Ron Rhoades Responds: "In An Open Reply To My Trusted Colleague, Clark Blackman" Hot

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I appreciate the thoughts expressed by Clark M. Blackman II, CPA/PFS, CFA, CFP®, CIMA, AIF, in his recent “Open Letter to NAPFA’s Board Regarding Ron Rhoades,” published at advisors4advisors on Tuesday, Sept. 4th.  Clark has long been a leader within the CPA and financial planner communities, and I respect both him and his opinions.  Given the open nature of the letter on such a public forum, I believe it is appropriate for me to reply in the same fashion.


As your readers may be aware, I declined to assume the elected position as NAPFA’s Chair in mid-August, due to a compliance error involving both me and my firm.  There has been speculation in the media as to how I could possibly make such an error; all I can say is that it was a careless error on my part, in which I confused in my head the time requirements for SEC-registered vs. state-registered firms.  Instead of carefully considering an issue involving registration in another state (not my home state) when I formed my new RIA firm, I reached a quick decision regarding same during a period when I was moving my family from Florida to New York, starting a new RIA firm, transitioning former clients to that firm, and also starting a time-consuming new position as a full-time faculty member and Program Chair of an undergraduate financial planning program.  However, I do not provide this explanation as an excuse.  I failed to act properly, as a good compliance officer should, by giving due contemplation of the compliance requirements applicable to an RIA firm.  The decision on a registration requirement, in particular, deserved far more attention than that I provided to same.  I made a careless mistake, plain and simple.  The mistake is mine, and mine alone.


The ramifications of this mistake are substantial.  After I filed my RIA registration with the State of Florida in 2012, I became aware of my mistake.  Subsequent proceedings to review this situation, by the State of Florida Division of Securities, resulted only in a Letter of Noncompliance.  More severe sanctions, such as fines or other penalties, were possible.  However, I undertook substantial steps to mitigate the situation, including but not limited to refunding client fees for the period of non-registration, and I responded with complete candor to the State of Florida’s inquiries.  While the State of Florida proceeding has been resolved, I continue to deal with other mandated investigations by various professional organizations.  Dealing with these investigations and their consequences is my responsibility and mine alone.


Unfortunately, the ramifications of my mistake extend beyond me and my clients.  As your readers may be aware, I have been heavily involved in advocating for the fiduciary standard of conduct to be imposed upon all those who provide investment and financial advice, in opposing FINRA’s attempt to become the “SRO” for RIAs, and in opining on other issues.  And the organizations with which I have been involved are also involved in these public policy discussions.  It is absolutely my desire to minimize any damage to the reputation or message of these organizations.


Unfortunately, we live in a society in which – if the message cannot be attacked – severe attacks can occur against the messenger.  We can wish this was not so.  But the fact of the matter is that, with every public policy statement I may have promoted in the near future, opponents would likely have used my mistake to undermine the position espoused.  Non-registration as an investment adviser, even for a period of a few months, in any jurisdiction in which registration is required to occur, is a material matter.  It would be far too easy for opponents of my views, or the views of industry organizations I may have represented, to use this fact to discredit the message.  It does not matter if the mistake I made was material (as I believe it was) or minor (as some have suggested).  Rather, the issue is how this mistake could be used against the organizations with which I may be associated, and their public policy positions.   It is extremely important to me that their messages – i.e., the policy views expressed by these organizations – not be discredited by the fact of my mistake.


We must realize that no one person is essential to any organization nor to any movement.  There are dozens, and perhaps hundreds, of highly involved association staff persons and volunteers who continue to advocate for the bona fide fiduciary standard of conduct and against FINRA’s takeover of RIA oversight.  There are many capable leaders who have carried, and will continue to carry, the messages most effectively to policy leaders.  I have perhaps been more vocal than some, but there are many who have contributed their time, energy, insights and enthusiasm in far greater quantities than myself, and whose efforts have not received the public recognition which they so deserve.


I must emphasize that it was my decision to decline to serve as NAPFA’s Chair.  The Board of Directors of NAPFA made the entirely correct decision to accept my declination to serve, given all of the circumstances then existing and existing now.  I am very, very pleased that my good friend, Lauren Locker, has just been elected as NAPFA Chair for the next year.  She is a highly experienced and extremely capable leader.  My concerns over any damage I may have done to NAPFA by this series of events are somewhat ameliorated by the elevation of such a great leader to NAPFA’s Chair position.  NAPFA has a bright future as an organization, and I am pleased to remain involved and supportive of NAPFA, as a member and in service on committees.  So, let’s wish NAPFA well, and lend to Lauren Locker, the new Chair, all of our support in the coming year.


I appreciate Clark Blackman’s quoting of Theodore Roosevelt.  But I have not fallen – only stumbled.  I will continue to be actively involved in supporting the bona fide fiduciary standard of conduct, and in supporting those organizations which advocate on its behalf.  I will have more time to research and write in this area, and I will share the results of my research and analysis with public policy advocates and policy makers.  I will continue to advocate my own views on the fiduciary standard publicly and in proper forums.  And I will continue my efforts to educate advisors on the many aspects of the fiduciary standard, as applied in real life.  Lastly, I will continue to espouse my belief that the fiduciary standard of conduct, applied to all financial and investment advisory activities, is essential as a means of restoring trust in our system of financial services, engendering capital formation at a lower relative cost of capital, stimulating America’s future economic growth, and ensuring a more secure financial future for each of our fellow Americans.


I have erred. I accept full responsibility for my error, and I apologize to my colleagues for the negative ramifications resulting therefrom.  I urge us all to end this discussion and to move forward, together and constructively, to form a true profession for financial advisors.  Let’s not talk any more about one solitary messenger.  Let us instead return our time, effort and discussion to the importance of the fiduciary standard to the America we love and cherish.


Thank you to Clark for his kind words, and to all of those who have written to me personally in the past few weeks.


Ron A. Rhoades, JD, CFP®


P.S. – A commentator to the article posted at Advisors4Advisors questioned my use of the term “Dr.”  I never utilized that terminology as a practicing attorney nor as a financial advisor.  When I joined the academic community, it became apparent that many legal professionals who are professors utilize the prefix “Dr.” – as they were awarded a Juris Doctor degree.  Before agreeing to use that term, as some of my academic colleagues urged, I researched the issue and I am satisfied that it is ethical to do so, and an accepted practice in many educational communities.  Lastly, while I confine my use of the prefix to the academic community, at times the press will utilize that prefix when describing me.  Thank you.



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