# LINCOLN FINANCIAL ADVISORS CORPORATION X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: LINCOLN FINANCIAL ADVISORS CORPORATION - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0000019033-21-000003 - CIK: 59970 - File #: 8-14685 - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: Philadelphia, PA - Contact: Carl Pawsat - Phone: (606) 407-3406 - Website: ey.com - Signed by: Carl Pawsat (AVP, Financial and Operations Principal) Original filing: https://www.sec.gov/Archives/edgar/data/59970/000001903321000003/2020lfaPublic.pdf --- {0}------------------------------------------------ ### CONSOLIDATED STATEMENT OF FINANCIAL CONDITION Lincoln Financial Advisors Corporation Year Ended December 31, 2020 With Report of Independent Registered Public Accounting Firm {1}------------------------------------------------ UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 # ANNUAL AUDITED REPORT FORM X-17A-5 PART III | OMB APPROVAL | | | | |---------------------------|---------------------------|--|--| | | 3235-0123 | | | | | Expires: October 31, 2023 | | | | Estimated average burden | | | | | hours per response 12.00 | | | | | | OMB Number: | | | SEC FILE NUMBER 8- 14685 FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder | Comments and extended the of the U.L. Mich Technology of the Sunner of | | | | | |--------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|-----------------------|-------------------------------|--| | REPORT FOR THE PERIOD BEGINNING 01/01/20 | | AND ENDING 12/31/2020 | | | | | MM/DD/YY | | MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: Lincoln Financial Advisors Corporation | | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. No. | | | 1300 South Clinton Street | | | | | | | (No. and Street) | | | | | Fort Wayne | IN | | 46802 | | | (City) | (State) | | (Zip Code) | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Carl R. Pawsat | | | (336) 691-3486 | | | | | | (Area Code - Telephone Number | | | | B. ACCOUNT ANT IDENTIBICATION | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | | Ernst & Young LLP | | | | | | | (Name - if individual, state last, first, middle name) | | | | | 2005 Market Street, Suite 700 Philadelphia | | PA | 19103 | | | (Address) | (City) | (State) | (Zip Code) | | | CHECK ONE: | | | | | | Certified Public Accountant | | | | | | Public Accountant | | | | | | Accountant not resident in United States or any of its possessions, | | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | I laims for exemption type the requirement that the counced by the aminon of an independent muchie accounted | | | | | for exemption from the requirement that the annual report be covered by the opinion of an inde must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240.17a-5(e)(2) > Potential persons who are to respond to the collection of information contained in this form are not required to respond > unless the form displays a currently valid OMB control number. {2}------------------------------------------------ ### OATH OR AFFIRMATION | Carl R. Pawsat | success of the best of the success of the success wear (or affirm) that, to the best of | | | | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|--|--|--| | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of
Lincoln Financial Advisors Corporation | _, as | | | | | of December 31 | a money and connect of a month and correct. I further swear (or affirm) that | | | | | neither the company nor any partner, principal officer or director has any proprietary interest in any account
classified solely as that of a customer, except as follows: | | | | | | | | | | | | LORI C KNIBB
Notary Public, North Carolina
Guilford County
My Commission Expires | Signature | | | | | d1023-3- | AVP, Financial and Operations Principal | | | | | Notary Public | Title | | | | | This report ** contains (check all applicable boxes):
V (a) Facing Page. | | | | | - (b) Statement of Financial Condition. - (c) Statement of Income (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement of Comprehensive Income (as defined in §210.1-02 of Regulation S-X). - (d) Statement of Changes in Financial Condition. - (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. - (g) Computation of Net Capital. - (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. - (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. - (i) A Reconciliation, including appropriate explanation of Net Capital Under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - (k) A Reconciliation between the audited Statements of Financial Condition with respect to methods of consolidation. - (1) An Oath or Affirmation. - (m) A copy of the SIPC Supplemental Report. - (n) A report describing any material inadequacies found to have existed since the date of the previous audit. \*\* For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3), {3}------------------------------------------------ # Consolidated Statement of Financial Condition (in thousands) Year Ended December 31, 2020 # Contents | Report of Independent Registered Public Accounting Firm | | |------------------------------------------------------------|--| | Consolidated Statement of Financial Condition | | | Notes to the Consolidated Statement of Financial Condition | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Ernst & Young LLP One Commerce Square 2005 Market Street Suite 700 Philadelphia, PA 19103 Tel: 1.215.448.5000 Fax: 1 215 448 4069 www.ey.com ### Report of Independent Registered Public Accounting Firm To the Shareholder and the Board of Directors Lincoln Financial Advisors Corporation ### Opinion on the Financial Statements We have audited the accompanying consolidated statement of financial condition of Lincoln Financial Advisors Corporation (the Company) as of December 31, 2020, and the related notes (the "consolidated financial statement"). In our opinion, the consolidated financial statement presents fairly, in all material respects, the financial position of the Company at December 31, 2020, in conformity with U.S. generally accepted accounting principles. ### Basis for Opinion This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 1968. February 25, 2021 {5}------------------------------------------------ # Consolidated Statement of Financial Condition (in thousands) | | Year-Ended | |-------------------------------------------------------|---------------| | | December 31, | | | 2020 | | Assets | | | Cash and invested cash | ಿಕ
58,342 | | Financial instruments owned, at fair value | 17,391 | | Commissions and fees receivable from third parties | 35,900 | | Commissions and fees receivable from affiliates | 7,520 | | Due from affiliates | 5,950 | | Deferred tax asset | 5,832 | | Prepaid expenses | 1,278 | | Other assets, cash invested with affiliate | 3,048 | | Other assets | 18,949 | | Net property and equipment (accumulated depreciation: | | | \$12,060) | 4,341 | | Total assets | 158,551
ಿಕ | | | | | Liabilities and stockholder's equity | | | Liabilities: | | | Payable to vendors | ಿರ
1,342 | | Due to affiliates | 41,198 | | Deferred revenue | 3,855 | | Accrued commissions | 17,567 | | Accrued compensation and benefits | 5,904 | | Other liabilities | 12,685 | | Total liabilities | 82,551 | | | | | Stockholder's equity: | | | Common stock - \$100 par value; 5,000 shares | | | authorized, issued, and outstanding | 500 | | Additional paid-in capital | 23,232 | | Retained earnings | 52,268 | | Total stockholder's equity | 76,000 | | Total liabilities and stockholder's equity | 158,551 | See accompanying notes. {6}------------------------------------------------ ### - ### !"!" #\$%&'()\*+%,-%./+\*'(0,123%4'202%,-%5\*+2+1('(0,13%6)77'\*8%,-%60910-0:'1(%;::,)1(019%5,<0:0+2% '1=%&+>%;::,)1(019%6('1='\*=2% &'()\*+%,-%./+\*'(0,12% - ?- @? A @B A ?B @?@?@ C DE C C A C FA G E A H- C CDE ACI HJBA B A - K C ?- K@ C A !""L C- BG C C H- BAB AM- -N A?--@ B BAB A- ?-@H 4'202%,-%5\*+2+1('(0,1% M AC BI C A C?OP@H OP B Q B C A BH A C BJRNES A BH M A A B CHMG AT CC A B AB H H 6)77'\*8%,-%60910-0:'1(%;::,)1(019%5,<0:0+2% UVWXYWZ[\]^\_`^a\_X]\_[WbcdW\_X^ M M A CC AC - BAB A - KH A {7}------------------------------------------------ ### - ---- --- !"#\$%&'()%\$!"\*&+,-.!,\*,&'/\$%,%+"!"\*&+-0#11!\$2&'0\*3+\*'\*4!+"544&#+"\*+3/&6\*4\*%, !+7 %8544&#+"\*+30"!+7!\$7,94&+"\*+#%7: ;<<=>?@A?BCDE@AFG@HECG?IC;EE>FJ@A=?E K -- ---- ---LMN O P -Q-R - - -Q - - S - --Q- - S -- - TK --L SU-Q- T # VGAWCXGY>HCZHGE>WHFH?@C [ - S - - SL R - --Q SL\ML- -- R\ - - - --] - R^O\_`\MM - M- RT[ a-Q -- L - -SM-R - - SL^a `--R\ -Q R-S - -R\ SL\ M S P SL^-L `TO bc - - d K-- --Q- e ^ e` --Q- - ^ `\MQ f --- - -] L\S -L- --PT K ] L - - M g - hijk- - QL P S-R -- - -Q \a Q -Q SU ^SRQ - ` a l - himk- - QL -P -R \ M L - LS S -Q \- -S - Q - Q l- - hink- - QL -S S- - - M -RL SL\- MR - - -Q SL\- -Q - Q -Q RT o-- \- L- - LTo- \M-L S -M - Q-- -T[ - Q-- - -- -L P U Q-- - - -T {8}------------------------------------------------ ### - ---- --- !"#\$%&'()%\$!"\*&+,-.!,\*,&'/\$%,%+"!"\*&+-0#11!\$2&'0\*3+\*'\*4!+"544&#+"\*+3/&6\*4\*%, !+7 %8544&#+"\*+30"!+7!\$7,94&+"\*+#%7: ;<=>?