I live in fear that few can share. I’m confident, however, many of my readers both here and at FiduciaryNews.com do share this same fear. To those who don’t, I can only describe it as akin to that “final exam” nightmare. You know the one I’m talking about. It’s when you dream it’s the morning of the big test in a class you need to graduate – and you suddenly realize you’ve never attended any lectures and never read any of the books.
(Mind you, this is especially frightening for me – a Physics and Astronomy major – as, unlike humanities majors, I couldn’t write my out of not studying.) It’s only when it’s too much that you wake up with a cold sweat. Thankfully, after a few agonizing conscious moments, awareness dawns and you’re relieved to discover it was all a dream.
Such is the life of any individual subject to the regulatory whims of the government. Whether you’re a financial professional or a plan fiduciary, you cannot escape this awful purgatory. You live each day knowing one small slip can ruin a reputation carefully built over a lifetime. Worse, it doesn’t matter if that slip comes from innocence oversight, the consequences can be just as dire as if it were due to malicious intent.
And it keeps getting worse. Lawmakers, being lawmakers, tend to react with knee-jerk superficiality when confronted by a grievous act beyond their ken. Take the terrible case of WorldCom more than a decade ago. As the President and Portfolio Manager of a small mutual fund, I chose to invest in the company based on the public reports it made. When it turned out those reports were lies and the company went belly-up, I and my shareholders lost our entire investment. We were clearly the victims of this deceit.
But when Washington “fixed” the problem (with Sarbanes-Oxley), I learned, though a victim, I must nonetheless pay the penalty. From that point on, each year I must sign my name to a letter, in essence, agreeing to go to jail if the fund’s annual accounting statements – audited and signed-off by an independent accountant – contain the merest undotted “i” or uncrossed “t”.
So it goes with all filings, both for my mutual fund and my RIA. I remain at the mercy of understanding regulators who, to date, have forgiven the no-matter-how-diligent-you-are-they’re-always-there minor SNAFUs found through audits and filings. It’s getting to the point that, for extended periods of time, it seems as if I am working for the government, not my clients.
I don’t think that’s the true intent or even the spirit of the regulators. I think they want me working for my clients, not them. Certainly my clients would rather have me work for them, not the government. Indeed, since my clients actually pay me, I’d much rather work for my clients than the government.
This is not to say I have disdain for regulations. In fact, as a student of investment history, I can say with certainty the financial industry – the very sector that allows me to feed my children – would never have grown without the post-1929 crash securities laws. What I am asking, though, is at what point do we cross the line where regulations start hurting the ones they’re intended to help.
Which brings us to the unfortunate case of Ron Rhoades. Full disclosure: I know Ron Rhoades. I first met him last year when were each asked to give presentations at the Buffalo FPA Symposium. I’ve interviewed him for FiduciaryNews.com. We again shared speaking duties at the fi360 conference this past spring. Like others, I am most impressed with Ron’s sincerity of purpose and, more importantly, his wholesome honesty. When he speaks of the fiduciary standard, he doesn’t wallow in the politically correct diplomacy of some. He’s straight-forward and strict.
Perhaps it is this same discipline, this same strength of character, that led Ron to issue his letter of apology (as opposed to this “apologia” – and if you fathom the distinction, then you already know where I’m heading). I have not spoken to Ron since he sent his letter. If you don’t know his sin, according to reports it was this: though above the de minimis, he failed to file this RIA paperwork with Florida by December 31, 2012. Instead, he was under the mistaken belief the filing was due by March 31, 2012 (he filed in February).
For those not familiar with RIA filings, annual SEC filings (reflecting 12/31 data) are normally due by 3/31 of the following year. Different states may have their own schedule and first time filings generally need to be completed on a more timely basis.
While these dates tend to be strictly enforced, extenuating circumstances can be accommodated. For example, when the SEC recently changed its annual filing platform, it allowed some RIAs to file (a little) late. Indeed, it is the inconsistent use of platforms and allowable file types that can make filing an overly burdensome duty. I can tell you from personal experience, the SEC requires very specific formatting for transfer agent filings (our fund is its own transfer agent) and this formatting requires a non-standard software program. In addition, newer versions of Windows do not run some SEC filing programs (which is why we have to keep a Windows 98 machine in the office).
Given this confusing reality, one wonders why Ron decided to make such a fuss about missing the filing date. It has all the appearance of an innocent mistake and one that doesn’t on the face of it seem to harm his clients in any way. By the sounds of the chit-chat on the social media wire, many others have missed one or two filing dates without a blink of an eye.
I can tell you why Ron made such a fuss.
It is the exacting nature of his character. After all, how could he maintain such a high standard for the definition of fiduciary if he didn’t practice what he preached?
Well, therein lies the dilemma. It’s similar to the problem that exists when over-analysis prevents decisions from being made. It occurs when the search for the perfect decision causes delays and delays and delays. It’s call “making perfection be the enemy of the good.”
It’s been said a person’s true character can’t be seen when things go right, it is only revealed when things go wrong.
I’m not a member of NAPFA, but if I was, when the special election comes along, I’d write in the name “Ron Rhoades.” After all, hasn’t he displayed the kind of integrity we want to represent the profession of financial services?