# PZENA FINANCIAL SERVICES, LLC X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: PZENA FINANCIAL SERVICES, LLC - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0001592063-21-000001 - CIK: 1592063 - File #: 8-69390 - Material weakness: No - Auditor: PricewaterhouseCoopers LLP - Auditor location: New York, NY - Contact: Jessica Doran - Phone: 2125831304 - Signed by: Jessica Doran (Principal Financial and Operations Professional) Original filing: https://www.sec.gov/Archives/edgar/data/1592063/000159206321000001/2020pfsllc.pdf --- {0}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 0MB APPROVAL 0MB Number: 3235-0123 Expires: August 31, 2021 Estimated average burden hours per response ...... 12.00 **8-69390** SEC FILE NUMBER # **ANNUAL AUDITED REPORT FORM X-17 A-5 PART Ill** ## **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17 a-5 Thereunder** REPORT FOR THE PERIOD BEGINNING 01/01/20 AND ENDING 12/31/20 MM/DD/YY MM/DD/YY ## **A. REGISTRANT IDENTIFICATION** NAME OF BROKER-DEALER: **PZENA FINANCIAL SERVICES, LLC** ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) 320 Park Avenue, 8 th Floor New York (City) *(No.* and Street) NY (State) 10022 (Zip Code) NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT Jessica Doran (212) 583-1304 (Area Code - Telephone Number) ## **B. ACCOUNTANT IDENTIFICATION** INDEPENDENT PUBLIC ACCOUNT ANT whose opinion is contained in this Report\* PricewaterhouseCoopers, LLP | **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 0MB control number.** OFFICIAL USE **ONLY** **FIRM I.D. NO.** {1}------------------------------------------------ #### **OATH OR AFFIRMATION** I, Jessica Doran, swear (or affirm) that, to the best ofmy knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of Pzena Financial Services, LLC, as of December 31, 2020 are true and correct. I further swear ( or affirm) that neither the company nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as follows: None ------------------------------------------ Signature Title Notary Public This report\*\* contains (check all applicable boxes): **[8]** (a) Facing Page. **[8]** (b) Statement of Financial Condition. **[8]** (c) Statement oflncome (Loss). **[8]** (d) Statement of Changes in Financial Condition. **[8]** ( e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. **D** (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. **[8]** (g) Computation of Net Capital. **[8]** (b) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. **[8]** (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. **D** (i) A Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-l and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule l 5c3-3. **D** (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation. [8] (I) An Oath or Affirmation. **D** (m) A copy of the SIPC Supplemental Report. **D** (n) A report describing any material inadequacies found to exist or 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 ). {2}------------------------------------------------ ## PZENA FINANCIAL SERVICES, LLC (A DELAWARE Limited Liability Company) Financial Statements and Supplemental Schedules For the Year Ended December 31, 2020 With Report of Independent Registered Public Accounting Firm Thereon {3}------------------------------------------------ # **PZENA FINANCIAL SERVICES, LLC** (A Delaware Limited Liability Company) ## **Table of Contents** | Report of Independent Registered Public Accounting Finn
. | 1 | |---------------------------------------------------------------------------------------------------------------------------------------------------|---| | Statement of Financial Condition
. | 2 | | Statement of Operations
. | 3 | | Statement of Changes in Member's Equity
. | 4 | | Statement of Cash Flows
. | 5 | | Notes to Financial Statements | 6 | | Supplemental Schedules: | | | Schedule I - Computation of Net Capital Pursuant to Rule 15c3-l of the Securities and Exchange
Commission | 1 | | Schedule II - Computation of Determination of Reserve and Information for Possession or Control
