Growth Capital Services, Inc. (“GCS,” “we,” “us,” and “our”) intends this section of our website to provide our retail clients (“you” and “your”) with additional information beyond the GCS Form CRS. You should read this document together with any agreements, disclosures, offering and/or purchase materials, and other documents which we provide to you or reference. GCS is a broker-dealer registered with the United States Securities and Exchange Commission (“SEC”), and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). While GCS does maintain California state registration as an Investment Adviser Firm, we are not registered with the SEC as an investment adviser, and we do not offer investment advisory services to clients. More information about our services, business practices, and registered affiliates is available through FINRA BrokerCheck at https://brokercheck.finra.org, and through the SEC’s website at www.Investor.gov/CRS, which also provides educational materials about broker-dealers, investment advisers, and investing.
Our Independent Business Model:
GCS Capacity as Broker-Dealer:
Service and Product Limitations:
GCS Reps each offer a limited menu of investment products, depending on the licenses the individual Rep holds, the deal engagements he or she sources, and geographic territories. GCS Reps only offer and recommend investment products from those companies with which GCS has entered into a selling or introduction agreement. The scope of products and services offered by certain Reps may also be more limited than what is available through other GCS Reps. A Rep’s ability to offer individual products and services depends on which securities licensing exams your Rep passes and which designations he or she maintains.
We encourage you to ask your Rep about the securities or services he or she is licensed or qualified to sell, and to review your individual Rep’s qualifications through https://brokercheck.finra.org. Each FINRA Representative-level Exam he or she has passed may expand the menu of products and services he or she is able to offer you. You should carefully consider how the restrictions on the products and services your Rep can offer you may affect the recommendations you receive from him or her. Your Rep should disclose his or her specific service and product limitations at the outset of your relationship with GCS, and in any case, no later than the time he or she makes an investment recommendation to you. For example, if your Rep only sells oil and gas related investment products, your Rep should communicate that limitation to you prior to recommending that you invest in oil and gas, and prior to recommending that you invest in a particular oil and gas security.
All GCS Reps’ services are limited to recommendations of private investments, which are inherently illiquid and are only suitable for sophisticated high net worth investors. Some investments may be in private funds, which represent pools of money invested in real estate, oil and gas, public and/or private equity, or other securities or investments which have strict investor purchase qualifications that are imposed by the product sponsor, federal and state regulations, and GCS. As private investments are the only products GCS offers to retail customers, and as private placements are only appropriate as one part of a diversified portfolio, you may require a relationship with another firm. Other firms may offer products and services not available through GCS, such as more traditional or holistic brokerage or advisory services, including ongoing account monitoring, custody, financial planning, or discretionary investment advice. Other firms may also offer the same or similar investment products and services at lower cost, such as products offered through an advisory account with a registered investment adviser.
You make the ultimate decision regarding the purchase or sale of investments and you are ultimately responsible for monitoring your own investments.
Note Regarding Limited Application of Reg BI to Retail Customers: Under the SEC’s Regulation Best Interest (and applicable state laws), when we recommend a security or an investment strategy involving a security as a broker-dealer to a “retail investor,” we must act in the retail investor’s best interest at the time the recommendation is made, without placing our interests or our Reps’ interests ahead of the retail investor’s. However, Regulation Best Interest only applies to “retail” investors, which does not include the legal representatives of natural persons who are regulated financial services industry professionals, such as registered investment advisers, broker-dealers, banks, trust companies, and similar financial institutions acting on behalf of natural persons. You are only a “retail” customer if you are a natural person, or a non-professional legal representative (for the purposes of Reg BI) of a natural person, who receives and uses a securities recommendation primarily for personal, family, or household purposes. The Regulation Best Interest standard does not apply to services other than securities recommendations, such as general marketing communications which are not particularized to an individual retail investor, executing transactions, or delivering informal offering materials which do not describe the specific terms and conditions of the proposed transaction.
