# FRED ALGER & COMPANY, INCORPORATED X-17A-5 (2021-03-01) — Broker-dealer annual report
- Company: FRED ALGER & COMPANY, INCORPORATED
- Form: X-17A-5
- Filed: 2021-03-01
- Period: 2020-12-31
- Accession: 0000313800-21-000002
- CIK: 313800
- File #: 8-15900
- Material weakness: No
- Auditor: KPMG
- Auditor location: New York, NY
- Contact: Robert Kincel
- Phone: 201-547-3604
- Signed by: Robert Kincel (CFO)
Original filing: https://www.sec.gov/Archives/edgar/data/313800/000031380021000002/fac2020plz.pdf
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Financial Statements and Supplemental Schedules
December 31, 2020
(With Reports of Independent Registered Public Accounting Firm Thereon)
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| | UNITED Sf ATES | r | 0MB APPflOVAL | |
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| | SECURITfESANDEXCHANGECOMMISS!ON
Washington, I),C. 20549 | f E.xpke~. | 0MB Number:
3:?35·0123
October 3 J, 2023
EstimateInformatioo Required of Brokers and Dealers Pursuant to Section 17 of jhe
Sccurilics Exchange Act of 193• and Rule l 7.i-5 Thereunder | ___ | | |
| REPORT FOR THE PERIOD BEGINNING | ---
01/_01_/2_0_2_0_
AND F\IDING | | 12/31/202Q | |
| | -
MM,DDr'!Y | | | |
| | A. REGISTRANT JDENTJFICATION | | I | |
| NAME OF BROKER-DEALER: Fred Alger & Company, LLC | | | OFFICIAL USEONLY | |
| ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do 1101 use P.O. Box No.) | | | FIRMLD.NO. | |
| | 360 Park Ave South, Suite 200 | -------- | ------
-~ | |
| | (;lo ~nd S1rcet) | | | |
| New York | NY | | 10010 | |
| | | | !Lip Code} | |
| __________
}IJ\ME AND TELEPHONE NUMBER OF PERSON TO CO'ITACT IN REGARD TO THIS REPORT
Robert Kma!!I | | 201-547-3604 | | |
| | | | (Are, Code - Tdephcoe Number l | |
| | B. ACCOUNTANT IDENTIFICATION | | | |
| INDEPENDENT PUBLIC ACCOUNTANT whose opinion is colllained in this Report•
KPMG | | | | |
| | (Name-· ,[indMdua/ star,: !lic Accountant | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| B
Accoun1a.n1 oot residenl in United States or any of its possessions. | FOR OFFICIAL USE ONLY | | | |
*•c1<11ms for ,>;:rrmptum /rum tlu!* rc•q111rcment *that 1'111 01111ual report be <:Mered* lr)· *thtt upi11ion of an i11dep.:nde111 p11blic* a«·mmta11f mu.II *be .mpp,irred* by *a* sta/f:meJI/ *ofjiu:ts and* cir,•im,stan,es *relied* ,m *.is* 1he *hasisjor the* ext'l11f?IJ(J1L *See S.:c110112.JO.J* 711-5(.-;t::1
> Potential oersons who are lo respond lo the collecllon of lnform;i;t!on contalnod In this form are not required to respond unless the form displays a cummtly valid 0MB control number.
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#### **OATH OR AFFIRMATION**
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| | r:etthcr ihe ,omp:.1;11~ IJN 1111~ partner. rrnrriehir, principal Dtfu:et N dm,,:1or h.1~ ;my pr,,p1ktu~ 1111rr1.•s1 in ,m} ilCt:OlHH |
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CFO
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| lhis report * • cont:iins {died.: .iii .ipplicnh1e lmxi.'~): | |
| 0 t,_a\ Faclnt f>age.
0 (b) Statement uffioan.:ial Condition. | |
| 0 td Statement oflncome (Loss) or. if then: is (Hher compr
of Cnmpn:ltensi, e lnrnme (as defined in §210. H)Z of Reg11h1tiuu S-Xi. | c-hcnsive itieome in llw period(s) presented, li Su1tcmtnl |
| D (dl \$1:a1ement of C'h:mges in Ffouncial C,)ndition.
0 ,e) Statement of Changes in Stockholders· f quit:) or Partners' or Sok Proprlernrs' Capital. | |
| D (fl Statement ,)f Changes in Uabifoics Subordinated 10 Cluims o | r CN:di1~;rs. |
| Compurntiwr of Net Capiw!.
(~) | |
| Computation for Detern1inalion nf Rtscrve Requirements Pursuant to Ruh: l'.\c}-3 .
