NEW YORK, Aug 21 (Reuters) - A day after financial planner Ron Rhoades announced he would not be leading the National Association of Personal Financial Advisors due to a personal compliance gaffe, industry members said the outspoken fiduciary advocate may have made the right move by stepping aside.
In a letter to the press late Monday, Rhoades said he had decided not to take on a role as NAPFA chairman after he failed to file registration papers with Florida’s state division of securities in a timely manner for his investment advisory firm, thus violating compliance regulations.
Rhoades had been elected to begin leadership of the NAPFA, the United States’ leading association of fee-only financial advisors, on Sept. 1.
By taking the fall for his compliance error, Rhoades prevented further reputational issues for NAPFA, which has already had a former chair and past president face legal and regulatory troubles, industry members said.
NAPFA must now hold a special election to find a replacement, and sources said there was nobody specific in line for the job to lead the 2,500-member organization.
“The way that Ron handled this, he’s walking the walk,” said Knut Rostad, a Virginia-based regulatory and compliance officer who has worked with Rhoades on the independent Committee for the Fiduciary Standard as chairman. “He’s taking full responsibility and he’s putting the interests of the organization ahead of his own.”
Rhoades, who is still awaiting the State of Florida’s final determination on how his compliance violation will be handled, told Reuters on Tuesday he has received dozens of supportive e-mails from his colleagues since he publicly announced his resignation late Monday.
“While some colleagues have questioned NAPFA’s decision to accept my resignation... I am proud to remain, as a member,” he said in an e-mailed statement to Reuters.
Rhoades, a professionally trained attorney, founded his advisory firm ScholarFi Inc. last September and became chief compliance officer and president of the Alfred, New York-based firm.
Rhoades said his New York-registered firm had accepted 11 clients from Florida at the time of its formation. That exceeded the number of clients that would require the firm to also register immediately with regulators in Florida. Rhoades said he did not file in Florida until February of this year.
“While my mistake was unintentional, the violation of compliance regulations is nevertheless material in nature,” he wrote in the letter addressed to members of the press. “The mistake made was mine, and mine alone.”
Although Rhoades won’t be leading the nation’s top group of fee-only financial advisers, his colleagues say his impact as an outspoken individual will remain.
Washington policymakers are debating whether all brokers and registered representatives should be subject to a fiduciary standard - a standard of client care that requires putting the best interests of clients first. Rhoades has been highly critical of non-fiduciary brokers, and also of proposed legislation that would have independent financial advisers regulated by the securities industry self-regulatory body, the Financial Industry Regulatory Authority.
There was some speculation that Rhoades decided not to be chairman because his episode of noncompliance would fuel efforts by critics to dismiss NAPFA arguments.
“I think his becoming NAPFA chair would have been important, but is not central to his involvement in the fiduciary discussion,” said Rostad, who is not a member of NAPFA. Rostad said Rhoades’ involvement in the fiduciary discussion over the last three years has had a significant impact.
The resignation by Rhoades, who is known among his colleagues to be an extremely vocal and colorful character, could allow him to take on a more outspoken role in regulatory debates. By not being the face of the entire organization, Rhoades may have more of an opportunity to speak freely in a less-guarded fashion.
“Ron has been extremely vocal, and maybe he feels like he has a blemish,” said a long-term active member of NAPFA, who asked not to be identified because of affiliation with the group. “His viewpoints and activism have made him, and potentially NAPFA, a target.”
Rhoades’ resignation may have prevented a more serious pitfall for NAPFA, which has already had two former leaders end up in legal trouble.
In May, a federal grand jury indicted former NAPFA chairman Mark Spangler on fraud charges for funneling more than $46 million of his clients’ money into risky ventures he co-founded.
In 2009, the U.S. Securities and Exchange Commission charged past NAPFA president James Putman with accepting $1.24 million in kickbacks on client investment pools. Putman had to pay a penalty of $1.6 million.
NAPFA said that Susan John, the organization’s current chairwoman, will continue to serve as chair until a special election is held next month to find a replacement for Rhoades. (Reporting By Ashley Lau in New York and Linda Stern in Washington; Editing by Jennifer Merritt and Andrew Hay)