# FSB PREMIER WEALTH MANAGEMENT, INC. X-17A-5 (2021-02-23) — Broker-dealer annual report - Company: FSB PREMIER WEALTH MANAGEMENT, INC. - Form: X-17A-5 - Filed: 2021-02-23 - Period: 2020-12-31 - Accession: 0000887748-21-000004 - CIK: 887748 - File #: 8-44865 - Material weakness: No - Auditor: Davila Advisory, LLC - Auditor location: Saint Louis, MO - Contact: RODNEY DUROE - Phone: 319-235-6561 - Signed by: Rodney Duroe (FINOP) Original filing: https://www.sec.gov/Archives/edgar/data/887748/000088774821000004/acct_report_stmtfincond.pdf --- {0}------------------------------------------------ ## Notes to Financial Statements ## Note 1. Summary of significant accounting policies ### Nature of business FSB Premier Wealth Management, Inc. (the Company) conducts business as a broker-dealer in securities and as a registered investment advisor. The Company primarily serves individual and institutional customers in Iowa and has an office in Iowa. The Company is a wholly-owned subsidiary of FSB Financial Services, Inc. (the Parent). Farmers State Bank (the Bank) is a commercial bank and a wholly-owned subsidiary of the Parent. The Company has certain transactions with the Bank. The Company is registered as a broker-dealer with the Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA). The Company operates under the provisions of Paragraph (k)(2)(ii) of Rule 15c3-3 of the SEC and, accordingly, is exempt from the remaining provisions of that Rule. The requirements of Paragraph (k)(2)(ii) provide that the Company clear all transactions on behalf of customers on a fully disclosed basis with a clearing broker-dealer, and promptly transmit all customer funds and securities to the clearing broker-dealer. The clearing broker-dealer carries all of the accounts of the customers and maintains and preserves all related books and records as are customarily kept by a clearing broker-dealer. ### Basis of Presentation The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). ### Cash and cash equivalents Cash and cash equivalents consist of cash held in bank accounts and money market funds. ## Concentrations of credit risk The Company's cash is on deposit at the Bank and the balance at times may exceed the federally insured limit. The Company believes it is not exposed to any significant credit risk to cash. ### Marketable securities owned Marketable securities owned are carried at fair value. Unrealized gains and losses are included in earnings of the reporting period. ### Furniture and equipment Furniture and equipment are stated at cost, net of accumulated depreciation. Furniture and equipment are depreciated by the straight-line method over estimated useful lives of three to five years. ### Income taxes The Company files consolidated income tax returns with the Parent which is an S corporation. The consolidated items of taxable income and expense are reported by the Parent's stockholders and the Company is not generally subject to income tax. As of December 31, 2020, the Parent's income tax returns for the years 2017 through 2020 remain open for possible examination by the Internal Revenue Service and state taxing authorities. Management does not expect any material adjustments to the Company's income tax balances should these returns be examined. {1}------------------------------------------------ # Notes to Financial Statements # Note 1. Summary of significant accounting policies (continued) GAAP requires the Company to evaluate and disclose any uncertain tax positions that could have an effect on the financial statements. As of December 31, 2020, the Company determined that it had no tax positions that did not meet the "more likely than not" threshold of being sustained upon examination by the applicable tax authorities. # Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ### Revenue recognition Revenues are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues are analyzed to determine whether the Company is the principal or agent in a contract. Principal or agent designations depend primarily on the control an entity has over the product or service before control is transferred to a customer. # Allowance for doubtful accounts The Company believes that amounts due from its clearing organization are fully collectible; thus an allowance for doubtful accounts was not considered necessary at December 31, 2020. Subsequent Events - In the normal course of preparing the Company's financial statements, management reviews events that occur after the balance sheet date (December 31, 2020) for potential recognition or disclosure in the financial statements. Management has evaluated subsequent events through February 22, 2021, which is the date the financial statements were available to be issued. # Note 2. Receivable from clearing organization Receivable from clearing organization consists of the following as of December 31, 2020. | Commissions | \$1,901 | |------------------|----------| | Clearing deposit | 40,000 | | Total | \$41,901 | ### Note 3. Marketable securities owned Marketable securities owned as of December 31, 2020 consist of exchange-traded corporate equities held for investment at fair values. The Company groups its financial assets measured at fair value in three levels, based on markets in which these assets are traded and the reliability of the assumptions used to determine fair value. These levels are: - x Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. - x Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques in which all significant assumptions are observable in the market. {2}------------------------------------------------ # Notes to Financial Statements # Note 3. Marketable securities owned (continued) x Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect Company estimates of assumptions that market participants would use in pricing the asset. Valuation techniques include use of discounted cash flow models, option pricing