.; (h)
✓ (i) | lnformmfon Rela!ing to the Poss.::ssion or Contwl R.equ in:nients Under Rule !5e3•3. |
| ~
0 01 | A Reco11ciliatfon. im:ludinl,t appropriate expl::ina! ion <1fthe Computation of Net Capital Under Rnle ! 5d, t and the |
| | Compu1ati,m for Determinati,m of the Resenc Rcquirc-ment, Under Exhibit A t>f Ruk 15.:3-J. |
| O (k) A Rec,mci!iarion between the audited and ,mnu<-x,nsolidation. | \, itli rcspcd to rncthoJs. of |
| (!} An 021h or Affimmtivn. | |
| tm) A copy of the SlPC Supplemental R,:port
~ • | (n)\ report describing an: mine rial inadequacies found tO .:;.;i,t or found"' have nist~d since the d.1tc nt' 1bc prcvitm~ ,1udi1. |
| | • • Fnr ,·amlitwns of confidemiaJ trcarmenr <'Y certoin poriion( of tlus filing, n ,' s-.:ction :40. l ?a-.'i(l'i( J). |
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## **Table of Contents**
| | Page |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|
| Report of Independent Registered Public Accounting Firm | 1 |
| Financial Statements: | |
| Statement of Financial Condition | 2 |
| Statement oflncome | 3 |
| Statement of Changes in Member's Equity | 4 |
| Statement of Cash Flows | 5 |
| Notes to Financial Statements | 6 |
| Supplemental Schedules | |
| Computation of Net Capital Under Rule l 5c3-l of the Securities Exchange
Schedule I -
Commission | 18 |
| Computation for Determination of Reserve Requirements and Information Relating to
Schedule II -
Possession or Control Requirements under Rule 15c3-3 of the Securities Exchange Commission | 19 |
| Report of Independent Registered Public Accounting Firm Regarding Rule 15c3-3 | |
| Exemption Report | 20 |
| Rule 15c3-3 Exemption Report | 21 |
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KPMG LLP 345 Park Avenue New York, NY 10154-0102
#### **Report of Independent Registered Public Accounting Firm**
To the Member and Board of Directors of the Member Fred Alger & Company, LLC:
#### Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of Fred Alger & Company, LLC (the Company) as of December 31, 2020, the related statements of income, changes in member's equity, and cash flows for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
#### Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 statements are 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 statements, 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 statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
#### Accompanying Supplemental Information
The supplemental information contained in Schedules I and II has been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. The supplemental information is the responsibility of the Company's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with 17 C.F.R. § 240.17a-5 (and 17 C.F.R. § 1.10). In our opinion, the supplemental information contained in Schedules I and II is fairly stated, in all material respects, in relation to the financial statements as a whole.
We have served as the Company's auditor since 2010.
New York, New York March 1, 2021
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## Statement of Financial Condition As of December 31, 2020
| Assets | | |
|-----------------------------------------------------|----|--------------|
| Cash | | 1,632,285 |
| Receivable from mutual funds (note 5b) | | 7,506,675 |
| Financial instruments owned, at fair value (note 4) | | 51,064,944 |
| Due from Ultimate Parent and affiliates (note 6) | | 11,837,781 |
| Deferred tax asset (note 1 0) | | 10,229,907 |
| Prepaid expenses and other assets | | 3,018,454 |
| Right-of-use asset (note 12) | | 1,064,487 |
| Deposits with clearing organizations | | 786,892 |
| Current taxes receivable | | 480,706 |
| Property and equipment, net (note 7) | | 238,852 |
| Total assets | \$ | 87,860,983 |
| Liabilities and Member's Equity | | |
| Liabilities: | | |
| Accrued expenses and other liabilities (note 8) | \$ | 28,453,049 |
| Lease liability (note 12) | | 1,064,487 |
| Due to Parent and affiliate (note 6) | | 8,801,621 |
| Total liabilities | | 38,319,157 |
| Commitments and contingencies (note 12) | | |
| Member's equity: | | |
| Total member's equity | | . 49,541,826 |
| Total liabilities and member's equity | \$ | 87,860,983 |
| | | |
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# Statement of Income
For Year Ended December 31, 2020
| Revenues: | |
|-----------------------------------------|------------------|
| Mutual fund fees (note 5b) | \$
42,742,172 |
| Servicing fees (5c) | 56,191,044 |
| Commissions (note 5b) | 2,985,794 |
| Interest and dividends | 130,456 |
| Other income | 267,235 |
| Total revenues | 102,316,701 |
| Expenses: | |
| Compensation and benefits (note 11) | 36,936,354 |
| Distribution and/or administration fees | 41,856,394 |
| General and administrative expenses | 4,147,023 |
| Advertising and marketing | 2,511,338 |
| Occupancy (note 12) | 1,136,850 |
| Professional fees | 1,278,115 |
| Depreciation and amortization (note 7) | 187,059 |
| Subscriptions | 803,879 |
| Trading costs | 841,936 |
| Communications | 490,676 |
| Regulatory fees | 386,001 |
| Printing and supplies | 63,474 |
| Total expenses | 90,639,099 |
| Income before income tax expense· | 11 ,677,602 |
| Income tax expense (note 10) | 2,645,875 |
| Net income | \$
9,031,727 |