Fees and Costs:
GCS is responsible for making sure that the fees we charge for our services are reasonable and not unfairly discriminatory between our customers.
There is no minimum investment amount or costs required to establish a relationship with us. However, individual investments recommended to you may have their own respective minimum investments or eligibility requirements, as well as their own associated fees and costs. These fees and costs may be assessed at the time of making your investment or they may be paid during the life of your investment.
Most of our compensation arrangements consist of upfront commissions that are calculated at the time of the transaction. In some cases, however, we receive ongoing compensation, typically called a “trail” payment, for as long as a customer holds an investment. GCS may also receive compensation from investment product sponsors or other third parties in connection with specific investment products. Some types of third-party compensation are received by GCS and shared with our Reps as brokerage commissions, and other types are earned on the firmwide level and retained only by GCS.
In some cases, GCS may provide separate services to the company conducting an offering, while our Reps are soliciting investors in connection with the same offering. For example, GCS may earn a “Managing Dealer Fee” from certain issuers or their affiliates for conducting due diligence services on the offering and for handling a larger broker-dealer selling group on behalf of the issuing client (the sponsor’s ‘syndicate’). Managing Dealer Fees are typically calculated as a percentage of the total investments in the offering, and can be paid by the issuing fund, fund manager, or offering sponsor. Although these types of fees may not be charged to you directly, they may be embedded as an indirect cost to you in your underlying investment; for example, as part of an ‘Organizational and Offering Expense’ reimbursement to whomever pays our fee. These types of fees are separate from and typically in addition to any transaction-based commissions GCS and our Reps may receive for any investment you make.
Any fees and costs that you will bear related to a particular investment will usually be determined by the issuing entity, and should be explicitly disclosed in that investment’s offering and/or purchase materials (or in such other written materials as are customary to certain types of engagements). Unless your Rep or your specific investment documents indicate otherwise, these product-specific fees and costs are separate and different from the commissions GCS earns. Examples of some of the most common product-specific fees and costs include fees paid by issuers to investment advisers or fund managers, administrative fees, audit or valuation costs, or legal costs. You should expect to pay fees and expenses associated with your investments and should refer to your specific offering and purchase documents for more detailed fee disclosures. To the extent that GCS has entered into a separate service agreement with one of the disclosed entities, GCS may also share in some of these fees. The fact that each investment has different costs and fees associated with it creates an incentive for us to recommend investments to you that generate higher costs and fees. These conflict risks are discussed further in the section below, titled “Conflicts of Interest.”
You will pay fees and costs whether you make or lose money on your investments. Fees and costs will reduce any amount of money you make on your investments over time. Please make sure you understand what fees and costs you are paying.
Conflicts of Interest:
Transaction Fees: We typically make money when we are paid a commission by the seller of the investment you purchase. In some cases, our commission is a percentage of the total amount of the investments we sell, and in other cases, our commission is a percentage of the fees earned by third parties who manage the funds in which you invest. Depending on the investment, we may also earn warrants or other equity options. Typically, GCS pays most of these commission amounts to the Reps who originated the applicable sale. Because each investment product has a different fee structure, this creates conflicts of interest between GCS and our Reps, on the one hand, and you, on the other hand. For example, we generate larger commissions when our Reps sell investments to you that are subject to a higher commission rate. In addition, because we only get paid when you complete a transaction, we earn more when you make larger investments and when you invest more frequently.
Firm-Level Service Fees: When GCS receives additional compensation for providing offering-related services, such as a Managing Dealer Fee, this can create conflicts of interest between GCS and you. As discussed, these fees can be passed down to you indirectly, as an embedded cost in your investment. GCS has an incentive to sell you investments offered by issuers that make these additional payments. GCS does not typically share these types of compensation with our individual Reps, which mitigates the risk of conflicts between you and our Reps; however, our retention of these fees may create additional conflicts of interests between our Reps and GCS, which can affect the investments your Rep may recommend to you.