Requirements under Rule 15c3-3 . | 2 | {4}------------------------------------------------ #### **Report of Independent Registered Public Accounting Firm** To the Managing Member of Pzena Financial Services, LLC: ### *Opinion on the Financial Statements* We have audited the accompanying statement of financial condition of Pzena Financial Services, LLC as of December 31, 2020, and the related statements of operations, changes in member's equity and cash flows for the year then ended, including the related notes ( collectively referred to as 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 accounting principles generally accepted in the United States of America. ## *Basis for Opinion* These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 of these financial statements 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. #### *Supplemental Information* The accompanying Computation of Net Capital Pursuant to Rule 15c3-l of the Securities and Exchange Commission and Computation of Determination of Reserve and Information for Possession or Control Requirements under Rule 15c3-3 is supplemental information required by Rule l 7a-5 under the Securities Exchange Act of 1934. The supplemental information is the responsibility of the Company's management. The supplemental information has been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. 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 Rule l 7a-5 under the Securities Exchange Act of 1934. In our opinion, the Computation of Net Capital Pursuant to Rule 15c3-l of the Securities and Exchange Commission and Computation of Determination of Reserve and Information for Possession or Control Requirements under Rule 15c3-3 are fairly stated, in all material respects, in relation to the financial statements as a whole. (signed) PricewaterhouseCoopers LLP New York, New York February 26, 2021 We have served as the Company's auditor since 201 7. {5}------------------------------------------------ ## **PZFNA FINANCIAL SERVICfili, LLC STATEMENT OF FINANCIAL CONDIDON** ## **As of December 31, 2020 (in thousands)** #### **ASSEfS** | Cash | \$ | 565 | |------------------------------------------|----|-----| | Receivable from Related Party, Net . | | 38 | | Prepaid Expenses and Other Assets . | | 1 | | Deferred TaxAsset. . | | 5 | | TOTALASSEfS | \$ | 609 | ## **LIABIL~ AND MEMBER'S EQUITY** | Liabilities: | | |--------------------------------------------|----------------------| | Accounts Payable and Accrued Expenses | \$
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146 | | TOTALLIABIUTIES | 146 | | Commitments and Contingencies (See Note 4) | | | Equity: | | | Member's Equity . | 251 | | Undistributed F.amings . | 212 | | TOTAL MEMBER'S EQUITY. . | 463 | | TOTAL LIABIUTIES AND MEMBER'S EQUITY \$ | ======
609 | | | | {6}------------------------------------------------ #### **PZENA FINANCIAL SERVICfili, LLC** #### **STATEMENT OF OPERATIONS** **For the Year Ended December 31, 2020 (in thousands)** | MARKEfING AND PLAC™ENT FEES \$ | 2,889 | |--------------------------------------------|----------| | OPERA TING EXPENSfili | | | Compensation and Benefits Expense . | 1,821 | | General and Administrative Expense . | 996 | | TOTAL EXPENSES . | 2,817 | | OTHER.INCOME | | | Interest Income . | 4 | | Net Income Before Income Taxes . | 76 | | Income TaxExpense . | 48 | | Net Income | \$
28 | {7}------------------------------------------------ #### **PZENA FINANCIAL SERVICFS, LLC** #### **STATEMENT OF CHANGFS** IN **MEMBER'S EQUITY** #### **For the Year Ended December 31, 2020 (in thous ands)** | | Member's
Equity | | Undistributed
Earnings | | - | Total | |-----------------------------------|--------------------|-----|---------------------------|--------|----|-------| | Balance at December 31, 2019 \$ | | 251 | \$ | 184 \$ | | 435 | | Net | | | | 28 | | 28 | | Balance at December 31, 2020 \$ | | 251 | \$ | 212 | \$ | 463 | {8}------------------------------------------------ #### **PZENA FINANCIAL SERVICfili, LLC** #### **STATEMENT OF CASH FLOWS** ## **For the Year Ended December 31, 2020 (in thousands)** | OPERA TING ACTIVITilli | | |----------------------------------------------|----------------| | Net Income \$ | 28 | | Adjustments to Reconcile Net Income to Cash | | | Provided by/ (used in) Operating Activities: | | | Changes in Operating Assets and Liabilities: | | | Accounts Payable and Accrued Expenses . | 1 | | Receivable fromRelated Party, Net . | (73) | | Prepaid Expenses and Other Assets . | 1 | | Net Cash Provided by Operating Activities . | (43) | | NEfCHANGEINCASR \$ | ======
(43) | | CASH- December 31, 2019 \$ | 608 | | Net Change in Cash | (43) | | CASH- December 31, 2020 \$ | ======
