Reacting to expressions of shock and disappointment from the RIA industry, Ron Rhoades today said that to have assumed the post of NAPFA chairman would have played into the hands of the RIA industry’s opponents. See: NAPFA’s appointment of a new chairman could be a big deal for RIAs.
“Some of you have questioned NAPFA’s decision to accept my resignation,” Rhoades said in a statement released early this afternoon. “There are key issues of public policy forthcoming over the next year. If I were to stay on as chair-elect, then the opponents of NAPFA’s public policy positions would certainly use this to discredit both NAPFA and its positions, and would do this in a manner which makes my mistake seem quite severe. I cannot permit this to occur.” See: Before taking a self-imposed vow of silence, Ron Rhoades sounds off on the RIA industry and tells what’s it’s like to hit a professional wall.
Rhoades, president and chief compliance officer of Alfred, NY-based investment advisory firm ScholarFi, relinquished the post due to what he called a “careless” registration error on his part. See: State of Florida gives low sanction to Ron Rhoades.
“Over the past several weeks I discerned that I and my firm had committed a compliance violation by failing to timely file registration papers with the State of Florida Division of Securities,” Rhoades wrote in a letter distributed to the press late yesterday afternoon. “While my mistake was unintentional, the violation of compliance regulations is nevertheless material in nature. The mistake made was mine, and mine alone. I accept full responsibility for my personal mistake, and all consequences that may flow therefrom, including the decision by NAPFA to move on without me serving as chair in the coming year.” See: Recent SEC enforcement actions make annual policies and procedures exams even more important.
Rhoades’ election to the volunteer chairmanship of NAPFA — he was set to replace current chairwoman Susan John on Sept. 1 — was met with acclaim by the RIA industry back in May.
“To me, this was the right time to become a stronger voice in Washington, especially with the Bachus bill, which is the greatest threat I’ve seen to the financial advisory industry,” said Don Trone of 3ethos, at the time. See: How RIA forces squashed the Bachus bill by calling the implicit FINRA bluff.
For his part, Rhoades said at the time: “You’re going to see a much more active NAPFA. When it comes to the SRO issue, we are ready to take the gloves off.”
Speaking today, Trone is hard-pressed to understand why Rhoades stepped down over such a seemingly small infraction.
“I thought it was an overreaction on his part and that’s unfortunate. I think — and this is conjecture, I’ve had no conversations with him or NAPFA — that had the Mark Spangler incident not occurred this turn of events would not have occurred. I think the vast majority of people inside NAPFA and outside observers will agree that it was a mistake.” See: Tamarac CEO: Mark Spangler’s big trouble with the feds won’t harm Tamarac.
One the other hand, Trone says Rhoades’ action might well be in sync with the tough line he’s always taken on fiduciary and compliance matters. See: Why a swing-and-miss on fiduciary standards will haunt us for decades.
“He’s going to stand behind what he preaches,” Trone says.
No one gets an 'A’Knut A. Rostad, president of The Institute for the Fiduciary, was also taken by surprise at the news.
“He didn’t have to do that. He didn’t have to announce it to the world…. He could have said, 'I’m not going to serve I’m going to spend time with my family and disclose what he needed to disclose [only] to his clients.’ It speaks loudly that Ron has put himself at the same standard that he’s been espousing for a long time.”
Although Rhoades clearly views the infraction as significant, Rostad says it should be put in context.
“The SEC doesn’t award any 'A’s in their examinations. Everyone who’s examined is advised they can do better. That’s a significant context. Everyone needs to remember that this is not about perfection, it’s about improving and always getting as close as you can and doing it fastidiously. That’s not an excuse for having deficiencies all over the place but remember: Mary Poppins was only 'practically perfect.’ The rest of us are mortals.”
Having said that, Rostad gives Rhoades high marks for altruism.
“My best guess is that Ron’s instinct was the best interests of NAPFA would be served by stepping down.”
An infraction is an infraction
But though he lauds Rhoades’ character, Brian Hamburger of MarketCounsel differs with his colleagues as to the severity of his offense.
“There’s a dire need to look at these things for what they are — an infraction is an infraction,” he says. “Florida takes these issues seriously. It’s a 'gun-jumping’ infraction — practicing before you’ve been properly registered. They look at this as if Ron was an unregistered investment advisor in the state.”
