a balloon payment, there is a potential risk that the borrower may not be able to make the balloon payment. The borrower may have to obtain a new loan or sell the property to make the balloon payment. If the effort is not successful it may be necessary for the holder of the note to foreclose on the property as a means of collecting the amount owed.

Lack of Insurance – The inability to obtain insurance on the real estate for terrorist acts, earthquakes, floods and other acts of nature expose the real estate improvements and value of the first trust deed to risk. For example, if there is an earthquake that destroys a structure on which a client has provided a loan and there is no insurance coverage, the client will experience a loss of principal.

Financial Advisors Network, Inc. (FAN) provides links to various third-party websites as a courtesy. When you click on one of these links you will be leaving the FAN website and redirected to a third-party website outside of FAN’s control. These third-party sites are not affiliated with, sponsored by, or endorsed by FAN. We are not responsible for the completeness or accuracy of information provided on these websites. When you access one of these websites, you assume total responsibility and risk for your use of the websites.

FAN’s Strategic Alliance websites are considered third-party sites. These websites are separate entities from and unaffiliated with, Financial Advisors Network, Inc. Services and content provided by Strategic Alliances and external vendors are not endorsed by Financial Advisors Network, Inc. There is no obligation to use their services.

Please keep in mind that third-party sites will be monitored through privacy policies different from FAN. It is the responsibility of visitors to read and understand these policies. 

Content, Comments, Likes and Followers: Information contained on FAN’s social media profiles – including content, comments, likes and followers – should not be considered testimonials by any clients of FAN. FAN does not request that you interact with its profile content. All people interact with FAN’s profiles of their own will and are not influenced by FAN. Articles located within FAN’s profiles are gathered from widely recognized sources. FAN reviews all of its posted or shared content. However, it cannot assure the accuracy of any content not produced by FAN itself. For important information about links to third party sites, please click on “Links or Redirections to Third Party Sites.”

Endorsements: FAN and associated firms are not responsible for third party sites. These sites are not encouraged to post or react to anything on FAN’s behalf. FAN is not to be held accountable for content, links, or comments found in linked sites. FAN is not held responsible for any updates or adjustments associated with linked sites. All links and articles provided by FAN function as educational resources. FAN does not endorse these links or monitor the updating of their content by third parties.

Updates to Disclosures: Disclosures for FAN’s social media profiles may change over time. After every alteration to the disclosures, the above date will change to the time adjustments are made. All updates become valid when new disclosures are posted to FAN’s website. Any activity on FAN’s website or profile, after changes are made, serve as visitors’ consent to the updated policy.

Form ADV Part 2A – Firm Brochure

Form ADV Part 2A Appendix 1 – Wrap Fee Program Brochure

Form ADV Part 2B – Brochure Supplement – Rod Kamps, CFP,^® AIF^®

Form ADV Part 2B – Brochure Supplement – Rohan Nakrani, MBA, CFA^®

Form ADV Part 2B – Brochure Supplement – Brian Douglass, CFP,^® AIF,^® EA

Form ADV Part 2B – Brochure Supplement – Spenser Messmore, CFP^®

Form ADV Part 2B – Brochure Supplement – Nathan Taccini, CFP,^® AIF^®

Form ADV Part 2B – Brochure Supplement – Gabriella Perez, CFP,^® AIF^®

Form ADV Part 2B – Brochure Supplement – Joe A. Pence, ChFC,^® AIF^®

Form ADV Part 2B – Brochure Supplement – Teresa Camacho, AIF^®

Form ADV Part 2B – Brochure Supplement – David Reiter, QKA,^® AIF^®

Form ADV Part 2B – Brochure Supplement – Jordan Sandfer, CFP,^® AIF^® , EA

Form ADV Part 2B – Brochure Supplement – Phillip Do, AIF^®

Form ADV Part 2B – Brochure Supplement – Tyler Thompkins, AIF^®

Privacy Policy

Fiduciary Duty. This Code of Ethics is based on the principle that all IARs and certain other persons of FAN have a fiduciary duty to place the interest of Clients ahead of their own and FAN’s. This Code of Ethics applies to all “Access Persons” (defined below). Access Persons must avoid activities, interests, and relationships that might interfere with making decisions in the best interests of FAN’s Advisory Clients.

