Frost Brokerage Services, Inc. Regulation Best Interest Disclosure

Effective June 30, 2020
Member FDIC


At Frost, our relationship begins by getting to know you and your financial goals. One part of helping you meet those goals includes providing you with information that helps you understand both the scope and terms of your relationship with Frost Brokerage Services as well as any conflicts of interest that we may face in connection with recommendations we make to you. This disclosure document contains important information for you and references additional documents that provide more information on our services, costs, fees and conflicts of interest.

Understanding Your Brokerage Relationship – Account Types

While Frost is a broker-dealer, the individuals associated with Frost who will have direct dealings with you (the “Representatives”) generally also are associated with our affiliated registered investment adviser (Frost Investment Services, LLC). As a result, you may be asked to choose whether you want a brokerage account with Frost, an advisory account with our affiliated investment adviser, or accounts with both entities. In the unlikely event that your Representative is not also associated with our affiliated registered investment adviser, the Representative will only be permitted to recommend a brokerage account, provided the Representative believes such account is in your best interest. In such case, if you are interested in understanding more about advisory accounts before making a decision, please ask to speak with one of our Representatives who is also associated with our affiliated investment adviser.

Moreover, even among brokerage accounts, there are several different types of accounts that may be available to you. You should understand the material differences between brokerage and investment advisory accounts and between the various brokerage accounts.

Additional information about the differences between advisory and brokerage accounts and the services provided by Frost Brokerage Services and our affiliated investment adviser can be found in our Customer Relationship Summary. That document can be found online at:

More information about the specific services and cost associated with advisory accounts provided by our affiliated investment adviser can be found within the Form ADV Part 2A (Brochure) of Frost Investment Services, LLC, which is available online at:

Additional documents used by Frost to disclose the scope of services provided and the associated costs and fees include the following:

Additionally, in some cases involving recommendations relating to specific account types, investments or services, Frost may supplement these disclosures by reference to prospectuses or other documents that provide specific disclosures relevant to those account types, investments or services. Further, costs (e.g., commissions, sales loads and markups/markdowns) of individual securities transactions will also be disclosed in trade confirmations that will be provided to the customer in connection with each customer trade.

If you need a physical copy of any of the documents referenced herein, please make a request by contacting us at the following address or telephone number:

Frost Brokerage Services, Inc.
PO BOX 2538
San Antonio, TX 78299
(800) 292-1292

Regulatory Standards

When we make a recommendation to a retail customer, we must act in the customer’s best interest. This means that we are not allowed to put our interest ahead of yours.

Brokerage Account Compared to Investment Advisory Accounts

A Frost brokerage account allows you to buy, sell or hold securities. If you have a Frost brokerage account you may make your own decision whether to buy or sell a security, or Frost can recommend investments for you, though even in such case you will make the ultimate decision regarding the purchase or sale of investments. If you open a Frost brokerage account, Frost can also assist you with developing an investment strategy consistent with your investment goals. As a brokerage customer, you will pay a transaction fee every time you buy or sell a security. Although Frost does not require a minimum dollar amount to establish a brokerage account, brokerage customers who do not meet the account minimum requirements described in the Brokerage Account Commissions and Fees schedule (see link below), will be charged an annual custody fee. In addition, Frost charges IRA accounts an annual fee. For more information regarding transaction and other fees, see generally the Brokerage Account Commissions and Fees schedule available at

Opening an account with our affiliated investment adviser requires a minimum initial investment of $50,000. An advisory account will be managed by a dedicated wealth advisor who will work with you to develop an investment strategy that is consistent with your assets, goals and investment profile. In managing your account, your wealth advisor will act on a discretionary basis. At least annually, your wealth advisor will review your account to ensure that your portfolio remains aligned with your goals and profile. As a client of our affiliated investment adviser, you will be charged a fee based on the value of the cash and investments in your advisory account.

While Frost customers have access to a wide range of securities, excluding IPOs, Frost Brokerage Representatives may only make recommendations to you from a limited number of investment options that have been approved by Frost for such purpose. This pool includes a selection of mutual funds, exchange-traded funds (ETFs), listed equities, fixed-income securities (US Treasuries, agency securities, municipal and corporate bonds) and annuities. As a customer of Frost Brokerage, you can select on your own, without the recommendation from one of our Representatives, a much broader range of securities. If you would like more information on investments options that you may choose on your own, please inquire with your Representative.

The same general pool of securities, including mutual funds, ETFs, equities and fixed-income investments, which are approved for brokerage account recommendations are also approved for use within the portfolio models in advisory accounts.