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Statement of Changes in Member's Equity
For the year ended December 3 I, 2020
| | Total
Member's
Equity |
|----------------------------|-----------------------------|
| Balance, January 1, 2020 | \$
35,507,624 |
| Noncash compensation | 5,002,475 |
| Net income | 9,031,727 |
| Balance, December 31, 2020 | \$
49,541,826 |
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Statement of Cash Flows
For the year ended December 31, 2020
| Cash flows from operating activities: | |
|-----------------------------------------------------------------|-----------------|
| Net income | \$
9,031,727 |
| Adjustments to reconcile net income to net cash used in | |
| operating activities: | |
| Deferred tax expense | (2,686,369) |
| Depreciation and amortization | 187,059 |
| Noncash compensation | 5,002,475 |
| Decrease (increase) in: | |
| Receivable from mutual funds | (1,613,109) |
| Due from Ultimate Parent and affiliates | (4,416,181) |
| Prepaid expenses and other assets | (113,650) |
| Deposits with clearing organizations | 249,136 |
| Current taxes receivable | (480,706) |
| Financial instruments owned | (31,629,529) |
| Right-of-use asset | 1,025,725 |
| Increase (decrease) in: | |
| Accrued expenses and other liabilities | 6,245,081 |
| Due to Parent and affiliate | 8,240,769 |
| Current taxes payable | (1,221,412) |
| Lease liabillity | (1,025,725) |
| Net cash used in operating activities | (13,204,709) |
| Cash flows from investing activities: | |
| Acquisition of property and equipment | (35,793) |
| Net cash used in investing activities | (35,793) |
| Net decrease in cash | (13,240,502) |
| Cash, beginning of year | 14,872,787 |
| Cash, end of year | \$
1,632,285 |
| Supplemental disclosure: | |
| Cash paid for the year ended December 31, 2020 for income taxes | \$ |
| Supplemental disclosure of noncash financing activities: | |
| Noncash compensation | \$
5,002,475 |
| | |
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#### Notes to Financial Statements
· December 31, 2020
#### **(1) Organization**
Fred Alger & Company, LLC (the Company) is a wholly owned subsidiary of Alger Group Holdings, LLC (the Parent). The Parent is a wholly owned subsidiary of Alger Associates, Inc. (the Ultimate Parent). On December 31, 2018, the Company, which included its subsidiary, Fred Alger Management, LLC (FAM), became a wholly owned subsidiary of the Parent. On October 1, 2019 the Company assigned its interest in FAM to the Parent and became a wholly-owned subsidiary of the Parent. The FAM transfer was accounted for as a transaction between entities under common control on the Company's 2019 financial statements.
#### **(2) Business**
The Company is a broker/dealer in securities registered with the Securities and Exchange Commission (SEC) under the Securities and Exchange Act of 1934 and is a member of various exchanges and the Financial Industry Regulatory Authority (FINRA). The Company acts as the principal underwriter of the mutual funds sponsored by FAM and effects transactions principally for the customers of FAM who elect to have the Company do so on their behalf. The Company clears these transactions on a fully disclosed basis with a third-party service provider. As a non-clearing broker-dealer, the Company does not maintain customers' accounts and does not hold customers' funds or securities in connection with such transactions.
## **(3) Summary of Significant Accounting Policies**
## *(a) Use of Estimates*
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. ·
### *(h) Cash and Cash Equivalents*
The Company considers all highly liquid investments, with original maturities ofless than ninety days at acquisition as cash equivalents. Cash held at financial institutions generally exceed the amount insured by the Federal Deposit Insurance Corporation. The Company does not hold any cash equivalents at December 31, 2020.
## *(c) Valuation of Financial Instruments*
Financial Accounting Standards Board Accounting Standards Codification 820 - Fair Value Measurements and Disclosures ("ASC 820") defines fair value as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. ASC 820 established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability and may be observable o\_r unobservable. Observable inputs are inputs that are developed using market data, such as publicly available information about actual events or transactions and reflect the assumptions that market
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Notes to Financial Statements
December 31 , 2020
participants would use when pricing the asset or liability. Unobservable inputs are inputs that reflect the Company's own assumptions based upon the best information available in the circumstances. The three-level hierarchy of inputs is summarized in the three broad Levels below.
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or · liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 inputs include: (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities traded in nonactive markets (i.e., dealer or broker markets); and (iii) inputs other than quoted prices that are observable or inputs derived from or corroborated by market data.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the detennination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation.
