Item 1 – Cover Page
Anderson Financial Management, L.L.C.
3627 Stoneridge Road, No. 1
Austin, Texas 78746
(512) 327-4447
Date of Brochure: March 31, 2011
____________________________________________________________________________________ This brochure provides information about the qualifications and investment advisory business practices of Anderson Financial Management, L.L.C.. If you have any questions about the contents of this brochure please contact us at (512) 327-4447. 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.
Additional information about Anderson Financial Management, L.L.C. is also available on the Internet at www.adviserinfo.sec.gov. You can view information on this website by searching for Anderson Financial Management, L.L.C.’s name or by using its CRD number: 153141.
Item 2 – Material Changes
On July 28, 2010, the United States Securities and Exchange Commission published “Amendments to Form ADV” which amended the disclosure document provided to clients as required by SEC and state rules. This Disclosure Brochure, dated March 31, 2011, is a new document prepared according to new SEC and state requirements and rules. As such, this document is materially different in structure and requires certain new information that the previous Form ADV Part II and Schedule F for Anderson Financial Management, L.L.C. did not require. In the future, this item will discuss only specific material changes that are made to the Disclosure Brochure and provide readers with a summary of such
changes. Anderson Financial Management, L.L.C. will also reference the date of its last annual update of the brochure.
In the past, Anderson Financial Management, L.L.C. has offered or delivered information about the firm’s qualifications and business practices to clients on at least an annual basis. Pursuant to new rules, the firm will ensure that clients receive a summary of any material changes to this and subsequent Disclosure Brochures within 120 days after the firm’s fiscal year end—December 31. This means clients will receive the summary of material changes no later than April 30 each year. At that time, Anderson Financial Management, L.L.C. will also offer a copy of its most current Disclosure Brochure and may also provide other ongoing disclosure information about material changes as necessary.
Item 3 – Table of Contents
Item 1 – Cover Page ... 1
Item 2 – Material Changes ... 2
Item 3 – Table of Contents ... 3
Item 4 – Advisory Business ... 5
Ownership ... 5
General Description of Primary Advisory Services ... 5
Asset Management Services ... 5
Financial Consulting Services ... 5
Specialization ... 5
Limits Advice to Certain Types of Investments ... 5
Tailor Advisor Services to Individual Needs of Clients ... 5
Wrap-Fee Program versus Portfolio Management Program ... 6
Client Assets Managed by Advisor ... 6
Item 5 – Fees and Compensation ... 6
Asset Management Services ... 6
Financial Consulting Services ... 7
Newsletters... 8
Additional Compensation ... 8
Comparable Services ... 8
Item 6 – Performance-Based Fees and Side-By-Side Management ... 8
Item 7 – Types of Clients ... 8
Minimum Investment Amounts Required ... 8
Item 8 – Methods of Analysis, Investment Strategies and Risk of Loss ... 8
Methods of Analysis ... 8
Primary Method of Analysis or Strategy ... 9
Investment Strategies ... 9
Risk of Loss ... 9
Item 9 – Disciplinary Information ... 10
Item 10 – Other Financial Industry Activities and Affiliations ... 10
Other Affiliations ... 10
Registered Investment Advisor ... 10
Item 11 – Code of Ethics, Participation in Client Transactions and Personal Trading ... 11
Code of Ethics ... 11
Participation or Interest in Client Transactions ... 11
Item 12 – Brokerage Practices ... 11
Soft Dollar ... 11
Item 13 – Review of Accounts ... 12
Account Reviews ... 12
Account Reports ... 12
Item 14 – Client Referrals and Other Compensation ... 12
Item 15 – Custody ... 12
Item 16 – Investment Discretion ... 12
Item 17 – Voting Client Securities ... 13
Item 18 – Financial Information ... 13
Item 19 – State-Registered Advisors ... 13
Item 4 – Advisory Business Ownership
Anderson Financial Management, L.L.C. (“Advisor” or “we”) is an investment advisor registered with the State of Texas since November 2010. We are a limited liability company formed under the laws of the State of Texas and our sole member (owner) Susan K. Anderson.
General Description of Primary Advisory Services
We offer asset management services and financial consulting services, and the following are brief descriptions of our primary services. A detailed description is provided in Item 5, Fees and
Compensation, so that clients and prospective clients (“client” or “you”) can review the services and description of fees more thoroughly.