Types of Brokerage Accounts Offered By Frost

Frost offers a standard brokerage account as well as several specialized accounts. The standard account consists of a cash and/or a margin account. In a cash account, all securities purchased must be paid for in full and short sales are not allowed. In contrast, a margin account allows customers to engage in short sales and to also purchase securities using, in part, funds borrowed from Frost’s clearing broker. These borrowings would be secured by the assets in the account but would also be a direct obligation of the customer. This means that the customer would be personally obligated to repay amounts borrowed even if that amount exceeded the value of the assets in the customer’s account. Customers may have both margin and cash accounts and either type of account.

Frost also offers several specialized accounts consisting of educational accounts, which include 529 College Savings Plans, and individual retirement accounts, including Roth IRA or SEP IRA accounts. Our Representatives may recommend that you rollover your workplace retirement plan to an IRA account. Additional information regarding conflicts associated with rolling over your workplace retirement plan to an IRA account can be found within the Conflicts of Interest section of this document.

In limited circumstances, certain customer have access to our Premier Access accounts, which offer additional services including (i) check writing; (ii) a Visa debit card; and (iii) a 1% cash back rewards program linked to the Visa debit card. Non-Premier Access accounts offer the same level of brokerage account services.

Broker-Dealer and Representative Capacity

In the event Frost or any Frost Representative makes a recommendation to you regarding the opening of a Frost brokerage account or the purchase, sale or holding of any security through such an account, Frost will be acting in a broker-dealer capacity and the Frost Representative will be acting as an associated person of Frost with respect to such recommendation. Similarly, any recommendation regarding the opening of an advisory account with Frost’s affiliated adviser, or otherwise related to activity in an advisory account, will be made in an advisory capacity. If you have both a brokerage account with Frost and an advisory account with our affiliated adviser, if we make a recommendation to you, we will expressly tell you which account we are discussing.

Recommendations – General Basis and Risk

In our brokerage capacity, we have an obligation to treat you fairly. In this capacity, if we recommend that you open a brokerage account or make a recommendation regarding buying, selling, holding or exchanging a security, we must first determine that the recommendation is in your best interest based upon information you provide to us. This determination will be made by us based upon your investment profile, which includes, but is not limited to your:

  • Age
  • Other investments
  • Financial situation and needs
  • Tax status
  • Investment objectives
  • Investment experience
  • Investment time horizon
  • Liquidity needs
  • Risk tolerance

Recommendations may be offered upon request, and when we have an opportunity or idea that we want to bring to your attention.

While we will take reasonable care in developing and making recommendations to you, securities involve risk and you may lose money. There is no guarantee that you will meet your investment goals, or that our recommended investment strategy will perform as anticipated. Please consult any available offering documents for any security we recommend for a discussion of risks associated with the product. We can provide those documents to you, or help you find them.

Account Monitoring

Frost does not monitor investments for customers except in the case of individual customers who specifically arrange for Frost to provide such service. Accordingly, unless you have specifically arranged for such service, it is your responsibility to monitor your account on an ongoing basis and to keep us informed of any changes that could affect your investment profile.

Fees & Costs - How Are We Paid For Brokerage Services?
Transaction Costs

Frost receives a commission, or a commission equivalent, each time you buy or sell a stock, bond, mutual fund, ETF or CD, or purchase an annuity. As discussed further below in the Conflicts of Interest section of this document, this fee structure creates an incentive to encourage you to trade.

The amount of commission you pay in a brokerage account depends on the investment product purchased and the total dollar amount of the transaction. For more information regarding transaction and other fees, see generally the Brokerage Account Commissions and Fees schedule available at

Mutual funds and annuities differ in their sales charge and commission structures. Please refer to the associated prospectus for any applicable mutual funds or variable annuities for their specific sales charge schedules. All commissions, sales charges and markups/markdowns will be disclosed on your trade confirmations.

Insurance companies that issue annuities and investment companies that offer mutual funds also pay Frost an ongoing distribution and/or service fee (12b-1 fees) or “trail commissions.”


Certain products sold by Frost, such as mutual funds, ETFs, 529 plans and annuities incur charges that are used to pay underlying expenses incurred in connection with the management and operation of the investment vehicle. While Frost does not receive any direct or indirect benefit from these charges, they do act to reduce the return on the relevant investment. These expenses charges are in addition to any direct fees and commissions you pay when you buy or sell these securities.

