Issue link: https://resources.envestnet.com/i/1527492
22 | Envestnet | PMC Investment Methodology Guide FOR ONE-ON-ONE USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY it is the advisor's responsibility to know which share class was purchased. Because of the breadth of implementation and PMC's economies of scale, PMC often can obtain investment minimum waivers to access Institutional or lower-cost shares when selecting mutual funds for PMC managed models used across multiple accounts and broker-dealer clients. However, even though PMC endeavors to select lowest-cost share classes in PMC managed models, obtaining a minimum waiver is not always possible. Additionally, custodian availability, or the lack of selling agreements between the broker-dealers offering the managed account and the fund company, can prohibit accessing lowest-cost share classes. PMC does not 'recommend' any share classes, nor does PMC monitor individual accounts for share classes. Therefore, PMC's current model set and offering already strives to use, and in the majority of cases actually does use, the lowest-cost share class that is operationally or feasibly available to PMC's portfolio managers when constructing models. Because of this approach, PMC will not entertain requests on behalf of a given broker- dealer to use different share classes of funds that already have been selected. We emphasize that PMC's portfolio managers do not consider the effects of transaction fee (TF) relative to no transaction fee (NTF) funds, which vary among custodians where PMC managed model portfolios are offered. This is because there are many downstream effects to account funding that are not visible to the portfolio management team. These decisions include the specific custodian that a firm or enterprise uses, and whether the custodian charges transaction-based or asset- based pricing. This analysis may occur at the program construction level when the fund selection policies are designed. PMC does not participate in any 12b-1 fee revenue sharing with any fund family, and therefore has no incentive either to use or not use 12b-1 share funds during portfolio management fund selection. In most cases, PMC strives to use Institutional share classes (if the investment manager allows an investment minimum waiver), or Advisor share classes (which often have a lower, but not the lowest, internal expense ratio, although they do have lower investment minimums), or no-load share classes. PMC does not use B or C shares in its portfolios, but in a handful of cases, PMC's portfolio managers will use load- waived A share funds in their model portfolios. Also, from time to time, a few no-load funds that use 12b-1 funds are in the PMC models, which factor in the share class's overall expense ratio during evaluation. In many instances, PMC uses its alternate fund selection functionality in managing a model. Alternate usage is designed for custodial or fund-level considerations only (e.g., the primary fund is now Closed to New). For example, the initial share class chosen by PMC's portfolio manager may be an Institutional share class. Alternate fund selections cannot be used to differentiate a generally offered PMC model from firm to firm. However, if custodial constraints limit the purchase of a fund for a small subsection of accounts, PMC may indicate a slightly higher-cost Advisor share class (A share) or a different fund strategy to be bought in its place, if the Institutional share class cannot be purchased because of the custodian that the home office firm has chosen. PMC cannot accommodate these alternate fund selections at a broker-dealer level.