Asset Management Services
We offer investment management services by providing clients with continuous and on-going supervision over their accounts. This means that we continuously monitor a client’s account and make trades in that account when necessary. All trades must be approved by the client prior to execution, to assure that we comply with the non-discretionary aspect of each contract.
Financial Consulting Services
We offer consulting services to governmental authorities asking for assistance with non-management services for their investment portfolios.
Specialization
We specialize in managing fixed income portfolios that are associated with governmental entities. Limits Advice to Certain Types of Investments
We limit our investment advice to the following types of investments: Money Market Funds
Local Government Investment Pools Commercial paper
Certificates of deposit Municipal securities
United States government and agency securities
Please refer to Item 8, Methods of Analysis, Investment Strategies and Risk of Loss, for more information.
Tailor Advisor Services to Individual Needs of Clients
Wrap-Fee Program versus Portfolio Management Program
In traditional management programs, advisory services are provided for a fee but transaction services are billed separately on a per-transaction basis. In wrap-fee programs, advisory services and transaction services are provided for one fee. We do not act as a portfolio manager of or sponsor wrap fee programs.
Client Assets Managed by Advisor
As of December 31, 2010, we did not have any assets under management.
Item 5 – Fees and Compensation
In addition to the information provided in Item 4, Advisory Business, this section provides details regarding our services along with descriptions of the fees and compensation arrangements. Asset Management Services
We offer asset management services to government entities (e.g., cities, counties, school districts, etc.). Our investment advisor representatives (“representatives”) create a specific allocation strategy and investment policy for each client and provide ongoing assistance in evaluating and selecting investments as well as adjusting and balancing portfolios.
Management services are provided through accounts maintained at qualified custodians that are under contract directly with each client. We do not take possession of or have discretionary authority over any cash or investment assets of our clients. Although we execute pre-approved trades on behalf of our clients, we do not direct any settlements or movement of cash or assets with the client’s custodian(s). We rely upon the client to advise and authorize investment transactions related to their accounts. Although our clients may occasionally ask us for a list of custodians to consider or for help in soliciting a custodian, neither we nor our representatives receive any research or other services from the custodians selected. You can direct us to utilize any qualified custodian that has been approved for your use. Neither we nor our representatives act as custodian for any account or have access to your funds or securities. Management services are provided on a non-discretionary basis only, meaning that we always contact you before implementing any transactions in an account.
We do not require any minimum account value when providing management services. Fees for management services are charged as either a flat fee or as a percentage of the assets under management as follows:
Account Value Annual Fee Up to $25 million $10,000 minimum $25 million - $99 million 0.05%
$100 million and above 0.02-0.04%
While percentage fees generally range from 0.02% - 0.05%, they are negotiable based on the size and complexity of the account. There is no exception to the $10,000 minimum annual fee. Fees are billed quarterly in arrears and calculated on the value of the account at the end of the quarter. Accounts opened mid-quarter are prorated based on the number of days that services are provided during the first billing period.
adjustments. Payment is due when you receive our billing statement. At least quarterly, the qualified custodian under contract should send you a statement showing all account activity for that quarter. In addition to our advisory fees, you may incur transaction fees charged by the account custodian. These commissions and fees are billed directly to you and we do not receive any portion of such fees. In addition, you may incur charges imposed by third parties other than us in connection with investments made through the account including, but not limited to, mutual fund management fees and Local Government Investment Pool management fees. A description of these fees and expenses are available in each investment company security’s prospectus or offering statement.
Either party may terminate the agreement for services at any time by providing written notice to the other party. If services are terminated within 5 business days of executing the client agreement, services are terminated without penalty. After the initial 5 day period, a 30 day notice is required. During that 30 day period, unless instructed otherwise, our representatives continue to provide services previously begun but do not begin any new services without your specific instruction. Fees are prorated to the effective date of termination and we provide you with a detailed billing statement.
We may use the services of Valley View Consulting, L.L.C. (“Valley View”) to assist in developing strategy when providing management services to some advisory clients. We are not affiliated with Valley View, but some of our representatives may be dually registered as investment advisor representatives with Valley View. When we serve as co-advisor with Valley View on managed accounts, Valley View has separate client agreements regarding advisory services and fees charged for those services. However, your fees are never increased because this co-advisor relationship.