For purposes of this policy, the following words shall mean:

“Access Persons” means all employees, directors, officers, partners or members of FAN, as the case may be, who (i) have access to nonpublic information regarding Advisory Clients’ purchases or sales of securities, (ii) are involved in making securities recommendations to Advisory Clients or (iii) have access to nonpublic recommendations or portfolio holdings of Clients (iv) all of FAN’s directors, officers, members, and IARs.  Client services personnel who regularly communicate with Advisory Clients also may be deemed to be Access Persons.

“Advisory Client” means any person or entity for which FAN serves as an investment adviser for, renders investment advice to or makes investment decisions for.

“Code” means this policy as supplemented by other policies and procedures contained in FAN’s WSPs.

“Reportable Securities” means all securities in which an Access Person has a beneficial interest except: (i) U.S. Government securities, (ii) money market instruments (e.g., bankers’ acceptances, bank certificates of deposit, commercial paper, repurchase agreements, and other high-quality short-term debt instruments), (iii) shares of money market funds, (iv) shares and holdings in open-end mutual funds (except affiliated mutual funds) and (iv) units of a unit investment trust (except affiliated unit investment trusts).

FAN has established the following restrictions in order to ensure its fiduciary responsibilities:

• FAN emphasizes the unrestricted right of the Client to specify investment objectives, guidelines, and/or conditions on the overall management of their account.


• Associated persons or their immediate family members shall not buy or sell securities for their personal portfolio(s) where their decision is derived, in whole or in part, by reason of the associated person’s employment unless the information is also available to the investing public on reasonable inquiry. No associated person of FAN shall prefer his or her own interest to that of the advisory Client.


• FAN or individuals associated with FAN may buy or sell for their personal accounts investment products identical to those recommended to Clients. It is the expressed policy of FAN that no person employed by FAN may enter an order to purchase or sell any security prior to a transaction being implemented for an advisory account (front-running), and therefore, preventing such employees from benefiting from transactions placed on behalf of advisory accounts.


• FAN and its employees generally may not participate in private placements or initial public offerings (IPOs) without pre-clearance from FAN’s Compliance Officer.


• FAN requires that all individuals must act in accordance with all applicable federal and state regulations governing registered investment advisory practices.


• Records will be maintained of all securities bought or sold by FAN, associated persons of FAN, and related entities. The CCO or his designee will review these records on a regular basis.


• Any individual not in observance of the above may be subject to termination.

OTHER DUTIES

• Confidentiality. Access Persons are prohibited from revealing information relating to the investment intentions, activities or portfolios of Advisory Clients except to persons whose responsibilities require knowledge of the information.


• Gifts.  The following provisions on gifts apply to Access Persons:


• Accepting Gifts.  On occasion, because of their position with FAN, Access Persons may be offered or may receive, without notice, gifts from Clients, brokers, vendors or other persons.  Acceptance of extraordinary or extravagant gifts is prohibited.  Any such gifts must be declined and returned in order to protect the reputation and integrity of FAN.  Gifts of nominal value (i.e., a gift whose reasonable value, alone or in the aggregate, is not more than $100 in any twelve month period), customary business meals, entertainment (e.g., sporting events), and promotional items (i.e., pens, mugs, T-shirts) may be accepted.  All gifts received by an Access Person that might violate this Code must be promptly reported to FAN’s CCO.


• Solicitation of  Gifts.  Access Persons are prohibited from soliciting gifts of any size under any circumstances.