In the context of NAPFA’s past and Rhoades’ character, Hamburger is not surprised by the resignation.
“Ron is a proud man does who does not waver with ethics and who takes accountability very seriously. If this was the first NAPFA president to come under scrutiny [it might be different.] Knowing Ron, his action makes sense.”
Hamburger regards this episode as an object lesson on the importance of paying attention to the Ps and Qs of compliance.
“Here we have a guy who is as knowledgeable as anyone and whose intentions are as pure but he can fall from technical issues not being addressed. All the great work advisors do for clients is for naught if [a compliance violation] causes embarrassment or humiliation.”
John to stay on
Rhoades, a lawyer by training and the program director of the financial planning program and professor at Alfred State College, Alfred, NY, is currently a steering group member of the Committee for the Fiduciary Standard and a member of the Financial Planning Association. He writes a column, One Man Think Tank, for this publication.
Rhoades was due to start his tenure as chairman on Sept. 1. A special election will be held next month to fill the vacated position, according to NAPFA. Until that time John will stay on as chairwoman.
Tuttle to step down from FPA
On the heels of Rhoades’ resignation came news today that Marvin W. Tuttle Jr., head of the Financial Planning Association, would be stepping down as executive director and CEO on Oct. 2, two years shy of his previously announced 2014 retirement date. Tuttle said he wanted to focus on family concerns. See: At FPA’s Norcal event, wary advisors are told how to stop worrying and love the cloud.
“While I had intended to complete the two-year contract extension approved by the Board last November, it has become increasingly obvious that I am not able to optimally provide focus and leadership to FPA at a very critical time in its history,” said Tuttle in a statement.
The FPA national board unanimously appointed Lauren M. Schadle, CAE, as executive director and CEO, a role she will officially assume on Oct. 3.
Rhoades released this “revised statement” today:
To My Professional Colleagues:
I am deeply touched by the dozens of e-mails I have received, wishing me well. I can assure you that I am doing fine.
While I am disappointed in myself for the mistake which led to my resignation as chair-elect, and disappointed that I will not be able to serve NAPFA in that manner in the coming year, this is only a small bump in life’s road. I have many, many projects to work on, which I hope will aid the development of the financial planning profession, and NAPFA, in the coming years.
Some of you have questioned NAPFA’s decision to accept my resignation. There are key issues of public policy forthcoming over the next year. If I were to stay on as chair-elect, then the opponents of NAPFA’s public policy positions would certainly use this to discredit both NAPFA and its positions, and would do this in a manner which makes my mistake seem quite severe. I cannot permit this to occur. See: An in-depth analysis of FINRA’s attempted takeover of RIAs and why the group should be disbanded, Part 2.
Hence, I firmly believe that NAPFA’s Board of Directors has taken the entirely correct decision to accept my resignation and to move forward. The Board has shown great leadership. There are many outstanding leaders on NAPFA’s Board who I believe will continue to guide the organization in the right direction, and who will exceptional voices on matters of public policy.
Thank you again, everyone, for the kind words.
Ron Rhoades’ initial statement released Monday afternoon
August 20, 2012
To Interested Members of the Press:
Over the past several weeks I discerned that I and my firm (of which I serve as Chief Compliance Officer and President) had committed a compliance violation by failing to timely file registration papers with the State of Florida Division of Securities.
My firm was formed in September 2011 as a state-registered firm in New York. At the time of formation, the firm accepted a total of 11 clients from Florida, which exceeds the de minimis threshold for registration in the State of Florida (which is five clients). I had considered in the late summer of 2011 whether to register in Florida, but mistakenly believed that I could wait until the first quarter of 2012 to register with the state.
Registration documents were submitted to the state in February 2012, but in late May 2012 I was made aware of my mistake. Since then I have undertaken candid disclosures of all requested facts to the state, and I await their final determination of this matter.
While my mistake was unintentional, the violation of compliance regulations is nevertheless material in nature. The mistake made was mine, and mine alone. I accept full responsibility for my personal mistake, and all consequences that may flow therefrom, including the decision by NAPFA to move on without me serving as chair in the coming year.
Ron A. Rhoades, JD, CFP
President, ScholarFi, Inc.