Financial Consulting Services
We also offer consulting services to governmental authorities asking for assistance with non-management services for their investment portfolios. These consulting services could involve any aspect of the
investment portfolio in place including, but not limited to, review and recommendation of investment policies, portfolio policies and procedures or cash flow analysis.
Fees for consulting services can be charged on either an hourly or fixed fee basis. If charged on an hourly basis, the rate does not exceed $250 per hour and is negotiable based on the actual services requested and the complexity of your situation. You receive an estimate of the hours needed to complete the requested services and a quote for the maximum fee charged. If the time needed to complete the services exceeds the estimate given, our representatives obtain your permission before continuing the services but you are not charged more than the quoted maximum fee. Fixed fees do not exceed $10,000 and are also negotiable based upon the actual services provided and the complexity of your situation. Fees are generally due upon completion of the services. However, if the services continue for an extended length of time, our representatives, at their discretion, may agree to a quarterly billing cycle. Fees are due upon receipt of a billing statement from us.
Newsletters
We provide periodic e-mails to all current clients regarding informational topics such as market and economic updates. There is no charge for these communications.
Additional Compensation
We do not receive any compensation other than the advisory fees previously described. Comparable Services
We believe our fees for advisory services are reasonable with respect to the services provided and the fees charged by other investment advisors offering similar services. However, lower fees for comparable services may be available from other sources.
Item 6 – Performance-Based Fees and Side-By-Side Management
Performance-based fees are defined as fees based on a share of capital gains on or capital appreciation of the assets held in a client’s account. We do not receive performance-based fees.
Item 7 – Types of Clients
We provide investment advice to government entities (e.g., cities, counties, school districts, etc.). Minimum Investment Amounts Required
We have a minimum charge of $10,000 annually when providing asset management services. There is no minimum investment amount required when establishing a managed account.
Item 8 – Methods of Analysis, Investment Strategies and Risk of Loss Methods of Analysis
Primary Method of Analysis or Strategy
Our primary method of analysis or strategy is cash flow analysis and liability matching to assure that the portfolio remains adequately liquid to cover cash needs for operations or project construction while creating a ladder of maturities along the yield curve to enhance returns without compromising safety. We tend to be buy and hold investors and do not encourage or practice frequent trading in and out of the market. Because our clients are government entities, they must abide by strict investment guidelines that are implemented at the state and local level. Despite the conservative legal structure governing the development of government portfolios in Texas, there are still risks that can impact the investment program. Some of the risks involved with using this method include credit risk, market risk and opportunity risk. See also, Item 5, Fees and Compensation, for additional discussion on our strategy and analysis methods when managing assets.
Investment Strategies
When implement investment advice, our investment strategies are long term purchases (securities held at least a year) and short term purchases (securities sold within a year).
We gather information from financial newspapers and magazines, research materials prepared by others and corporate rating services.
Risk of Loss
Investing in securities involves a risk of loss that you should be prepared to bear, including loss of your original principal. However, you should be aware that past performance of any security is not necessarily indicative of future results. Therefore, you should not assume that future performance of any specific investment or investment strategy will be profitable. We do not provide any representation or guarantee that your goals will be achieved. Further, depending on the different types of investments, there may be varying degrees of risk:
Credit Risk. Credit risk measures the financial viability of the issuer of the security or product and the likelihood that they will be able to fulfill payment obligation when due. All securities contain incremental credit risk, although the markets assume that certain security issuers, including the U.S. government, have little or no credit risk. As an investment advisor, we must be aware of the credit rating for each investment issuer and be diligent in monitoring changes that would impact their ability to maintain the appropriate credit rating.
Market Risk. Either the market as a whole, or the value of an individual issuer, goes down, resulting in a decrease in the value of client investments. This is referred to as systemic risk. As an investment advisor, we must monitor market trends and develop portfolio structures that will accommodate changes in interest rates without compromising the liquidity of the portfolio as a whole. By maintaining an investment structure that includes laddered maturities and diversified holdings, we can help to soften the negative impacts of interest rate changes on our clients’ portfolios.