@ VQ > Q- -Q > Q- > - T > Q - - - XT-R > > UZQ > Q- - Q-S R W WQ > S > \ \_ W > WX\ S WQ-S > W Q W > - - U`- -W > S- W- > R- -- - W- S \_ -TT > > U > > - > RR W -- RQ W > - > Q QR-QQU - > WX > -T > [Q > Q > -T- Q > - V > > RR - > > -Ua- -T-R > R R > SRW - - RQ > > [ -R > R-Q Q > > --RT- RU {9}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) # 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) ## Fair V aluation Methodologies and Associated Inputs (continued) The following summarizes out fair valuation methodologies and associated inputs, which are particular to the specified security type and are in addition to the defined standard inputs to our valuation methodologies for all of our securities discussed above: - · Corporate bonds and U.S. government bonds We also use Trade Reporting and Compliance Engine™ reported tables for our corporate bonds and vendor trading platform data for our U.S. government bonds. The Company had \$13,420 of corporate bonds and U.S. government bonds at December 31, 2020. - · Collateralized loan obligations ("CLOs") We also utilize additional inputs, which include new issues data, monthly payment information and monthly collateral performance, including prepayments, severity, delinquencies, step-down features and over collateralization features for each of our CLOs. The Company had \$3,971 of CLOs at December 31, 2020. In order to validate the pricing information, we employ, where possible, procedures that include comparisons with similar observable positions, comparisons with subsequent sales and observations of general market movements for those security classes. We have policies and procedures in place to review the process that is utilized by our third-party pricing service and the output that is provided to us by the pricing service. On a periodic basis, we test the pricing for a sample of securities to evaluate the inputs and assumptions used by the pricing service, and we perform a comparison of the pricing service output to an alternative pricing source. We also evaluate prices provided by our primary pricing service to ensure that they are not stale or unreasonable by reviewing the prices for unusual changes from period to period based on certain parameters or for lack of change from one period to the next. ## Cash and Invested Cash Cash and invested cash is carried at cost, which approximates fair value, and includes all highly liquid investments purchased with an original maturity of three months or less. Pursuant to the Fair Value Measurements and Disclosures Topic of the FASB ASC, we categorized cash and invested cash in Level 1 of the fair value hierarchy. Cash and invested cash included \$54,084 of securities which were subject to regulatory haircuts for purposes of the computation of net capital. {10}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) # 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) ## Cash Invested with Affiliate In order to manage capital more efficiently, the Company participates in an intercompany cash management program where LNC can lend to or borrow from the Company to meet short-term borrowing needs. The cash management program is essentially a series of demand loans among LNC and its affiliates that reduces the overall borrowing costs by allowing LNC and its affiliates to access internal resources instead of incurring third-party transaction costs. Invested cash with LNC was \$3,048 at December 31, 2020, and is included in other assets, cash invested with affiliate on the Consolidated Statement of Financial Condition. ## Financial Instruments Owned, at Fair V alue Financial instrument owned, at fair value ("financial instruments") consist of fixed maturity securities carried at fair value. Pursuant to the Fair Value Measurements and Disclosures Topic of the FASB ASC, we categorized financial instruments in Level 2 of the fair value hierarchy. ### Revenue from Contracts with Customers The associated accounts receivables are included in the commissions and fees receivable from third parties and affiliates on the Consolidated Statement of Financial Condition. {11}------------------------------------------------ ### - ---- --- !"#\$%&'()%\$!"\*&+,-.!,\*,&'/\$%,%+"!"\*&+-0#11!\$2&'0\*3+\*'\*4!+"544&#+"\*+3/&6\*4\*%, !+7 %8544&#+"\*+30"!+7!\$7,94&+"\*+#%7: ;<=>?@ABCD@E FGG- -H -- IJ J K- -I - GL ----MHN -II -OK - H - --IJ GPHN -II - O J---I K K- H KOM-J J- -J H- MJQ -- -H - G > R -H > > I-Q KJ -- KO- - J - > -- -- H > > -I > G -O- H-S G- JT I-- > > S - --IO -O- - > M- K K- -O-GU ---G # VWX@YAZEE@WEAC<[AVWX@YA\]C^]\_]W]@EAY@\_CW@[AW>AZ[`]=@a@DWbcAA P-M- --I -O -I -Z[`]=@a@DWbcK- -I -IQ M d K - -IM G PI - J - - O JM-M -I ---- - K - -GPJ - - O -GP -J- efKUgg - -J -- ---- -G -MK-Z[`]=@a@DWbc ---- -J M S -I -O -I GP O Q GP -JehiKjkl - Q-- - - - ---- -G {12}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) # 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) ### Property and Equipment Property and equipment owned for company use is carried at cost less allowances for depreciation. ## Deferred Revenue Cash received in advance for financial planning contracts is recorded as deferred revenue until delivery of the product or service to the respective customer. ### Deferred Compensation Certain LFA employees and agents participate in deferred compensation plans sponsored by LNC and administered by LNL. LFA reports the liability in accrued compensation and benefits on the Consolidated Statement of Financial Condition. ### Stock-Based