The Company held the following types of financial instruments as of December 31, 2020:
#### **Money Market Funds**
The Company owns investments in several money market funds that are valued based on readily available and observable net asset values. These investments are included in Level 1 of the fair value hierarchy.
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#### Notes to Financial Statements
December 31 , 2020
#### *(d) Securities Transactions*
The Company records security transactions on trade date. Dividend income is recognized on the ex-dividend date, and interest income is recognized on an accrual basis. Realized gains (losses) on the sales of securities are recognized using cost calculated on a specific identification method, and changes in unrealized gains (losses) are recognized in the Statement of Income. The Company has the ability to purchase securities on margin. The Company does not have any realized gains (losses) and does not have any changes in unrealized gains (losses) for the year ended December 31, 2020.
#### *(e) Mutual Fund Fees: 12b-l and shareholder servicing fees*
These fees are earned by the Company for distribution, shareholder servicing, administrative and oversight services performed for the Alger Funds. 12b-l fees earned for distribution and / or shareholder servicing for the Alger Funds are collected pursuant to plans operating under Rule 12b-1 of the Investment Company Act of 1940 ( l 2b-l Plans). The Company also earns shareholder servicing fees pursuant to agreements with certain Alger Funds.
Contracts for these services exist between the Company and the Alger Funds to whom such services are provided. The contract price varies by fund and share class, but prices are stipulated in the applicable contracts and take the form of a calculated basis point fee (a percentage of account assets). This fee is accrued on a daily basis by the Alger Funds and is part of the daily NA V. The Company receives payment for these fees from the funds on a monthly basis. Performance obligations relating to these fees relate to the services performed by the Company described above.
The services provided by the Company under the terms of these contracts are considered a series of distinct services that are substantially the same and are satisfied each day during the contract term. Ongoing fees are largely passed through to third party distributors who distribute and service the Alger Funds.
### *(I) Mutual Fund Fees: Sub-TA fees*
The Company makes payments to certain intermediaries that provide sub-accounting services to omnibus accounts invested in the Alger Funds. A portion of these fees are charged back to the appropriate Alger Fund, subject to certain limitations, as approved by the Alger funds Board of Trustees. As such, these fees are accrued on a daily basis by the funds and are part of the daily NAY. The Company receives payment from the Alger Mutual Funds periodically.
#### **(g)** *Commissions*
Commissions and related clearing expenses are recorded on a settlement-date basis, the effect which is not materially different from a trade date basis.
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#### Notes to Financial Statements
December 31, 2020
In addition to acting as the principal underwriter of the Alger Funds, the Company effects transactions principally for the customers of **FAM** who elect to have the Company do so on their behalf. Commission income is earned by providing trade execution services through the Company for Alger Funds and separately managed accounts. The Company clears these transactions on a fully disclosed basis with various contracted third party service providers. The Company is not authorized to maintain customers' accounts and does not hold customers' funds or securities in connection with such transactions. The effective contract price is the applicable commission rate for a specific trade. The revenue associated with the trades is earned as the trade is executed by the third party service provider as the recognition of the revenue and the performance obligation is extinguished in a simultaneous fashion. These fees are collected on a monthly basis.
#### *(h) Distribution and I or administration fees*
The Company, in its capacity as the principal underwriter for the Alger Funds, pays fees to third party dealers who sell the funds to their customers. To the extent the fees paid do not exceed amounts collected from the Alger Funds pursuant to 12b-l Plans, they are incurred by the Company and· included in Distribution and / or administration fees on the Statement of Income. To the extent these fees exceed amounts collected pursuant to 12b-l Plans, they were incurred by FAM.
#### (i) *Depreciation and Amortization*
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation relating to these assets is provided for primarily by the straight-line method over their estimated useful lives, ranging from 5 to 10 years. Leasehold improvements are amortized by the straight-line method over the lesser of their economic useful lives or the terms of the related leases.
#### *(j) Income Taxes*
Beginning with its 2019 taxable year, the Company elected to be treated as a "C" Corporation under the Internal Revenue Code for purposes of filing Federal income tax returns. The Ultimate Parent and its shareholders remained an S Corporation. As a "C" Corporation, the Company is subject to federal, state and local corporate-level income taxes and the Company generally will have to pay corporate-leveJ income taxes. For most of the state or local jurisdictions in which the Company files tax returns, the Company also elected to be treated as a "C" Corporation. Income taxes relating to those states are included on the Company's financial statements.
Income taxes are accounted for using the asset and liability method (ASC 740). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax-basis carrying amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the enactment date occurs.
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#### Notes to Financial Statements
December 31, 2020
The Company files its Federal and certain state tax returns as a member of a consolidated group but accounts for its tax expense on a separate company basis reflecting its proportionate share of the tax asset or liability as if it were filing on its own. Any amounts due which pertain to tax returns filed on a consolidated basis are payable to the Parent.