565 | | | | {9}------------------------------------------------ ## **PZENA FINANCIAL SERVICES, LLC (A Delaware Limited Liability Company) Notes to Financial Statements December 31, 2020** #### **Note I-Organization** Pzena Financial Services, LLC ("PFS" or "the Company"), was formed as a limited liability company under the laws of the State of Delaware on October 15, 2013. The Company is a wholly owned subsidiary of Pzena Investment Management, LLC ("PIM" or "the Investment Advisor"), an investment advisor which is registered under the Investment Advisors Act of 1940 and is headquartered in New York, New York. The Company conducts business as a limited purpose broker-dealer by acting as a private placement agent of private placement vehicles managed by the Investment Advisor as well as assist the Investment Advisor in establishing distribution channels with other broker-dealers and institutions who will directly market certain registered investment companies to the public. The Company is registered under the applicable state law and is a member of the Financial Industry Regulatory Authority, Inc. **(FINRA)** and the Securities Investor Protection Corporation (SIPC). The Company commenced operations pursuant to its FINRA Membership Agreement on July 21 , 2014. #### **Note 2-Significant Accounting Policies** ### *Basis of Presentation:* The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The following is a summary of the significant accounting and reporting policies used in preparing the financial statements. ### *Management's Use of Estimates:* The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. #### *Revenue Recognition:* Revenue is comprised of fees from marketing and placement services ("Marketing and Placement Fees") performed by the Company as outlined in the marketing agreement ("Marketing Agreement") entered into with the Investment Advisor. Revenue is recognized when it is earned in accordance with the Marketing Agreement. Placement Fees of 0.06% are earned based on capital raised by the Company for the Investment Advisor's private placement and mutual funds. To ensure that the Company is adequately compensated for providing direct marketing services to the Investment Advisor, the Company receives Marketing Fees equal to 2.5% over the total operating expenses incurred for the year, less Placement Fees recognized. In no event will Marketing Fees be less than zero. Revenue from fees is disaggregated by marketing and placement services for the year ended December 31, 2020 as follows: | Marketing Services Fees \$ | 2,727 | |-----------------------------|-------------| | Placement Services Fees . | 162 | | Total Revenue | \$
2,889 | #### *Cash:* limits. The Company maintains its cash in bank deposit and other accounts whose balances may exceed federally insured #### *Accounts Payable and Accrued Expenses:* Accounts Payable and Accrued Expenses are comprised of amounts related to employee commissions, taxes, and audit fees accrued but not yet paid. {10}------------------------------------------------ #### **PZENA FINANCIAL SERVICES, LLC (A DELAWARE Limited Liability Company) Notes to Financial Statements (Continued) December 31, 2020** #### *Employee Costs* - *Commission:* Commissions to registered representatives for services performed during the year are recognized as accrued expenses on the statement of financial condition with a corresponding expense on the statement of operations. ### *Concentrations of Credit Risk:* Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. #### *Facilities:* Payments as outlined in the space-sharing agreement between the Company and the Investment Advisor are recognized as an expense in the statement of operations over the period of the agreement. #### *Income Taxes:* The Company is a limited liability company that is a disregarded entity for tax purposes and files consolidated returns with the Investment Advisor. The Investment Advisor is a limited liability company that has elected to be treated as a partnership for tax purposes. It does not make a provision for federal or state income taxes because it is the individual responsibility of the Investment Advisor's members to separately report their proportionate share of the Company's taxable income or loss. The Investment Advisor makes a provision for New York City Unincorporated Business Tax ("UBT"). Pursuant to the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, the Company has elected to recognize its income tax expense using the pro rata allocation methodology reflecting current and deferred income taxes based on the pro rata contribution to the consolidated tax expense or benefit. The Company has made a provision for New York City UBT. The Company accounts for income taxes pursuant to the asset and liability method in accordance with the F ASB ASC 7 40. