Kestrel Reg BI Disclosure and Recommendation-Handling Procedures

**Owner:** Retail Compliance **Approver:** CCO **Applies to:** All registered representatives of Kestrel Securities who make recommendations to retail customers, and their supervising principals.

1. Scope

These procedures implement Kestrel Securities' obligations under 17 CFR 240.15l-1 (Regulation Best Interest) and 17 CFR 240.17a-14 (Form CRS) with respect to recommendations of securities transactions, investment strategies, and account types (including rollovers) to "retail customers" as defined in Reg BI.

These procedures do **not** cover:

- Advisory relationships — see `Kestrel-WSP-Advisers` for Kestrel Advisors, LLC's compliance with the Advisers Act fiduciary standard under 15 U.S.C. § 80b-6. - Institutional customer relationships — Reg BI does not apply.

2. The four Reg BI obligations — operational mapping

| Obligation | Operational implementation | Evidence of compliance | |---|---|---| | Disclosure | Form CRS at or before relationship start; written Reg BI Disclosure document delivered before or at the recommendation; oral disclosure only where appropriate and documented. | Form CRS delivery log; written Reg BI Disclosure archived in CRM. | | Care | Pre-recommendation profile review; documented consideration of reasonably available alternatives for rollover and material account recommendations. | Rollover Comparison File; recommendation-memo field in CRM. | | Conflict of Interest | Annual conflicts inventory; mitigation memoranda for incentive-based conflicts; sales-contest ban monitoring. | Conflicts Inventory PDF; incentive-program approvals file. | | Compliance | WSPs, training, monitoring program; annual Reg BI attestation by retail principals. | Training LMS; annual attestation file. |

3. Form CRS delivery

3.1 Initial delivery

A current Form CRS (single-page relationship summary) must be delivered to each retail investor before or at the earliest of (per 17 CFR 240.17a-14(b)):

- A recommendation of an account type, a securities transaction, or an investment strategy involving securities; - Placing an order for the retail investor; or - The opening of a brokerage account.

Because Kestrel is dually registered (via Kestrel Advisors), the firm delivers a combined relationship summary covering both brokerage and advisory services, using the four-page format permitted for dual-registrants.

3.2 Delivery evidence

Delivery evidence is captured in the Form CRS Delivery Log, which records the delivery date for each retail investor. The log is preserved for six years pursuant to 17 CFR 240.17a-4(e)(10).

3.3 Amendment communications

When Form CRS is amended, the amended relationship summary is filed via the CRD within 30 days and the material changes are communicated to existing customers within 60 days of the amendment, in accordance with 17 CFR 240.17a-14(b)(3).

4. Care Obligation — recommendation handling

4.1 Customer investment profile

Before making a recommendation, the registered representative confirms that the customer's investment profile in the CRM is current, covering, at minimum:

- Age; - Other investments (outside Kestrel); - Financial situation and needs; - Tax status; - Investment objectives; - Investment experience; - Investment time horizon; - Liquidity needs; and - Risk tolerance.

The profile must be refreshed at least once every 36 months, or immediately when the customer communicates a material change.

4.2 Reasonably available alternatives

For material recommendations — including account-type recommendations (brokerage vs. advisory), rollover recommendations, and strategy changes — the registered representative must consider reasonably available alternatives. Consideration is documented in the Recommendation Memo field of the CRM. The firm's position is that documentation must reflect the actual comparison conducted; boilerplate language referring to "considered alternatives" without identifying what was considered is not sufficient.

4.3 Rollover recommendations

Rollover recommendations from a workplace retirement plan into a Kestrel IRA require a completed **Rollover Comparison File** that captures:

1. The features and services of the existing plan, to the extent available (contacting the plan administrator if the customer consents); 2. The features and services of the recommended IRA; 3. A comparison of plan-level fees vs. IRA-level fees; 4. The registered representative's analysis of why the IRA is in the retail customer's best interest.

The Rollover Comparison File is archived in the CRM and reviewed by the supervising principal within five business days.

4.4 Series of recommendations

A series of recommended transactions — even if each individual recommendation is in the customer's best interest — must not be excessive. The firm's quantitative-suitability surveillance system flags:

- Turnover ratio >2.0 in a retail customer's account over any trailing 12-month period; - Cost-equity ratio >15% in a retail customer's account; - Any trade sequence that appears to be churning.

Alerts are reviewed by Retail Compliance within three business days.

5. Conflict of Interest Obligation

5.1 Annual conflicts inventory

Retail Compliance maintains an annual **Reg BI Conflicts Inventory** listing all identified conflicts of interest that may arise in connection with recommendations to retail customers. For each conflict, the inventory records:

- A description of the conflict; - Whether the conflict is disclosed, mitigated, or eliminated; - The specific policy, procedure, or control that addresses the conflict; - The individual responsible for the control; and - The date of the most recent review.

5.2 Mitigation of incentive-based conflicts

Conflicts that create an incentive for a registered representative to place the firm's or the representative's interest ahead of the customer's must be mitigated, not merely disclosed. Mitigation mechanisms at Kestrel include:

- Neutral grid compensation (no differential payouts across securities or product types); - A flat fee schedule for brokerage accounts (no incentive to recommend specific products); - No sales contests, sales quotas, or non-cash compensation based on the sale of specific securities or types of securities within a limited period of time. This is a flat prohibition under 17 CFR 240.15l-1(a)(3)(iv); the General Counsel reviews any proposed incentive program before rollout to confirm compliance.

5.3 Material limitations

If Kestrel limits the recommendations it makes to a defined menu (e.g., a platform that includes only certain product sponsors or affiliated proprietary products), the limitation is disclosed in the Reg BI Disclosure document and monitored to confirm it is not causing the firm or representative to place its interest ahead of the customer.

6. Compliance Obligation

6.1 WSPs

These procedures are incorporated by reference into the retail WSPs (`Kestrel-WSP-Retail`). Retail principals are responsible for supervising recommendations made by registered representatives under their supervision pursuant to FINRA Rule 3110.

6.2 Training

All registered representatives who make recommendations to retail customers complete annual Reg BI training covering:

- The Reg BI standard and the four obligations; - The firm's Form CRS delivery process; - The Rollover Comparison File requirement; - Recordkeeping under 17 CFR 240.17a-3(a)(25), (a)(35), and (a)(24).

6.3 Annual attestation

Every retail principal attests annually that the representatives they supervise have delivered Form CRS when required, maintained accurate customer investment profiles, and documented recommendations in accordance with these procedures.

7. Recordkeeping

- Reg BI-required records are preserved for six years under 17 CFR 240.17a-4(e)(5). - Form CRS delivery dates are preserved for six years under 17 CFR 240.17a-4(e)(10). - The annual Conflicts Inventory is preserved as part of the compliance archive.

8. References

- 17 CFR 240.15l-1 and 17 CFR 240.17a-14 (`17 CFR 240.15l-1`) - 17 CFR 240.17a-3, 240.17a-4 (`17 CFR 240.17a-3, 240.17a-4, 240.15c3-5`) - FINRA Rule 3110 (`FINRA-Rule-3110-3130`) - 15 U.S.C. § 80b-6 (advisory-side analog) (`15 USC 80b-6 / 17 CFR 275.204A-1`) - Kestrel-WSP-Equities - Kestrel-Best-Execution-Policy - Kestrel-Code-of-Ethics