Uncertainty in income taxes (ASC 740-10) is accounted for by recognizing in the financial statements the impact of a tax position when it is more likely than not that the tax position would be sustained upon examination by the tax authorities based on the technical merits of the position. Management considers the facts and circumstances available as of the reporting date in order to determine the appropriate tax benefit to recognize including tax legislation and statutes, legislative intent, regulations, rulings and case law. Differences could exist between the ultimate outcome of the examination of a tax position and management's estimate. It is not expected that these differences will have a material impact on the financial statements. In the preparation of income tax returns, tax positions are taken based on interpretation of Federal, State and local incorµ.e tax laws for which the outcome is uncertain. Management has analyzed the Company's tax positions taken on Federal, State and local income tax returns for all open years and has determined that no uncertain tax positions exist as of the reporting date.
The following are the major tax jurisdictions for the Company: United States, New Jersey, New York, and New York City. Generally, tax years 2017 to present are open for examination by Federal, State and local tax authorities.
## **(4) Financial Instruments at Fair Value**
The following presents the Company's financial instruments' fair value hierarchy as of December 31, 2020:
| Assets | | Quoted prices
in active
markets for
identical assets
(Level I) | Significant
other
inputs
(Level 2) | Significant
observable unobservable
inputs
(Level 3) | Total |
|-----------------------------------|----|----------------------------------------------------------------------------|---------------------------------------------|---------------------------------------------------------------|------------|
| Financial instruments owned: | | | | | |
| Money market funds | s | 51,064,944 | | | 51,064,944 |
| Total financial instruments owned | \$ | 51,064,944 | | | 51,064,944 |
There were no level 2 or 3 investments held during the year.
## **(5) Related Party Transactions**
## *(a) Directors and Officers*
Certain employees of the Company are officers of the Alger Funds and Alger SICA V Funds, a collective investment undertaking organized under the laws of the Grand Duchy of Luxembourg for sale to non-U.S. citizens in certain European countries.
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#### Notes to Financial Statements
December 31, 2020
#### *(b) Revenue Transactions*
The Company earns 12b-1 fees from the Alger Funds pursuant to plans operating under Rule l 2b-l of the Investment Company Act of 1940. The Company also earns shareholder servicing fees pursuant to agreements with certain Alger Funds. These fees are included in Mutual fund fees in the Company's Statement of Income. Amounts receivable relating to these fees is included in Receivable from Funds on the Company's Statement of Financial Condition.
The Company receives Sub-T/ A fees from the Alger Funds, which represents a partial reimbursement of payments made to intennediaries that provide sub-accounting services to omnibus accounts invested in the Alger Funds. These fees are included in Mutual fund fees in the Company's Statement of Income. Amounts receivable relating to these fees are included in Receivable from Funds on the Company's Statement of Financial Condition.
The Alger Funds and Alger SICA V Funds also pay the Company brokerage con11mss10ns in connection with securities transactions. These fees are included in Commissions in the Company's Statement of Income. Amounts receivable which relate to these fees are included in Prepaid expenses and other assets on the Company's Statement of Financial Condition.
The Company provides certain marketing support services to Alger Management, Ltd. (AML), a U.K. investment advisor which is wholly owned by AGH, for which they earn fees. Such fees are included in Other Income on the Company's Statement of Income. Amounts receivable which relate to these fees are recorded in the Due from affiliates account on the Company's Statement of Financial Condition.
A summary of income earned through related party transactions for the year ended December 31, 2020, and receivables from related parties as of that date is as follows:
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#### Notes to Financial Statements
#### December 31, 2020
| | Income earned for the period ended
December 31, 2020
FAC | Amounts receivable at
December 31, 2020
FAC | |
|---------------------------------------------|----------------------------------------------------------------|---------------------------------------------------|--|
| | | | |
| Mutual fund fees:
I 2b-I and shareholder | | | |
| servicing fees | 37,002,801 | 3,514,745 | |
| Sub-TIA fees | 5,154,487 | 3,991 ,930 | |
| Total mutual | | | |
| fund fees | 42,157,288 | 7,506,675 | |
| Commission fees: | | | |
| Brokerage commissions | 2,841 ,050 | 186,723 | |
| Other Income: | | | |
| Admin and Marketing | 257,522 | 31,525 | |
| Total related | | | |
| party | | | |
| income/ | | | |
| receivables | 45,255,860
\$ | 7,724,923 | |
#### *(c) Service-Related Charges*
Pursuant to an agreement with **FAM,** service-related charges of\$56,191,044 have been earned by the Company for year ending December 31, 2020. Under the terms of the agreement, FAM pays a monthly asset-based fee to the Company for its efforts in promoting and distributing certain products for which FAM receives management fees. These fees are included in Service fees on the Company's Statement of Income.