Management Risk. Your investments also vary with the success and failure of our investment strategies, research, analysis and determination of portfolio securities. If our strategies do not produce the expected returns, the value of your investments will decrease.
Item 9 – Disciplinary Information
We have no legal or disciplinary events that are material to your evaluation of our business or the integrity of our management. Therefore, this item is not applicable to our Disclosure Brochure.
Item 10 – Other Financial Industry Activities and Affiliations Other Affiliations
We are not and do not have a related person that is:
A broker/dealer, municipal securities dealer or government securities dealer or broker
An investment company or other pooled investment vehicle (including a mutual fund, closed-end investment company, unit investment trust, private investment company or “hedge fund,” and offshore fund)
An investment adviser or financial planner
A futures commission merchant, commodity pool operator or commodity trading advisor A banking or thrift institution
A lawyer or law firm A pension consultant
A real estate broker or dealer
A sponsor or syndicator of limited partnerships.
We are an independent registered investment registered advisor and only provide investment advisory services. We are not engaged in any other business activities and offer no other services except those described in this Disclosure Brochure. However, while we do not sell products or services other than investment advice, our representatives may sell other products or provide services outside of their role as investment advisor representatives with us.
Registered Investment Advisor
We may use the services of Valley View Consulting, L.L.C. (“Valley View”) to assist in developing strategy when providing management services to some advisory clients. We are not affiliated with Valley View, but some of our representatives may be dually registered as investment advisor representatives with Valley View. When we serve as co-advisor with Valley View on managed accounts, Valley View has separate client agreements regarding advisory services and fees charged for those services. However, your fees are never increased because this co-advisor relationship. Our managing member is dually registered as an investment advisor representative with Valley View.
Susan K. Anderson, our sole member (owner) and an investment advisor representative, also provides investment management services to some investment advisory clients of Estrada Hinojosa and Company, Inc. (“Estrada Hinojosa”), a financial advisory firm headquartered in Dallas Texas. She is dually
Item 11 – Code of Ethics, Participation in Client Transactions and Personal Trading Code of Ethics
Section 204A-1 of the Investment Advisers Act of 1940 requires all investment advisors to establish, maintain and enforce a Code of Ethics. We have established a Code of Ethics that applies to all of our members, investment advisor representatives and employees (“associated persons”). An investment advisor is considered a fiduciary according to the Investment Advisers Act of 1940. As a fiduciary, it is an investment advisor’s responsibility to provide fair and full disclosure of all material facts and to act solely in the best interest of each of its clients at all times. We have a fiduciary duty to all clients. This fiduciary duty is considered the core underlying principle for our Code of Ethics, which also covers our insider trading and personal securities transactions policies and procedures. We require all of our associated persons to conduct business with the highest level of ethical standards and to comply with all federal and state securities laws at all times. Upon employment or affiliation and when changes occur, all associated persons sign an acknowledgement that they have read, understand and agree to comply with our Code of Ethics. We have the responsibility to make sure that the interests of all clients are placed ahead of our own or our associated persons’ own investment interest. We provide full disclosure of all material facts and potential conflicts of interest to clients prior to any services being conducted. We and our associated persons must conduct business in an honest, ethical and fair manner and avoid all circumstances that might negatively affect or appear to affect our duty of complete loyalty to all clients. This disclosure is provided to give all clients a summary of our Code of Ethics. However, if a client or a prospective client wishes to review our Code of Ethics in its entirety, a copy is provided promptly upon request.
Participation or Interest in Client Transactions
We do not buy or sell investment products for our personal accounts that may also be recommended to clients.
Item 12 – Brokerage Practices
If you contract for our management services, you must direct us to use any qualified custodian that has been approved by your governing board for use. We do not take possession of or have discretionary authority over any cash or investment assets of our clients. Although we do execute pre-approved trades on behalf of our clients, we do not direct any settlements or movement of cash or assets with the client’s custodian(s). We rely upon the client to advise and authorize investment transactions related to their accounts and to authorize settlement directly with their custodian.
Soft Dollar
Investment advisors may direct portfolio brokerage commissions to a particular broker/dealer in return for services and research used in making investment decisions in client accounts. The commissions used to acquire these services and research are known as “soft dollars.” Section 28(e) of the Securities
Exchange Act of 1934 provides a “safe harbor” that allows an investment advisor to pay more than the
lowest available commission for brokerage and research services if it determines in good faith that the commission paid was reasonable in relation to the brokerage and research services provided.