Compensation Certain LFA employees participate in stock-based compensation programs sponsored and administered by LNC. LFA is allocated certain expenses related to the program by LNC. This results in an offset to additional paid in capital on the Consolidated Statement of Financial Condition. ### Loans to Registered Representatives LFA has a program that offers forgivable and non-forgivable loans to attract top-producing representatives to join the sales network. Our loan portfolio primarily consists of forgivable loans. For such loans, if the producers can generate gross dealer concessions ("GDC") in excess of a contracted amount, LFA will advance the representative a specified dollar amount that will be forgiven over the life of the loan (typically three to seven years). The executed contract for each loan stipulates annual GDC requirements that must be met in order for that year's proportion of the loan to be waived. Alternatively, if at the end of the contract period, the cumulative GDC production is equal to or in excess of the aggregate contract requirement, the entire balance of the loan will be waived. For the non-forgivable loans, appropriate reserves are recorded. LFA reported loan receivables, net of amortization, of \$7,893 as of December 31, 2020, in other assets on the Consolidated Statement of Financial Condition. {13}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) # 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) # Adoption of New Accounting Standards The following table provides a description of our adoption of new Accounting Standards Updates ("ASUs") issued by the FASB and the impact of the adoption on our financial statements. ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount. | | | | Effect on Financial | |-------------------|-------------------------------------------------------|-----------------|---------------------------| | | | | Statements or Other | | Standard | Description | Effective Date | Significant Matters | | ASU 2016-13. | These amendments adopt a new model in ASC | January 1, 2020 | The adoption of this | | Financial | Topic 326 to measure and recognize credit losses | | guidance did not have a | | Instruments - | for most financial assets. The ASU requires a | | material impact on our | | Credit Losses | financial asset measured at amortized cost to be | | Consolidated Statement of | | (Topic 326): | presented at the net amount expected to be | | Financial Condition. | | Measurement of | collected over the life of the asset using a credit | | | | Credit Losses on | loss allowance. Changes in the allowance are | | | | Financial | | | | | | charged to earnings. The measurement of | | | | Instruments ("ASU | expected credit losses is based on relevant | | | | 2016-13"), | information about past events, including historical | | | | Measurement of | experience, as well as current economic conditions | | | | Credit Losses on | and reasonable and supportable forecasts that | | | | Financial | affect the collectability of the financial asset. The | | | | Instruments and | method used to measure estimated credit losses | | | | related | for fixed maturity AFS securities will be | | | | amendments | unchanged from current GAAP; however, the | | | | | amendments require credit losses to be recognized | | | | | through an allowance rather than as a reduction to | | | | | the amortized cost of those securities. The | | | | | amendments permit entities to recognize | | | | | improvements in credit loss estimates on fixed | | | | | maturity AFS securities by reducing the allowance | | | | | account immediately through earnings. The | | | | | amendments are adopted through a cumulative | | | | | effect adjustment to the beginning balance of | | | | | retained earnings as of the first reporting period in | | | | | which the amendments are effective. Early | | | | | adoption was permitted for annual periods | | | | | beginning after December 15, 2018, and interim | | | | | periods therein. | | | | | | | | {14}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) | | | | Effect on Financial | |---------------------|-----------------------------------------------------|-----------------|--------------------------------------------| | Standard | Description | Effective Date | Statements or Other