• Giving gifts.  Access Persons may not give any gift with a value in excess of $100 (per year) to an Advisory Client or persons who do business with, regulate, advise or render professional services to FAN.  Gifts of nominal value (i.e., a gift whose reasonable value, alone or in the aggregate, is not more than $100 in any twelve month period), customary business meals, entertainment (e.g., sporting events), and promotional items (i.e., pens, mugs, T-shirts) may be given.  All gifts given by an Access Person that might violate this Code must be promptly reported to FAN’s CCO.
  
  Gift and Gratuities Log.  A Gift and Gratuities Log shall be maintained by the CCO recording all gifts given and received.  The Gift and Gratuities Log should record the following: Date received, Client/Customer Name, Type of Gift, Name of Employee, and Value of gift.


• Personal Gift Exclusion. Gifts between Access Persons and personal friends that happen to be clients of FAN are excluded from the dollar value limits noted


• Company Opportunities. Access Persons may not take personal advantage of any opportunity properly belonging to any Advisory Client or FAN.  This includes, but is not limited to, acquiring Reportable Securities for one’s own account that would otherwise be acquired for an Advisory Client.


• Undue Influence.  Access Persons shall not cause or attempt to cause any Advisory Client to purchase, sell or hold any security in a manner calculated to create any personal benefit to such Access  If an Access Person stands to materially benefit from an investment decision for an Advisory Client that the Access Person is recommending or participating in, the Access Person must disclose to those persons with authority to make investment decisions for the Advisory Client the full nature of the beneficial interest that the Access Person has in that security, any derivative security of that security or the security issuer, where the decision could create a material benefit to the Access Person or the appearance of impropriety.  The person to whom the Access Person reports the interest, in consultation with the CCO, must determine whether or not the Access Person will be restricted in making investment decisions in respect of the subject security.


• Reporting, Review and Record Keeping.  All violations of the Code must be reported promptly to the President/CEO and/or the CCO.  The President/CEO and/or the CCO shall periodically review Access Persons’ personal trading reports and otherwise take reasonable steps to monitor compliance with, and enforce this Code.  The CCO shall maintain in FAN’s files (i) a current copy of the Code, (ii) records of violations and actions taken as a result of the violations, (iii) copies of all Access Persons’ written acknowledgement of receipt of the Code, (iv) a copy of the initial holdings report or applicable account statement, (vi) copies of the quarterly account statement received from custodians, and (vii) copies of the annual compliance certificate required by the Code.


• Sanctions.  If the CCO determines that an Access Person has committed a violation of the Code, the Company may impose sanctions and take other actions as it deems appropriate, including a Jetter of caution or warning, suspension of personal trading privileges, suspension or termination of employment, fine, civil referral to the SEC and, in certain cases, criminal referral.  FAN may also require the offending Access Person to reverse the trades in question, forfeit any profit or absorb any loss derived therefrom; and such forfeiture shall be disposed of in a manner that shall be determined by FAN in its sole discretion.  Failure to timely abide by directions to reverse a trade or forfeit profits may result in the imposition of additional sanctions.


• Exceptions.  Exceptions to the Code will rarely, if ever, be granted.  However, the CCO may grant an occasional exception on a case-by-case basis when the proposed conduct involves negligible opportunities for abuse.  All exceptions shall be solicited and issued in writing.  No reports shall be required under this Code for (i) transactions effected pursuant to an automatic investment plan and (ii) securities held in accounts over which the Access Person has no direct control.


• Compliance Certification.  All Access Persons shall sign a certificate promptly upon becoming employed or otherwise associated with FAN that evidences his or her receipt of this Code of Ethics and submit to FAN a current copy of  the Access Person’s securities account statement.  All Access Persons shall hold all personal brokerage accounts at an approved firm and request that the account’s custodian provide duplicate account statements to FAN no later than 30 days after the close of each quarter.  Annually, all Access Persons will be required to certify compliance with FAN’s Code of Ethics.

Financial Advisors Network – Business Continuity Plan