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of differences between amounts reported for financial reporting and income tax purposes by applying enacted statutory tax rates. Deferred taxes result primarily from future tax benefit or consequences attributable to temporary differences arising from the variance between the book and tax basis of certain assets. The Company records its deferred tax asset on the statement of financial condition. Uncertainty in income tax positions is accounted for by recognizing in the financial statements the benefit 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. As of December 31 , 2020, no tax benefit or liabilities were recognized for uncertainties related to current year income tax positions. The Company classifies any interest and penalties as a component of income tax expense if incurred. To date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits. The Investment Advisor is generally no longer subject to U.S. Federal or state and local income tax examinations by tax authorities for any year prior to 2017. All tax years subsequent to, and including, 2017 are considered open and subject to examination by tax authorities. #### **Note 3-Related Party Transactions** #### *Marketing and Placement Fees* Pursuant to the Marketing Agreement between the Company and the Investment Advisor, Marketing and Placement Fees are earned by the Company for marketing and marketing support services. Placement Fees of0.06% are earned based on capital raised by the Company for the Investment Advisor's private placement and mutual funds. To ensure that the Company is adequately compensated for providing direct marketing services to the Investment Advisor, the Company receives Marketing Fees equal to 2.5% over the total operating expenses incurred for the year, less Placement Fees recognized. In no event will Marketing Fees be less than zero. The Company received Marketing Fees and Placement Fees in the amount of\$2, 727 thousand and \$162 thousand, respectively, for the year ended December 31 , 2020. {11}------------------------------------------------ ### **PZENA FINANCIAL SERVICES, LLC (A DELAWARE Limited Liability Company) Notes to Financial Statements (Continued) December 31, 2020** #### *Expense Allocation* Pursuant to a service agreement (the Management and Expense Sharing Agreement) between the Company and the Investment Advisor, the Investment Advisor may provide administrative assistance to the Company, including but not limited to accounting, administrative expenses, personnel expenses including expenses associated with technology, occupancy, and other office related expenses, and any reasonable services requested by the Company to the Investment Advisor, which is billed to the Company per the terms of the Management and Expense Sharing Agreement. Such services are generally billed based on time spent on broker dealer activities by employees of the Investment Advisor. During the year ended December 31 , 2020, the Company recognized \$2,665 thousand of operating expenses for services provided by the Investment Advisor. #### *Receivable from Related Party* The Company has receivables due from and payables due to the Investment Advisor associated with its Marketing and Placement Fees, and Expense Allocation, respectively. The Company also reflects payables due to the Investment Advisor associated with any expenses of the Company paid for by the Investment Advisor. The net amount of these receivables and payables due to/from the Investment Advisor is recorded as a Receivable from Related Party, Net on the statement of financial condition. The details of Receivable from Related Party, Net for the year ended December 31, 2020 are as follows (in thousands): | | As of
December 31,
2020 | | |----------------------------------------------|-------------------------------|----------------| | | | | | | | (in thousands) | | Receivables fromRelated Party | \$ | 973 | | Payables to Related Party . | | (935) | | Total Receivable from Related Party, Net \$ | | ======
38 | #### **Note 4-Commitments and Contingencies: Indemnifications** In the normal course ofbusiness, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisors and consultants. In certain cases, the Company may have recourse against third parties with respect to these indemnities. The Company has had no claims or payments pursuant to these agreements, and it believes the likelihood of a claim being made is remote. Utilizing the methodology in the *Guarantees Topic* of the FASB ASC, the Company's estimate of the value of such guarantees is de minimis, and, therefore, no accrual has been made in the financial statements. #### **Note 5-Commitments and Contingencies: Lease** The Company shares office space under a cancelable Space-Sharing Agreement between the