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An X-ray of one affluent, educated and sophisticated investor's portfolio shows how it was chewed up by fees

Helping an ex-Fortune 500 retiree prepare for her appearance before Congress, the author waded through a mountain of paper only to discover that the woman was likely to outlive her portfolio

Author Guest Columnist Ron Rhoades August 12, 2013 at 3:47 AM
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Ron Rhoades: The broker-dealer, and its financial advisors, received way more compensation than the 0.85% annual amount they stated to Janet.

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Marty Morua

Marty Morua

August 12, 2013 — 2:52 PM

Hi Ron,

A long article but well worth the read. Its obvious your tumultuous journey ignited your passion for change. Hoping this link of your diary of experiences makes its way to other financial planners/advisors.

Peter Mafteiu

Peter Mafteiu

August 12, 2013 — 7:14 PM

Ron: I too feel very much the same you do after a couple decades in financial services as a consultant, COO and CCO of advisers and dually affiliated (BD / IA) firms. The facts are as you outline them, it is a very, very rare professional that will “fully” disclose (to mitigate ALL the conflicts of interest), the fees / commissions earned when “implementing” a financial plan recommendation(s). Meaning: $10,000 for the plan then $30,000 in commissions for the “annuity, the life insurance 1035 exchange, etc.” These are the professionals (in my mind) who “get it.” I am also constantly surprised how many “fee only advisers” are also licensed as insurance agents (this means, as a fiduciary you are not fee only – the implementation is tied to the planning practice). What is also rare is the RIA / IAR who will actually “credit” fees / commissions against planning fees – to do so opens a can of worms for the firm (but not for the client); this is a matter of convenience for the RIA / IARs.

Good job and keep up the good work. As I learned in 1982 when I first became a broker / registered rep, when 2 of 3 make money, that ain’t all bad (firm and RR).

Stephen Winks

Stephen Winks

August 12, 2013 — 7:39 PM

A well known advisor who is a top producer at a major wirehouse, has the reputation of rarely losing a prospective client after he and his team do an asset/liability study, which is an expanded version of what Ron performed for the client discussed here.

This sort of stunning relevation (a) establishing returns were not commencerate to the risk assumed,(b) the excessive cost structure of the portfolio, (c) the tax inefficiency and illiquidity of holdings, and (d) absence of an overarching investment strategy designed to mitigate risk; all but assure the underserved investment public can secure far superior counsel at lower cost even at a major wirehouse. George wins accounts at will by simply telling clients about their holdings as a portfolio, keeping track and making timely recommendations. That is what advice is supposed to look like. In this case it is because of the extraordinary skill of the advisor, in spite of his firms support or the lack thereof.

Wouldn’t it be great that this sort of counsel would be the rule rather than the exception.

It would be even better if such large scale institutionalized support for fiduciary standing were supported by FINRA and the SIFMA.

Doesn’t seem right, that industry regulators oppose such expert counsel in the best interest of the investing public. It is not about best practices, it is about not having to provide all advisors the necessary enabling resources to execute at that level, and the fear that all brokers will not be as capable thus triggering accountability and ongoing responsibility for recommendations.

If the consumer only knew!


Jerry Broussard

Jerry Broussard

August 12, 2013 — 8:04 PM


Great article! You are right, there is a dark side to our industry.

I am a fee-only planner and recently was contracted by a client to review his situation. I found, three dual registered advisors “advising” this client and in each portfolio these “advisors” invested 70-90% into high cost annuities. The client realized he was not gaining ground of the last few years and engaged my services to sort this out.

All his annuities have long surrender fees and his anger and disappointment with the advice he received from what he thought were friends, was difficult. I agreed with him that they should have not done that to him but because of the “suitability” rule, there is not much he can do.

I hope that stories like these will ignite some passion in our industry to make the needed changes to a true fiduciary standard.

Ron Rhoades

Ron Rhoades

August 12, 2013 — 9:44 PM

I have been asked today whether I believed that the actions of the dual registrant were a breach of fiduciary duty.

At the outset, I must state taht don’t know all of the facts.There are always two sides to every story. However, based on the facts as stated (which I have no reason to disbelieve), I would opine that a breach of fiduciary duty likely occurred.

Why? Because, on the basis of the client’s statements, the dual registrant did not ensure that the client possessed an understanding of the material facts – and certainly fees and costs are material. See, e.g., SEC’s “Staff Study on Investment Advisers and Broker-Dealers – As Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act” (Jan. 21, 2011), p.117 (available at http://sec.gov/news/studies/2011/913studyfinal.pdf.) “The [SEC} Staff believes that it is the firm’s responsibility—not the customers’—to reasonably ensure that any material conflicts of interest are fully, fairly and clearly disclosed so that investors may fully understand them.”