## **(6) Due from/ Due to affiliates**
As of December 31, 2020, the amount due from the Ultimate Parent was \$11,218,694 as a result of the Company's allocation of the liabilities associated with the Company's Equity and Phantom Equity compensation plans. The Company provides cash and or pay certain expenses to and on behalf of its affiliates. As a result, the Company has a due from other affiliates of \$6 l 9,087. The Company has a due to the Parent of \$7,503,653 primarily as a result of estimated tax payments made by the Parent on behalf of the Company, and a due to another affiliate of\$1,297,968.
{16}------------------------------------------------
#### Notes to Financial Statements
December 31 , 2020
#### (7) **Property and Equipment, Net**
| | Useful lives | Amount |
|-------------------------------------------------|--------------|---------------------------|
| Office machines | 5 years | \$
663,113 |
| Computer software | 5 years | 475,209 |
| Leasehold improvements | 10 years | 154,733 |
| Furniture and fixtures | 7 years | 20,133 |
| | | 1,313,188 |
| Less: accwnulated depreciation and amortization | | (1,074,336) |
| | | \$
238,852
======== |
| | | |
Depreciation and amortization expense for the year ended December 31, 2020 was \$187,059.
#### **(8) Accrued Expenses and Other Liabilities**
Accrued expenses and other liabilities consist of the following at December 31, 2020:
| | 12,479,849 |
|----|------------|
| | 8,837,355 |
| | 6,285,841 |
| | 850,004 |
| \$ | 28,453,049 |
| | \$ |
#### **(9) Regulatory Net Capital Requirements**
The Company is subject to the SEC Uniform Net Capital Rule, which requires the maintenance of minimwn regulatory net capital and requires that the ratio of aggregate indebtedness to regulatory net capital, both as def med, shall not exceed 15 to **1.** The Company computes its regulatory capital using the Alternative Method. At December31, 2020, the Company had regulatory net capital of \$16,676,345 and a regulatory net capital requirement of \$250,000. The Company's ratio of aggregate indebtedness to regulatory net capital was 2.22 to l.
{17}------------------------------------------------
#### Notes to Financial Statements
December 31, 2020
#### **(10) Income Taxes**
The components of Income tax expense in the Statement of Income for the period ended December 31, 2020 are as follows:
| Cun-ent: | |
|-------------------|-------------------|
| Federal | \$
4,079,505 |
| State and local | 1,252,739 |
| Total current | 5,332,244 |
| Defen·ed: | |
| Federal | \$
(2,051,369) |
| State and local | (635,000) |
| Total deferred | (2,686,369) |
| Total tax expense | \$
2,645,875 |
| | =========== |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The Company is required to establish a valuation allowance for any portion of the deferred tax asset that management believes will not be realized. Significant judgement is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other factors, in making the determination, (i) future taxable income exclusive of reversing temporary differences and carry forwards, (ii) future reversals of existing temporary differences, (iii) taxable income in prior year's carryback years and (iv) tax planning strategies. Based upon analysis of the Company's tax position, management believes that it is more likely than not that the deferred tax asset will be realized and therefore no valuation allowance has been recorded. Significant components of the Company's deferred tax assets and deferred tax liabilities as of December 31, 2020 are as follows:
| Deferred tax assets: | |
|---------------------------|------------------|
| Compensation related | \$
8,887,225 |
| Capitalized 12b-l | 1,383,351 |
| Fixed assets | 220,067 |
| Other | (260,736) |
| Total deferred tax assets | \$
10,229,907 |
14
{18}------------------------------------------------
#### Notes to Financial Statements
December 31, 2020
#### **(11) Pension and Profit Sharing Plans**
#### *(a) 401 (k) Plan*
The Company sponsors a contributory 401(k) plan. This plan includes all officers and full-time employees. The Company makes matching contributions equal to 100% of the participant's compensation contributed as pre-tax contributions subject to a maximum amount of \$10,000 for each participant. The Company's practice is to fund its obligation under the plan currently. Included in compensation and benefits expense are employer contributions for the period ended December 31, 2020 of \$1,349,017.
#### *(b) Deferred Compensation Plans*
The Ultimate Parent maintains three nonqualified deferred compensation plans (the Plans) for certain employees of the Company and FAM.
As more fully described in the Alger Associates, Inc. Profit Participation Plan, as amended and restated December 4, 2018 (Incentive Plan), and the individual Award Agreements, the Ultimate Parent may issue an award which is credited to the participant's "award account" and vests after four years. Pursuant to the Incentive Plan, the award accounts are credited or debited with gains or losses based upon changes in values of notional investments in certain Alger Funds elected by the plan participant. The participant is also eligible for a matching contribution of up to 175% of the original award. Both the vesting percentage attributable to the awards and the level of matching contributions are based on growth in the consolidated pre-tax net operating income of the Ultimate Parent and its subsidiaries, as defined by the plan, and which may be adjusted by management according to the terms of the Incentive Plan. During the period ended December 31, 2020, the Company recognized \$4,138,156 in compensation expense relating to the Incentive Plan.