Company and the Investment Advisor, which expires when terminated by either party as set forth in the agreement or upon expiration of the Investment Advisor's lease for the space. During the year ended December 31 , 2014, the Investment Advisor entered into an operating lease agreement for its new corporate headquarters. Consequently, the Space-Sharing Agreement between the Company and the Investment Advisor was terminated, and a new Space-Sharing Agreement was entered into to reflect the occupancy of its new shared office space during the year ended December 31 , 2015. The Space-Sharing Agreement may be amended from time to time to reflect increases in operating expenses. Lease expenses paid to the Investment Advisor under this agreement for the year ended December 31 , 2020 was \$12 thousand and is included in General and Administrative Expense. {12}------------------------------------------------ ## **PZENA FINANCIAL SERVICES, LLC (A DELAWARE Limited Liability Company) Notes to Financial Statements (Continued) December 31, 2020** #### **Note 6-Income Taxes** The components of income tax expense for New York City UBT for the year ended December 31 , 2020 are as follows (in thousands): | Current Taxes \$ | 48 | |----------------------------|---------------| | Deferred Taxes . | | | Total Income TaxExpense \$ | 48
======= | The New York City Unincorporated Business Tax imposes a 4% tax on the Company's allocable New York City taxable income. The effective tax rate reflected in the provision for income taxes reported for financial reporting purposes for the year ended December 31 , 2020 is 63.1 %. The variance between the effective tax rate and the statutory rate of 4% represents the effect of certain permanently non-deductible expenses. The *Income Taxes Topic* of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements. ## **Note 7-Net Capital** The Company, as a registered broker-dealer in securities, is subject to the Securities Exchange Commission Uniform Net Capital Rule (Rule 15c3-l). As of July 21 , 2014, FINRA approved the Company maintain a minimum net capital requirement of \$5 thousand. As of December 31 , 2020, the Company's net capital requirement was \$10 thousand pursuant to SEA Rule 15c3-l(a)(l)(i) (the Aggregate Indebtedness Standard). The Company's net capital requirement is computed as 6- 2/3% of the Company's aggregate indebtedness which is equivalent to the Company's total liabilities. As of December 31 , 2020, the Company had net capital of\$419 thousand. #### **Note 8-Subsequent Events** As required by the *Subsequent Events Topic* of the FASB ASC, the Company evaluated the need for disclosures and/or adjustments resulting from subsequent events through February 26, 2021 , the date the financial statements were available to be issued. There were no subsequent events that necessitated disclosure and/or adjustments to the financial statements. {13}------------------------------------------------ #### **Schedule** I #### **PZENA FINANCIAL SERVICfili, LLC** #### **COMPUfATION OF NEf CAPITAL PURSUANT TO RULE15c3-1 OF THE SECURITIES AND EXCHANGE COMMISSION** #### **As of December 31, 2020 (in thousands)** #### **NEfCAPITAL** | Total Member's Equity | \$
463 | |----------------------------------------|--------------------| | Deductions and/or charges: | | | Receivables and other assets . | (44) | | NET CAPITAL | \$
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419 | | | | | COMPUfATION OF NEf CAPITAL REQUIIUMENT | | | Total Net Capital Requirement | \$
10 | | Excess Net Capital \$ | 409 | | | | There are no material differences between the above computations and that reported in the unaudited Amended FormX-l 7A-5 FOCUS Report as ofDecember 31, 2020 See accompanying Report oflndependent Registered Public Accounting **Firm** {14}------------------------------------------------ **Schedule** II #### **PZENA FINANCIAL SERVICfili, LLC** ## **COMPUTATION OF DEfERMINATION OF RfiliERVEAND INFORMATION FOR POSSfiliSION OR CONTROL REQUIREMENTS UNDER RULE 15c3-3** **As of December 31, 2020** #### **STATEMENT OF EXEMPTION** The Company is exempted from the provisions of Rule 15c3-3 of the Securities Exchange Act of 1934 under Sub section (k)(2)(i). During the year ended December 31, 2020, the Company was in compliance with the conditions for the exemption. The Company commenced business operations consistent with its FINRA Membership Agreement and became subject to these rules as ofJuly 21, 2014. See accompanying Report oflndependent Registered Public Accounting **Firm** Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.