Item 13 – Review of Accounts Account Reviews
Financial consulting services terminate upon completion of the requested services and there are no reviews performed on these accounts. If you request a review you are required to sign a new client agreement and additional fees are charged.
Managed accounts are reviewed at least quarterly. At least annually, as required by state law, our representatives meet with the entire governing board of the client to formally review the investment portfolio, its performance and possible revisions to its operation.
Susan K. Anderson currently performs all account reviews. While the calendar is the main triggering factor, reviews may also be conducted due to your specific request or due to unusual market or economic conditions. Accounts are reviewed for continued suitability, accuracy of holdings and to ensure that the portfolios continue to work toward your goals and objectives.
Account Reports
You receive statements at least quarterly from the qualified custodian where your accounts are maintained. In addition, as required by state law, we provide quarterly position and/or performance reports to you. If required by you, we also provide monthly position and/or performance reports. We do not charge for providing these reports.
Item 14 – Client Referrals and Other Compensation
We do not directly or indirectly compensate anyone for client referrals to us. Other than the advisory fees previously described in this Disclosure Brochure, we do not receive any other form of compensation or non-economic benefits.
Item 15 – Custody
Custody, as it applies to investment advisors, has been defined by regulators as having access or control over client funds and/or securities. In other words, custody is not limited to physically holding client funds and securities. If an investment advisor has the ability to access or control client funds or securities, the investment advisor is deemed to have custody and must ensure proper procedures are implemented. According to this definition, we do not have custody of client funds or securities.
Item 16 – Investment Discretion
You have the ability to place reasonable restrictions on the types of investments that may be purchased in an account. You may also place reasonable limitations on the discretionary power granted to us so long as the limitations are specifically set forth or included as an attachment to the client agreement.
Item 17 – Voting Client Securities
Neither we nor our representatives vote proxies on your behalf. You should read through the information provided with the proxy-voting documents and make a determination based on the information provided. You have the ultimate responsibility for making all proxy-voting decisions.
Item 18 – Financial Information
This item is not applicable to our brochure. We do not require or solicit prepayment of more than $500 in fees per client, six months or more in advance. Therefore, we are not required to include a balance sheet for our most recent fiscal year. We are not subject to a financial condition that is reasonably likely to impair its ability to meet contractual commitments to clients. Finally, we have not been the subject of a bankruptcy petition at any time.
Item 19 – State-Registered Advisors Principal Executive Officer
Susan K. Anderson, Born 1952 Education Background:
St. Edward’s University: BS, Finance, 1994 Business Background:
Anderson Financial Management, L.L.C.: Owner/Chief Executive Officer, 3/08-present; Chief Compliance Officer, 3/10-present; Investment Advisor Representative, 3/10-present Estrada Hinojosa & Company, Inc.: Vice President, 3/08-present
Valley View Consulting, L.L.C.: IAR, 3/1/08-present
University of North Texas, Center for Public Management: Instructor, 11/97-present
PFM Asset Management, Inc.: Senior Managing Consultant, Registered Representative, 11/02-2/08
State of Texas: Chief Investment Officer, 2/01-5/02
PFM Asset Management, Inc.: Managing Consultant, Registered Representative, 11/97-2/01 The majority of Ms. Anderson’s time is spent on advisory services. She spends 30-40 hours per month on activities for Estrada Hinojosa and Valley View Consulting and approximately 8 hours per month on her duties as an instructor at the University of North Texas.
Additional Information
Arbitration claims alleging damages in excess of $2,500 involving o An investment or an investment-related business or activity o Fraud, false statement(s) or omissions
o Theft, embezzlement or other wrongful taking of property o Bribery, forgery, counterfeiting or extortion; or
o Dishonest, unfair or unethical practices
Civil, self-regulatory organization or administrative proceeding involving o An investment or an investment-related business or activity o Fraud, false statement(s) or omissions
o Theft, embezzlement or other wrongful taking of property o Bribery, forgery, counterfeiting or extortion; or
o Dishonest, unfair or unethical practices
Neither we nor our management personnel have a relationship or arrangement with any issuer of securities.