In 2009, the Ultimate Parent adopted the Alger Associates, Inc. Equity Plan (Equity Plan), as amended and restated as of December 18, 2018. Under the terms of the Equity Plan, a portion of eligible participant's annual bonus compensation is converted into Alger Equity Units (Units). Such Units participate in any dividend declared by the Ultimate Parent on a notional basis as well as future appreciation or depreciation of the book value of the Ultimate Parent, as more fully described in the Equity Plan. Any award issued under the Equity Plan vests equally over four years. A portion of the value of the participant's awards may be paid after seven years (if so elected by the recipient of the award) subject to certain further allowable deferral elections. If such deferral option is not elected, the entire value of the award will be paid on the earlier of a "termination of employment" or a "change in control" as such terms are defined in the Equity Plan. During the year ended December 31, 2020, the Company recognized \$2,629,859 in compensation expense relating to the Equity Plan.
In April 2010, the Parent adopted a "Phantom Equity Grant Agreement" (Agreement), which granted phantom ownership of 5% of the combined fair market value of the Parent and its subsidiaries, as defined in the Agreement, to the Chief Executive Officer (the CEO) of the Ultimate Parent. Under the terms of the Agreement, the CEO participates in any dividend declared or distribution made by the Ultimate Parent on a notional basis as well as future appreciation or depreciation of the fair market value of the Ultimate Parent, as more fully described in the Agreement. The phantom equity granted
{19}------------------------------------------------
#### Notes to Financial Statements
December 31 , 2020
under this agreement is fully vested. The value of the phantom equity will be paid on the earlier of a "separation from service" or a "change in control" as such terms are defined in the Agreement. Dur~ng the year ended December 31 , 2020, the Company recognized \$5,517,957 in compensation expense relating to this Agreement. For the year ended December 31, 2020, \$5,002,475 was credited as capital · to the Ultimate Parent.
The Plans are intended to qualify under Section 409A of the Internal Revenue Code, which allows, among other things, for the participant to defer tax recognition until such time as the award is distributed to the participant.
#### **(12) Commitments, contingencies and leases**
The Company leases office space under non-cancelable lease agreements expiring through June 2022. Rightof-use ("ROU") assets represent the right to use an underlying asset for the lease term and corresponding lease liabilities represent the obligation to make lease payments arising from the lease. ROU asset and lease liability are recognized at the commencement date based on the present value of the lease payments over the lease term. In determining the present value of the ROU assets, the Company has employed an estimate for its readily available incremental borrowing rate of 5%. Lease costs for operating ROU assets is recognized on a straight line basis over the term lease.
The Company elected to the package of practical expedients permitted under the transaction guidance within the accounting standard that allows entities to carryforward their historical lease classification and not to reassess contracts for embedded leases among other things. The Company recorded a right-of-use asset of \$1,064,487 and a corresponding lease liability of \$1,064,487 substantially related to real estate leases.
The following table represents the balances for operating and finance ROU assets and lease liabilities:
| 2021
2022 | \$
981
,954
82,533 |
|---------------------------------------------|-----------------------------|
| | \$
1,064,487 |
| Weighted average remaining lease term years | 1.10 |
| Weighted average discount rate | 5.0% |
Year ending December 31 :
Office leases contain provisions for escalation based upon certain increases in costs incurred by the lessor. Rent expense for the year ended December 31, 2020 was \$1,136,850.
{20}------------------------------------------------
Notes to Financial Statements
December 31, 2020
The Company is currently, and has been in the past, a party to various routine legal proceedings incident to the ordinary course of business. The Company believes that the outcome of all such pending legal proceedings in the aggregate is unlikely to have a material adverse effect on the business or consolidated financial condition of the Company.
#### **(13) Risk Factor**
An outbreak of respiratory disease caused by a novel coronavirus designated as COVID-19 was first detected in China in December 2019 and subsequently spread internationally. The transmission of COVID-19 and efforts to contain its spread have resulted in, among other things, border closings and other significant travel restrictions and disruptions; significant disruptions to business operations, supply chains and customer activity; lower consumer demand for goods and services; significant job losses and increasing unemployment; event cancellations and restrictions; service cancellations, reductions and other changes; significant challenges in healthcare service preparation and delivery; prolonged quarantines; as well as general concern and uncertainty that has negatively affected the economic environment. The impact of this outbreak and any other epidemic or pandemic that may arise in the future could adversely affect the economies of many nations or the entire global economy and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant and unforeseen ways. Although the U.S. Federal Reserve has taken a number of actions to mitigate the impact of COVID-19 on U.S. markets and institutions, including decreasing interest rates and implementing a variety of emergency stimulus measures, these actions may not succeed or have the intended effect. This crisis or other public health crises may also exacerbate other pre-existing political, social, economic, market and financial risks. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty. The foregoing could result in significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates and a substantial economic downturn or recession. Such impacts could impair the Fund's ability to maintain operational standards ( such as with respect to satisfying redemption requests), disrupt the operations of the Fund's service providers, adversely affect the value and liquidity of the Fund's investments and negatively impact the Company's performance.