Significant Matters | | | | | | | ASU 2019-04, | These amendments clarify the measurement, | January 1, 2020 | Our adoption of ASU | | Codification | recognition and presentation of the allowance for | | 2016-13 and related | | Improvements to | credit losses on accrued interest receivable | | amendments is discussed | | Topic 326, | balances; the inclusion of recoveries when | | in the description section | | Financial | estimating the allowance for credit losses; the | | of ASU 2016-13. The | | Instruments - | inclusion of all ASC Topic 944 - Financial Services | | adoption of the remainder | | Credit Losses, | - Insurance reinsurance recoverables within the | | of this guidance did not | | Topic 815, | scope of ASC 326-20; and provide additional | | have a material impact on | | Derivatives and | targeted clarifications on the calculation of the | | our Consolidated | | Hedging and Topic | allowance for credit losses. | | Statement of Financial | | 825, Financial | | | Condition. | | Instruments | These amendments also make targeted | | | | | clarifications to ASC Topics 815 and 825. Early | | | | | adoption was permitted. | | | | ASU 2019-05, | The amendments provide entities that have | January 1, 2020 | The adoption of this | | Financial | certain instruments within the scope of Subtopic | | guidance did not have a | | Instruments - | 326-20, Financial Instruments - Credit Losses - | | material impact on our | | Credit Losses | Measured at Amortized Cost, with an option to | | Consolidated Statement of | | (Topic 326): | irrevocably elect the fair value option in Subtopic | | Financial Condition. | | Targeted Transition | 825-10, Financial Instruments - Overall, applied on | | | | Relief | an instrument-by-instrument basis for eligible | | | | | instruments, upon adoption of ASC Topic 326. | | | | | | | | # 1. Nature of Operations, Basis of Presentation, Summary of Significant Accounting Policies and New Accounting Standards (continued) # 2. Revenues from Contracts with Customers The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. During 2020 LFA did not record any new assets on the Consolidated Statement of Financial Condition related to costs to obtain or fulfill a contract with a customer. {15}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) ### 3. Income Taxes The income tax asset (liability) was as follows: | | December 31,
2020 | | |---------------------------------------------|----------------------|--------| | Federal income tax asset (liability): | | | | Current | ಿತ | 5,540 | | Deferred | | 3,149 | | Total federal income tax asset (liability) | | 8,689 | | State income tax asset (liability): | | | | Current | | 718 | | Gross deferred | | 2,683 | | Total state income tax asset (liability) | | 3,401 | | Total current income tax asset (liability) | | 6,258 | | Total deferred income tax asset (liability) | | 5,832 | | Total income tax asset (liability) | ತಿ | 12,090 | Significant components of our deferred tax assets and liabilities were as follows: | | December 31,
2020 | | |--------------------------------|----------------------|-------| | Deferred tax assets | | | | Employee compensation plans | ಿತ | 1,889 | | Planner loans | | 2,502 | | State income taxes | | 2,683 | | Total deferred tax assets | | 7,074 | | Deferred tax liabilities | | | | Deferred costs / revenue | | 196 | | Other | | 1,046 | | Total deferred tax liabilities | | 1,242 | | Net deferred tax asset | ਰੇਰੇ | 5,832 | {16}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{17}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) # 5. Contingencies ### Regulatory and Litigation Matters Regulatory bodies, such as the Securities and Exchange Commission ("SEC") and FINRA, regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, securities laws, and laws governing the activities of broker-dealers; and registered investment advisers. LFA is involved in various pending or threatened legal or regulatory proceedings arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assettion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding verdicts obtained in the jurisdiction for similar matters. This variability in pleadings, together with our actual experiences in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of December 31, 2020. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LFA's financial condition. {18}------------------------------------------------ # Notes to the Consolidated Statement of Financial Condition (continued) ## 5. Contingencies (continued) For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. # 6. Net Capital Requirements LFA operates under the alternative standard provisions of the SEC Uniform Net Capital Rule (Rule 15c3-1), which requires the minimum net capital to be the greater of \$250 or 2% of aggregate debit items computed in accordance with the SEC Customer Protection Rule (Rule 15c3-3) reserve requirements. Table below: | | | December 31,
2020 | | |------------------------------------------------|---|----------------------|--| | Minimum net capital requirement
Net capital | S | 250
15,641 | | | Excess net capital | | 15,391 | | # 7. Capital During 2020, LFA declared and paid dividends to its parent, LNL, of \$12,000. ## 8. Subsequent Events The Company has evaluated subsequent events for recognition and disclosure through the date the financial statements were issued. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.