More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Ron Rhoades’ announcement late Monday that he is resigning from his chairman-elect position at the National Association of Personal Financial Advisors (NAPFA) took many by surprise in the world of fee-based advisors, especially in view of Rhoades’ growing public profile as an outspoken proponent of the fiduciary standard.
In a self-punishing mea culpa that he sent to reporters, Rhoades (left) said he was stepping down from the NAPFA chairmanship and board after discerning over the past several weeks that he had committed a violation as president and chief compliance officer of ScholarFi, his Alfred, N.Y., firm. At the time of his firm’s formation in September 2011, Rhoades said ScholarFi accepted a total of 11 clients from Florida, which exceeded the threshold of five, and he mistakenly believed he could wait until the first quarter of 2012 to register.
However, Knut Rostad, founder and president of the Institute for the Fiduciary Standard, said that Rhoades’ departure is unlikely to have a negative effect on the conversation about fiduciary duty.
“I think he has been very much present in the conversation for many years, and that’s not going to change,” Rostad said in a phone interview. “Ron’s significant contributions over many years preceded his involvement with NAPFA. Ron walked the walk in how he handled this. He didn’t have to tell the whole world what happened, but he chose to. It’s clear that he took this extremely seriously. He put the interests of NAPFA first, and I think that speaks hugely about Ron.”
Rostad said that he encouraged Rhoades to participate when Rostad led the Committee for the Fiduciary Standard in 2009-'10.
Susan John to Remain as NAPFA Chairwoman While Awaiting Special Election
Rhoades was scheduled to replace NAPFA Chairwoman Susan John on Sept. 1. John will now remain in her post into September until the board holds a special election to fill the vacated chairmanship.
“While my mistake was unintentional, the violation of compliance regulations is nevertheless material in nature,” Rhoades wrote in his announcement. “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.”
This is the second time in 2012 that NAPFA’s pristine reputation has been tarnished. In May, the Securities and Exchange Commission charged former NAPFA Chairman Mark Spangler, who served in the late 1990s, with defrauding clients by secretly funneling approximately $47.7 million of their money into two risky startup companies that Spangler co-founded.
Yet prominent advisors interviewed after Rhoades’ announcement stood behind him, suggesting that it was his own exacting standards of professionalism that did him the most damage.
However, Wild said in an email, while the timely filing of registration papers qualifies as a violation, it is not a gross violation of the current rules. “Once his paperwork is all in order, should he decide to re-run for the office, I don’t believe that many NAPFA members, myself included, would object,” Wild wrote.
In addition to his role at ScholarFi and as a public speaker in favor of the fiduciary standard, Rhoades juggles a number of other professional duties. He is an attorney of 25 years’ experience who now serves as an assistant professor at Alfred State College and chair of the college’s financial planning program.
According to Rhoades’ LinkedIn page, he teaches a full load of courses, including a personal financial planning capstone, retirement planning, investment planning, employee benefits planning, insurance and risk management and business law.
He also has maintained an active presence on Twitter, using the site as a forum to express his views, although his tweets have gone silent since his announcement. However, a New York Observer article, “Ron Rhoades Tweets How He Really Feels About FINRA,” lays out a list of Rhoades’ most provocative tweets attacking the Financial Industry Regulatory Authority. For example, on July 23 Rhoades tweeted: “List of most ineffective regulators in financial services: #1 FINRA; #2: Finra; #3: this regulator’s members are Wall St firms (FINRA).”
When reached for comment, Susan John said she was “very sad” about Rhoades’ departure, but that NAPFA understood his reasons for leaving. In a phone interview, John said Rhoades plans to cut back on his public speaking engagements but remains active both at ScholarFi and Alfred State.
“He’s one of the most highly principled people I know,” John said by phone. “His disclosure of an event that many people would hope to blow over is commendable. I guarantee it was a shocker to him when he discovered this. We’ve lost the chance to have a really great leader for NAPFA. He came to us, he disclosed the problem that it was in his best interest and that of NAPFA to resign, and the board regretfully accepted his wishes. I think we’ve lost a really strong advocate for consumer protection.”
Read about Rhoades’ Alfred State financial planning program at AdvisorOne.