models and similar techniques. The Company uses quoted market prices in active markets to determine the fair value of securities. Such instruments are classified within Level 1 of the fair value hierarchy. As of December 31, 2020, all marketable securities were classified as Level 1. # Note 4. Net capital requirements The Company is subject to the Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). The Company is required to maintain minimum net capital, as defined, of the greater of 6 2/3% of aggregate indebtedness or \$50,000. At December 31, 2020, 6 2/3% of aggregated indebtedness was \$20,129. Additionally, the Company's net capital was \$648,238 which was \$598,238 in excess of the required net capital of \$50,000. Rule 15c3-1 also provides that the ratio of aggregate indebtedness to net capital, as defined, shall not exceed 15 to 1, and equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. As of December 31, 2020, the Company's percentage of aggregate indebtedness to net capital was 46.58%. # Note 5. Operating leases The Company's primary office facilities are located in a building owned by the Bank. The Company leases this space from the Bank on a month-to-month basis. Rent expense to the Bank was \$13,360. # Note 6. Off-balance sheet risk The Company's customer securities transactions are introduced on a fully-disclosed basis with its clearing broker-dealer. The clearing broker-dealer carries all of the accounts of the customers of the Company and is responsible for execution, collection of and payment of funds and, receipt and delivery of securities relative to customer transactions. Off-balance-sheet risk exists with respect to those transactions due to the possibility that customers may be unable to fulfill their contractual commitments wherein the clearing broker-dealer may charge any losses it incurs to the Company. The Company seeks to minimize this risk through procedures designed to monitor the credit worthiness of its customers and that customer transactions are executed properly by the clearing broker-dealer. # Note 7. Employee benefit plan The Company and the Bank have a 401(k) and profit sharing plan that covers all employees who have met certain eligibility requirements and includes a matching contribution of employee deferrals up to 4.0% of employee compensation. The profit-sharing plan provides for discretionary contributions by the Company in such amounts as the Board of Directors may determine. The Company estimated a profit sharing contribution of 5.0% of employee compensation. Total contribution expense was \$46,650. {3}------------------------------------------------ ## Notes to Financial Statements # Note 8. Related party transactions The Bank provides the Company with accounting and human resource oversight. Salary expense for these services was \$40,640. Employees of the Bank provide brokerage advisor services and earn commission for the Company. Commission expense paid to the related party was \$268,475 which was included in the employee compensation and benefits expense on the Statement of Income. The Company has an agreement with the Bank to provide advisory services for the 401(k) and profit sharing plan. The Company received \$10,000 from the Bank under this agreement which was included in the investment advisory fees revenue on the Statement of Income. The Company maintains its short-term operating funds on deposit with the Bank and these funds totaled \$32,976 at December 31, 2020. Also, the Company has a credit card with the Bank which had no balance due at December 31, 2020. ### Note 9. Revenues ### Commission revenue Commission revenue represents sales commissions generated by advisors for their clients' purchases and sales of securities on exchanges and over-the-counter, as well as, purchases of other investment products. The Company views the selling, distribution, and marketing, or any combination thereof, of investment products to such clients as single performance obligation to the product sponsors. Mutual fund trailing commission revenue is generally based on a percentage of the current market value of clients' investment holdings in trail-eligible assets, and is recognized over the period during which services are performed. Total revenue earned through sale and trail commissions disaggregated by investment product category is as follows: | Life Insurance | \$158,136 | |--------------------------|-----------| | Health and Medicare | 1,097 | | Mutual Funds | 59,855 | | Equities | 25,054 | | Variable Annuities | 66,762 | | Total commission revenue | \$310,904 | ### Investment Advisory Fees Investment advisory fees represent amounts charged to advisors' clients' accounts on the Company's corporate advisory platform. The Company provides ongoing investment advice and recommendations. This series of performance obligations transfers control of the services to the client over time as the services are performed. This revenue is recognized ratably over time to match the continued delivery of the performance obligations to the client over the life of the contract. The advisory revenue generated from the Company's corporate advisory platform is based on a percentage of the market value of the eligible assets in the clients' advisory accounts. As such, the consideration for this revenue is variable and an estimate of the variable consideration is constrained due to dependence on unpredictable market impacts on client portfolio values. The constraint is removed once the portfolio value can be determined. ### Net trading and investment gains Net trading and investment gains primarily includes mark-to-market gains and losses on assets held by the Company and other miscellaneous revenues. ### Interest and dividend income The Company earns interest and dividend income from client margin accounts and cash equivalents, net of operating expense. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.