Even though disclosures may have been made (in all of the voluminous papers the client received, including Form ADV, prospectuses, etc.), there did not appear a sufficient effort to quantify (or even estimate) the total fees and costs the client paid. No effort to add up all of the fees and cost. Nor any effort to add up the compensation paid to the firm. In other words, the dual registrant did not make full and frank disclosure in a manner which would ensure client understanding.

It should be noted that the client of a fiduciary advisor TRUSTS the advisor.The client’s guard is down. Due to a broad variety of behavioral biases (discussed in academic articles, such as those by Professor Robert Prentice), it is well known that even educated clients don’t read disclosures. And, in this instance, I find it highly doubtful that even a highly educated client – as the client was – would have understood all of the terminology relating to payments.

I have also been asked today whether the disclosures made in the dual registant’s Form ADV Part 2A were sufficient to “waive” or limit the fiduciary obligations. While I do believe that reasonable limits can be placed on the scope of an engagement, in this instance – in my opinion – it appears that the core fiduciary duties of due care and loyalty were sought to be waived by means of client consent. As many have stated before me, no client would ever provided INFORMED consent to be HARMED. This is a fundamental aspect of fiduciary law which is often overlooked. So, I opine that I do not believe that the core fiduciary duties of loyalty, due care, and utmost good faith are capable of waiver; hence, I believe the language of Form ADV, Part 2A, and likely language contained in the client services agreement which the client signed, in which “consent” was given to additional compensation being received, was ineffective. However, this is only my opinion, based upon my knowledge of fiduciary law. Others may have different opinions.

I hence ask – where is our profession headed? Will financial planners and investment advisers be trustworthy? Or, through voluminous disclosures (which we know clients don’t read, and even if they are read are seldom undestood) are we seeking to negate our duties, and the ability of clients to place trust in us? Should we be able to do so? What do you think?

Stephen Winks

Stephen Winks

August 13, 2013 — 12:13 AM


You are absolutely correct. Disclosure that the broker is not acting in the clients best interests, does not remedy the conflict, just encourages broker/dealers not to support the best interest of the investing public at the expense of the investing public losing faith and confidence in our leading institutions and the brokers who work for them.


Jan Sackley

Jan Sackley

August 14, 2013 — 1:00 PM

Thanks for once again shining the light on the conflicts inherent in existing investment firm business models. One element to remember in these analyses is that for both affiliated and non-affiliated mutual funds, the embedded fees are paid by the fund shareholders regardless of whether or not there is any revenue sharing with the advisor or broker. That is why it is so important that advisors use an investment class of shares with very minimal administrative fees and especially no distribution fees.

If advisors would realize that they are agents acting in place of the client (i.e. they are the BUYER NOT THE SELLER), they would do a better job of selecting investments that truly are in the sole interests of the client because they would be putting themselves in the place of the client. Unfortunately, in large firms where an individual advisor tries to practice this approach and do the right thing, oftentimes the parent firm’s management does not understand this obligation, especially in dual registrant firms or where there is an affiliated broker. The advisor may be restricted in what he or she can individually purchase on behalf of the client because the parent firm has pre-selected the menu of investments from which the advisor can choose. This may be for due diligence reasons, but if the embedded fees are not taken into account for their impact on the client, the menus are oftentimes filled with high cost investments due to embedded fees.

Keep fighting the good fight Ron.

Jan Sackley, CFE
Fiduciary Foresight, LLC
Fraud and Fiduciary Consultants

Robert Boslego

Robert Boslego

August 21, 2013 — 4:25 AM

I was talking with a close friend about these issues, and here is his response:

“There are many people like me who would never, ever walk into a financial consulting office, wary of the ulterior motives of the business.”

Met with another friend today: “I would never buy a Wall Street fund.”

For a large percentage of boomers, the trust has been violated and these potential clients are gone forever in that format.

What they want is impartial guidance and education that is not based on providing them commissions and fees based on trading turnover, hidden fees or their asset levels…just an honest proposition. The same guidance doesn’t cost the provider more if people have more money, or less if people have less money.



August 23, 2013 — 12:56 AM

Etrade is the way to go. No hidden fees and you only pay when you conduct a transaction. Financial Advisors aren’t worth their costs.

Robert Boslego

Robert Boslego

August 23, 2013 — 2:33 AM

What you’re saying is how more and more people are thinking today. At the same time, most individuals don’t know or have the time or interest to manage a portfolio with expertise. So therein lies the problem: people need help but not of the kind where the advisors bilk them for high fees and don’t provide any value-added beyond a basic stock-bond portfolio, notwithstanding how many stocks and bonds they own (i.e., they’re all highly correlated).

Ron Rhoades

Ron Rhoades

August 23, 2013 — 5:37 PM

Thank you to all for the many good comments posted above.