Technology and Systems Consulting Fees: Occasionally, GCS is engaged by companies that utilize technology-based platforms, tools or services which require us to incur technology development-related costs associated with integrating their technology with our own systems. In rare cases, we charge a separate technology integration fee to such clients during the onboarding stage of our relationship; more often, however, we view these development and HR costs as a part of doing business, resulting in an increase in our service capacity and efficiency. Conflicts of interest can arise out of either the payment of an additional technology integration fee, or out of our practice of absorbing such technology-related costs. Payments of technology integration fees may create an incentive for GCS to recommend investments hosted by those securities platforms or issuers over investments by issuers that do not pay such a fee. On the other hand, when we absorb these costs without charging any additional fee to the securities issuer, the pressure to offset these costs may incentivize us to recommend larger investments in offerings which utilize this technology, or to continue selling an issuer’s securities when we would have otherwise terminated the relationship if not for our investment in technology infrastructure.
Trail Compensation: Some GCS Reps sell certain investment products that pay commissions calculated on an ongoing basis for as long as a customer holds an investment (“trail fees”). When you make an investment subject to trail fee payments, we will be paid more when you invest more assets in that product. This creates an incentive for us to recommend that you make larger investments or invest more over time. In addition, because the amount of trail fee compensation varies from product to product, we also have an incentive to recommend investments that result in higher trail fee payments to GCS and our Reps.
Payment for Referrals: Sometimes, GCS or its Reps may pay or receive referral fees from or to other broker dealers, or from certain types of professionals, such as registered investment advisers, attorneys, or accountants. The fees paid for these services can be structured in various ways, including an ongoing flat fee, or a set amount for each referral. Although GCS does not offer investment advisory services itself, GCS has registered with the state of California as a registered investment adviser, which allows GCS to receive compensation paid by unaffiliated investment advisers for the referral of client accounts. GCS does not have custody of any client assets or influence over any trading activity in client accounts. GCS has an incentive, however, to refer clients to investment advisers and other professionals that pay these types of fees over those that do not. Your Rep should furnish you with a detailed disclosure statement to sign if he or she participates in a referral program with an investment adviser to whom you are being referred.
Private Securities Transactions: We also permit our Reps and certain of their family members to conduct limited transactions and investment activities on their own behalf, and these activities are subject to additional various federal securities laws, rules, and regulations. Your Rep may, therefore, have an incentive to preferentially introduce or recommend investments to you in which he or she is also either invested or has another financial interest.
Outside Business Activities: We permit our Reps to engage in certain GCS pre-approved business activities separate from the brokerage services they provide through GCS (“OBAs”). The money our Reps make from OBAs is separate from the commissions they earn through GCS; and in some cases, Reps receive more compensation through their OBAs than through GCS. As an example, if your Rep is dually registered as both a financial professional of GCS and as a representative of a registered investment adviser, your Rep’s investment advisory services would be offered through his or her unaffiliated registered investment adviser OBA, and not through GCS. The compensation your Rep receives as a registered investment adviser, consultant, or as an employee of an OBA is also separate from and in addition to any brokerage commission he or she may receive through GCS. As another example, an issuer or affiliate of an investment product that GCS offers may employ one or more GCS Reps as salaried employees or contractors. In those circumstances, our Rep may receive a salary from the issuing entity for performing certain duties in addition to any commission he or she may earn based on your investment in that product. Your financial professional’s OBA compensation incentives and demands on his or her time may raise conflicts with your investment needs and the brokerage services we provide.
Co-Placement Agents: GCS may agree to share commissions earned in connection with a particular offering with other registered broker dealers under a co-marketing agreement. This may create competing compensation incentives if GCS feels we can receive a greater commission in proportion to our efforts under certain co-marketing arrangements over others, or under a co-marketing agreement over a direct engagement, or vice-versa.
For Additional Information:
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