Class Action Lawsuits
You retain the right under the applicable securities laws to initiate individually a lawsuit or join a class-action lawsuit against the issuer of a security that was held, purchased or sold by or for you. We do not initiate such a legal proceeding on your behalf and do not provide legal advice to you regarding potential causes of action against such a security issuer and whether you should join a class-action lawsuit. We recommend that you seek legal counsel prior to making a decision regarding whether to participate in such a class-action lawsuit. Moreover, our services do not include monitoring or informing you of any potential or actual class-action lawsuits against the issuers of the securities that were held, purchased or sold by or for you.
Customer Privacy Policy
In November of 1999, Congress enacted the Gramm-Leach-Bliley Act (“GLBA”). The GLBA requires certain financial institutions, such as investment advisor firms, to protect the privacy of customer
information. In situations where a financial institution does disclose customer information to non-affiliated third parties, other than permitted or required by law, customers must be given the opportunity to opt out or prevent such disclosure. We do not share or disclose customer information to non-affiliated third parties except as permitted or required by law.
We are committed to safeguarding the confidential information of our clients. We hold all personal information provided by clients in the strictest confidence and it is our objective to protect the privacy of all clients. Except as permitted or required by law, we do not share confidential information about clients with non-affiliated parties. In the event that there is a change in this policy, we provide clients with written notice and clients are provided an opportunity to direct us as to whether such disclosure is permissible. To conduct regular business, we may collect personal information from sources such as:
Information reported by the client on applications or other forms the client provides to us Information about the client’s transactions implemented by others
Information developed as part of financial consultations and analyses
To provide the utmost service, we may disclose the information below regarding customers and former customers, as necessary, to companies to perform certain services on our behalf:
Information we receive from the client on applications (name, social security number, address, assets, etc.)
Information about the client’s transactions with others (account information, payment history, parties to transactions, etc.)
Information about a client’s financial products and services transaction with us
BROCHURE SUPPLEMENT
March 31, 2011
This brochure supplement provides information about Susan K. Anderson that
supplements the Anderson Financial Management, L.L.C. brochure. You should have received a copy of that brochure. Please contact Susan K. Anderson if you did not receive the Anderson Financial Management, L.L.C. brochure or if you have any questions about the contents of this supplement.
Additional information about Susan K. Anderson is available on the SEC’s website at
www.adviserinfo.sec.gov.
Susan K. Anderson
Anderson Financial Management, L.L.C. 3627 Stoneridge Road, No. 1
Austin, Texas 78746 Phone: (512) 327-4447 Educational Background and Business Experience Date of Birth: 1952
Education Background:
St. Edward’s University: BS, Finance, 1994 Business Background:
Anderson Financial Management, L.L.C.: Owner/Chief Executive Officer, 3/08-present; Chief Compliance Officer, 3/10-present; Investment Advisor Representative, 3/10-present Estrada Hinojosa & Company, Inc.: Vice President, 3/08-present
Valley View Consulting, L.L.C.: IAR, 3/1/08-present
University of North Texas, Center for Public Management: Instructor, 11/97-present
PFM Asset Management, Inc.: Senior Managing Consultant, Registered Representative, 11/02-2/08
State of Texas: Chief Investment Officer, 2/01-5/02
PFM Asset Management, Inc.: Managing Consultant, Registered Representative, 11/97-2/01 Disciplinary Information
Susan K. Anderson has no disciplinary history that is required to be disclosed by the U.S. Securities and Exchange Commission or state regulatory authorities.
Other Business Activities
Additional Compensation
Neither Susan K. Anderson nor Anderson Financial Management, L.L.C. receive compensation from product sponsors or any other economic benefits as a result of recommending product sponsors’ investments. The only compensation received is the advisory fees described in the firm’s Disclosure Brochure.
Anderson Financial Management, L.L.C. and Susan K. Anderson endeavor at all times to put the interest of its clients ahead of their own interests or those of the advisor’s officers, directors, or representatives. Supervision
Susan K. Anderson is the managing member of Anderson Financial Management, L.L.C. and is responsible for developing, overseeing and enforcing the firm’s compliance programs that have been established to monitor and supervise the activities and services provided by the firm and its
representatives, including herself. She can be contacted at (512) 327-4447. Requirements for State Registered Advisers