#### **(14) Subsequent Events**
The Company has evaluated the need for disclosures and/or adjustments to the financial statements resulting from subsequent events through March 1, 2021, the date the financial statements were issued. As a result of this evaluation, the Company found no subsequent events that necessitated disclosures in and/or adjustments to the financial statements.
{21}------------------------------------------------
Notes to Financial Statements December 31, 2020
# **SUPPLEMENTAL SCHEDULES**
{22}------------------------------------------------
# **FRED ALGER & COMPANY, INCORPORATED AND SUBSIDIARY**
Computation of Net Capital Under Rule 15c3-l of the Securities Exchange Commission December 31, 2020
Computation of net capital pursuant to Rule 15c3-l
| Total member's equity from Statement of Financial Condition | \$
49,541,826 |
|------------------------------------------------------------------------------------|-----------------------------------|
| Deductions and/or charges: | |
| Nonallowable assets: | |
| Investment in and receivables from subsidiary and affiliates | 10,539,813 |
| Other nonallowable assets | 21,065,517 |
| Plant, property & equipment | 238,853 |
| Total nonallowable assets | 31 ,844,183 |
| Net capital before haircuts | 17,697,643 |
| Haircuts on securities: | |
| Corporate bonds, mutual funds, money markets and exchange traded equity securities | 1,021,298 |
| Net Capital | \$
16,676,345 |
| | |
| Computation of alternative net capital requirement | |
| Capital requirement of broker-dealer electing alternative method | 250,000 |
| Total net capital requirement | 250,000 |
| Excess Net Capital | \$
16,426,345
============= |
No material differences exist between the above computation of net capital and the computation of net capital reported in the Company's unaudited Form X-17A-5, Part IIA filing as of December 31, 2020 filed on March 1, 2021.
See accompanying report of independent registered public accounting firm.
{23}------------------------------------------------
Computation for Detem1ination of Reserve Requirements and Information Relating to Possession or Control Requirements under Rule 15c3-3 of the Securities Exchange Commission
#### Year Ended December 31, 2020
The Company is exempt from the provisions of Rule 15c3-3 under the Securities Exchange Act of 1934, in that the Company's activities are limited to those set forth in the conditions for exemption appearing in paragraph (k)(2)(ii) of the Rule.
See accompanying report of independent registered public accounting firm
{24}------------------------------------------------
KPMG LLP 345 Park Avenue NewYork, NY 10154-0102
#### **Report of Independent Registered Public Accounting Firm**
The Member and Board of Directors of the Member Fred Alger & Company, LLC:
We have reviewed management's statements, included in the accompanying Rule 15c3-3 Exemption Report, in which (1) Fred Alger & Company, LLC (the Company) identified the following provision of 17 C.F.R. § 240.15c3-3 (k) under which the Company claimed an exemption from 17 C.F .R. § 240.15c3-3 (k): (2)(ii) {the exemption provision); and (2) the Company stated that it met the identified exemption provision throughout the year ended December 31, 2020 without exception. The Company's management is responsible for compliance with the exemption provision and its statements.
Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about the Company's compliance with the exemption provision. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provision set forth in paragraph (k)(2){ii) of Rule 15c3-3 under the Securities Exchange Act of 1934.
New York, New York March 1, 2021
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{25}------------------------------------------------
#### **Rule 15c3-3 Exemption Report**
Fred Alger & Company, LLC (the "Company") is a registered broker-dealer subject to Rule 17a-5 promulgated by the Securities and Exchange Commission (I 7 C.F.R. § 240.17a-5, "Reports to be made by certain brokers and dealers"). This Exemption Report was prepared as required by 17 C.F .R. § 240. l 7a-5( d)(l) and ( 4). To the best of its knowledge and belief, the Company states the following:
- **(1)** The Company claimed an exemption from 17 C.F.R. § 240. l 5c3-3 under the following provisions of 17 C.F.R. § 240.15c3-3 (k)(2)(ii).
- **(2)** The Company met the identified exemption provisions in 17 C.F.R. § 240.15c3-3(k) throughout the most recent fiscal year without exemption.
I, Robert Kincel, affirm to that, to my best knowledge and belief, this Exemption Report is true and correct.
Robert Kincel Chief Financial Officer Fred Alger & Company, LLC March 1, 2021
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.