  • ETFs – underlying expense ratios vary by product from 0% - 1%, but generally average around 0.5% for products on our approved list.
  • Mutual funds - underlying expense ratios vary by product from 0.5% - 1.6%, but generally average around 1% for mutual fund investments.
  • Variable Annuities - for mutual funds held in variable annuity sub-accounts, the underlying expense ratios vary by product. Please refer to the mutual fund prospectus specific to the sub account of your variable annuity for additional fee information.

Other Fees and Expenses - Frost charges customers miscellaneous fees for a of transactions. These matters include account transfers, wire transfers, stop payment requests, trade extensions, account research and handing and processing of certificates. For the full list of such transactions and the fees charged therefore, please see the Brokerage Account Commissions and Fee schedule available at

Conflicts of Interest

Frost faces a number of conflicts in providing recommendations to you. Some of these conflicts, such as the payment of commission and commission equivalents in connection with securities purchases and sales, are inherent within the brokerage industry. Others are not though they may still be widespread within the industry. Information regarding the conflicts of interest that a retail investor may face at Frost Brokerage are provided below. Frost has a variety of procedures and policies in effect that are designed to mitigate, but will not eliminate, these conflicts.

Commissions, Fees and Other Sales Compensation
  • Commissions and Sales Charges – the firm receives commissions, or commission equivalents, such as markups and markdowns, at the time of the trade, for the purchase and sale of securities. This creates an incentive to effect more transactions in your account. Some products pay a higher commission than others. This creates an incentive to sell products to you that pay higher commissions.
    • Stocks and ETFs – Flat fee plus a percentage of the dollar amount of the transaction. o
    • Mutual Funds & 529 Plans – Loads/sales charges as described in the applicable
    • Annuities – This depends on the annuity product, but commissions usually do not exceed 8%. Most variable annuity products charge commissions in the range of 5% - 6% of the premium invested.
    • Fixed Income securities on agency basis – Transactions involving Treasury bills and Agency bonds are charged a flat fee per transaction.
  • Markups and Markdowns
    • Fixed Income Securities – Frost does not hold an inventory of fixed income securities and acts in a riskless principal capacity for the majority of its fixed income transactions. A riskless principal transaction is when we buy/sell from the market, and then sell/buy the bond to/from you. When you buy a fixed income security from Frost, other than Treasury bills and Agency bonds, you are charged a markup if you purchase the bond and a markdown when you sell the bond. The markup on a bond purchase will increase the cost of your investment (and, therefore, reduce your return) and a markdown will decrease the amount of proceeds you receive from selling the bond. The maximum markup or markdown charged to you is $20 per $1,000 bond.
Third-Party Payments

Frost receives compensation from investment companies and insurance carriers for various products sold to its customers such as mutual funds and annuities. Some products that we offer pay higher ongoing fees than other products. This creates an incentive for us to sell those products that pay higher ongoing fees. Additionally, some products offered for sale do not pay any trail compensations or other fees to Frost. This creates a disincentive to sell those products.

  • Trail compensation
    • Mutual funds pay Frost annual fees based upon a percentage of the value of your investment. These fees are generally referred to as 12b-1 fees, and can range from 0.25% to 1% of the value of your investment. These ongoing fees usually last as long as you own the investment.
    • Annuities typically pay Frost annual fees referred to as trails. The amount of the annual trail commissions vary by product, and length, but generally are between 0% - 1%. Please ask your Representative for additional information regarding your specific annuity investment.
  • Concessions and Mutual Fund Finder’s Fees – some investment companies will pay Frost compensation when there was no load or sales charge applied when a customer purchases a mutual fund. These fees can range from 0% - 1%.

If you are interested, please ask your Representative for information regarding specific third-party payments received by Frost on particular investment products.

  • Non-cash compensation – Some unaffiliated mutual fund companies that sponsor products on our approved list, i.e., on the list from which we make recommendations, will provide various meetings, seminars and conferences in the normal course of our business. The cost of attendance at these events, including the cost of lodging, dining and entertainment, are paid for by the mutual fund sponsor either directly or by reimbursing the firm or the Representative for such costs.

Attending these events expense free can create good will for the fund company and influence the Representative to recommend the sponsor’s products.

To mitigate the conflicts to these third-party payments, Frost uses a pre-approval process to limit the amount of expenses paid for by the mutual fund companies and the frequency of attendance to these events.

