PHILADELPHIA—It’s easy for RIAs to define themselves as fiduciaries. Getting there is another matter — and it may take radical transparency, according to top industry figures.
A panel of RIAs shared their best practices for advisors Monday at the Institute for the Fiduciary Standard’s ‘Leadership Through Fiduciary’ seminar in Philadelphia.
‘It’s a freak show out there for the public,’ said Dan Moisand, an advisor at $559 million Florida RIA Moisand Fitzgerald Tamayo. ‘You’re trying to educate them as best as you can.’
Transparency could well serve RIAs as they move forward into an uncertain regulatory landscape. The Securities and Exchange Commission is expected to vote in the first half of 2019 on a regulation package that would hold broker-dealers to a new Regulation Best Interest standard. The standard purports to hold them to a standard that requires the mitigation or elimination of conflicts of interest.
The proposal has come in for criticism from RIAs, some of which have said the rule does not go far enough to eliminate bad activity and could confuse investors.
Advisors at the seminar said they show clients they are acting in their best interest by thinking holistically and avoiding model portfolios entirely, said Joel Isaacson of Joel Isaacson & Co., a $3.8 billion RIA in New York City.
‘We will do a plan first and we will charge you for it,’ Isaacson said. ‘Then we will come up with an investment plan and you will get a chance to review it…we don’t take someone who comes in and says, “Here’s $2 million, throw it into my model C portfolio because I’m a reasonably conservative person.”’
Though Isaacson’s firm is backed by Focus Financial Partners, he said that the aggregator doesn’t interfere in the firm’s affairs. Isaacson added that NAPFA briefly tried to kick his firm out of the association because its private-equity backed parent also owned a broker-dealer.
‘We have management control over how we handle our clients,’ Isaacson said. ‘The only thing they have control over is the accounting and the compliance side, so they can’t tell use to do any sales process.’
Other advisors told the crowd of around 30 RIAs and industry support figures that they had extensive architecture in place to explain to their clients what their obligations are as a fiduciary.
‘We have an investment policy statement and we have a client agreement,’ said Tom Orecchio, an advisor for $2.4 billion RIA Modera Wealth Management in New Jersey. 'The wording in both of those speaks to what’s in our form ADV about being a fiduciary and having a fiduciary oath.'
‘The clients are aware that we will always act in their best interest and that there will still be conflicts of interest and those will be managed to the best of our ability and we’ll be transparent about communicating those to clients if and when they pop up,’ he said.
The seminar is part of the run-up to the National Association of Personal Financial Advisors’ (NAPFA) national conference.