In reply to the most recent posting, there will be those who seek to manage their own investment portfolio. Some will be successful at same, but most will not, in my experience. Speaking as a professor of financial planning, and as someone who has observed hundreds of consumers over the years as an estate planning attorney and then financial planning practitioner, there are just far too many ways to make mistakes in the world of investing, which can substantially undermine the probability of successfully achieving one’s financial goals.

There is so much to learn in the world of investing – what strategies work, what strategies don’t work (and why), how to examine and conduct due diligence on specific investments, structuring portfolios to reduce long-term tax drag, what asset classes to consider or avoid, etc. I am not saying that an individual investor, with years of study, can’t manage their own portfolio as good as a true expert, but I believe it is very unlikely they would have a positive outcome.

At the same time, the weak point of the investment advisory community is that so many practitioners cannot be “trusted.” What is “trust”? It is being a true expert in the advice one gives (i.e., adhering to the professional’s duty of due care). It is truly acting as a representative of the client (purchaser), and not possessing insidious conflicts of interest (i.e., strictly adhering to the fiduciary.s duty of loyalty). And it is acting with complete honesty and candor (i.e., adhering to the fiduciary’s duty of utmost good faith).

How many “financial advisors” meet this criteria? Less than 5%, in my observation.

No wonder consumers don’t turn to financial advisors for assistance, or refuse to deal with them anymore. Trust betrayed by one financial advisor diminishes the reputation of the entire (emerging) profession.

This is what we must change. We need to undertake a fundamental shift away from acting as distributors of products (i.e, product manufacturer’s representatives), AND to acting as the representative of the purchaser of investments (i.e., as a true fiduciary advisor). No huge caveats, disclaimers, or waivers of fiduciary obligations. No attempts to wear both hats at both time, or to shift from a fiduciary to a non-fiduciary hat.

Want to continue selling products? Fine. Go do it. Just don’t hold yourself out as a trusted advisor, in any fashion. And speak the truth. Disguising the merchandizing aspect of your arms-length relationship with a customer, in an attempt to undertake trust-based selling, often arises to the level of fraud.

How can we accomplish this transformation of the investment advice industry, especially given the substantial economic interests (Wall Street, insurance companies) who would be adversely affected, the significant economic ties between Wall Street and Congress, and the revolving door between Wall Street and certain regulators? That’s the current question, as we continue to “figth the good fight” and seek a bona fide fiduciary standard adoption for all providers of financial and investment advice.

These are challenging times for our emerging profession. I urge everyone to reach out and contact their Senators, to advocate for permitting the DOL and SEC to proceed with fiduciary rule-making, and to advocate for a true fiduciary standard in which the clients’ interests remain paramount at all times, and without exception. Thank you.

Robert Braglia

Robert Braglia

September 5, 2013 — 9:24 PM

Dear Ron,

You are really a hero to me in our industry. The proliferation of “dual-registrants” is very troubling and thank you for your in depth analysis here and in other articles. Government regulation will never serve the public. In fact, the completely uninformed work of legislators so far has just made things more confusing. My clients don’t even understand. I cant tell you how many times they refer to me as their “broker” and I politely try to educate them. What does a dual registrant do? “OK, for the last ten minutes, I held your best interests paramount, but for the next twenty minutes, I will do the best I can to be 'suitable’”. Isn’t the practical definition of suitability “acting in the best interests of the client just to the extent of not doing anything illegal”? That isn’t to say there are not many (perhaps most) R/R’s who DO act in the best interests of the client, but it is not DUE TO the suitability standard.

From the outset of this entire discussion on a national scale, I felt that so-called “harmonization” would just leads to a dilution of the Fiduciary Standard. What is needed, as you suggest, is for us as an industry, absent any government meddling, to reaffirm the true standard and make it clear who does, and who does not, adhere to it.


Richard Allison Johnson

Richard Allison Johnson

June 11, 2014 — 11:06 PM

Sometimes the simplest answer is the best one. It needs to be simplified down to an understandable point where clients can understand it.

Either your advisor is…

1) one who earns fees with no (none, nada, zilch) product sales compensation, or
2) one who earns fees with product sales compensation.

Then, you are further restricted in that you cannot be a number 1) adviser unless you are an RIA. (No ifs, and’s or but’s.) If you want to be an RIA, then you have to play by this simple rule. Period. Point blank. End of story.

If you are a 2) adviser, then you cannot also be an RIA. You have to get rid of this dual licensing crap.

After you do that, then clients will get it and know the difference.



June 26, 2014 — 2:13 AM

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Monnie Akin

Monnie Akin

July 11, 2016 — 2:49 PM

Timely ideas – I was fascinated by the info ! Does anyone know where I could get ahold of a sample DoT 649-F(6045) document to type on ?

Related Moves

November 18, 2022 at 2:56 AM

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