Third-Party Payments
  • Money Market Mutual Funds – Frost’s clearing firm pays Frost a portion of the interest paid to Frost customers on funds held in Fidelity money market funds. These payments range from 0% (in low interest environments) to 0.4% (annualized) of customer funds. These payments create an incentive for Frost to recommend that customers allow the unused funds in their brokerage account to be swept into a Fidelity money market fund or invest directly into Fidelity money market funds.
  • House Accounts – Frost receives trail commissions from insurance and mutual fund companies for products held in house accounts. A house account is one where the account is not assigned to a designated Representative. These trail commissions vary by product but range from 0.25% - 1%.
Share class fund selection

Mutual funds are offered in various share classes. Some share classes have an up-front sales charges that are applied at the time of purchase (such as Class A shares) and some share classes do not charge an up-front sales charge (such as Class C shares), but have higher underlying expenses and trail commissions. If held long enough, Class C shares can end up paying a larger sales charge to Frost and, therefore, be more expensive to you than Class A shares. This creates an incentive for the Representative to recommend the more expensive share class.

Frost mitigates this conflict by having policies, procedures and risk-based reviews addressing mutual fund recommendations.

Customer referrals, other compensation and conflicts
  • Payments for referrals – Frost compensates employees of our affiliates who refer clients to us for brokerage services. We participate in programs sponsored by our parent company, Frost Bank, and our affiliates, to pay the individual making the referral a percentage of the fees and commissions generated by transactions in a brokerage account that are determined to have become brokerage accounts as a result of our affiliates’ direct or indirect efforts.

    This creates a conflict where an affiliated employee has a financial incentive to direct the referral to Frost rather than another entity.

    To mitigate this conflict, the firm has policies and procedures that address brokerage account referrals.
  • Margin – Frost permits the use of margin account where you can buy securities using credit. Our clearing firm charges a margin interest rate on the amount of credit used to purchase investments with credit. Some of the interest is paid to Frost Brokerage. This creates an incentive for Frost Brokerage to have its customers open margin accounts and buy securities on margin. The firm mitigates this conflict by not sharing any revenue earned from margin interest with the Representatives.
  • Rollover recommendations - when we make recommendation to you to rollover from a workplace retirement plan to an IRA account that creates a conflict because Frost will be paid a fee associated with the account and on the transactions that occur in the account. As such, this creates an incentive for Frost to recommend that you make a distribution from your retirement plan, which generally charges minimal fees and/or expenses, and use those proceeds to open an IRA brokerage account with Frost where you are likely to face higher transaction expenses and fees though you will likely have access to a greater range of investments. Frost mitigates these conflicts through specific policies and procedures related to IRA rollovers.
  • Frost mutual funds are available for Representatives to recommend to you in your brokerage account. When a recommendation is made to invest in a Frost fund, i.e., a fund advised by an affiliated investment adviser, and you invest in a Frost fund, our affiliated investment adviser (Frost Investment Services) and our parent company (Frost Bank) benefit through management fees charges on the assets invested in those funds. When your Representative recommends a Frost mutual fund to you, this creates a conflict of interest in that it benefits our parent company, Frost Bank, and an affiliated institutional investment adviser, but neither Frost Brokerage Services nor our Representatives receive any benefit from you investing in Frost funds.
Representative compensation, fees and related conflicts
  • Cash compensation – Frost’s Representatives may be compensated based upon commissions and fees generated by you and their other customers or they may be paid a salary. Regardless of how they are compensated, they also have the opportunity to earn incentive compensation if they meet certain milestones, such as a certain level of revenue from commissions and fees. This compensation arrangement creates a conflict of interest in that it incentivizes Representatives to encourage you to trade.
  • Other benefits – on an annual basis, Frost may sponsor a sales meeting for its Representatives. The cost for attending the sales meeting are paid for by the firm. This can include travel expenses, lodging and dinners and entertainment expenses. While attendance at these sales meetings are not tied to a representative meeting certain sales goals, the meetings create an incentive for the Representative to stay with the firm.
  • Collateralized loans – Our parent company, Frost Bank, offers loans that are secured by assets in your brokerage account. The interest earned on these loans benefits Frost Bank, but we, Frost Brokerage and our Representatives, receive no compensation if you initiate a loan with Frost Bank that is collateralized by your brokerage account.

Investment products are not FDIC insured, are not bank guaranteed, and may lose value. Brokerage services offered through Frost Brokerage Services, Inc., Member FINRA/SIPC, and investment advisory services offered through Frost Investment Services, LLC, a registered investment adviser. Both companies are subsidiaries of Frost Bank.