With a clear purpose and influential industry leaders behind him, Knut Rostad founded the Institute for the Fiduciary Standard in 2011. Now, as president, he provides insights into how the institute began and how it has evolved over the years in terms of community and message.
In the interview, we discuss with Knut:
- The mission-driven beginning of the institute
- The importance of creating a support network
- Why the institute now focuses on “plain language” in messaging
- The Institute for the Fiduciary Standard
- The Institute for the Fiduciary Standard LinkedIn
- Fiduciary Law in the 21st Century by Tamar Frankel
- Jack Bogle’s Legacy
- Real Fiduciary Practices for advisors and planners
- Fiduciary Common Sense: Why consumers should hire a fee-only advisor or planner
Full Audio Transcript
So let's go ahead and dive in. How did you start the Institute for the Fiduciary Standard? What sparked this idea, and how'd you get it going?
Well, let me start with what sparked the idea, because it took a little while between the spark and the ignition, shall we say? I came to the world of investment advice sort of mid-career, this was over 20 years ago. And I came at it through a wonderful advisor in Northern Virginia by the name of Don Rembert, who's now 83, I think, and is somewhat retired, but he'll never retire. He was one of those fee-only planners from literally the mid-’70s who was out advocating for fiduciary advice and as a matter of course, he would walk around with a copy of the Uniform Prudent Investor Act, which was a pretty darn good sort of summary of what it meant to be a fiduciary. And so that's what he did. And I started working with him as a marketing advocate. Frankly, he would give it away to anybody who would take it. So that's what started it, literally in the late 1990s. And we did different things over the next several years before we actually formed, 10 years ago, but that was the spark.
Wonderful. And then now that you've got it going, how are you helping to live that out? You know, what sort of things have you put into place to enter that space?
Well, I'll get to that in a second, but we are above and beyond public policy entrepreneurs, and you understand by definition what it means to be an entrepreneur, because that's what you do. And so as a part of that, timing is really important. And the institute, actually the beginnings of it, came two years before. Now we're in 2009 and in 2009, in June of 2009, the Obama administration Treasury Department said that all brokers should work at a level to meet a fiduciary standard. And that was the beginning of a group before that said that there should be a special interest group, a single interest group that did nothing else except to educate and advocate for fiduciary practices and principles for investors, to investors, to advisors and to policymakers.
And so our beginning actually was in June 2009. And when several of us got together at a conference and just sort of said, you know, there should be a group that does this, and we formed it. And the point of that little bit of the story is that it is timing. And in 2009, with the new Obama administration, fiduciary was in the air and was much talked about in a sense, much more talked about then than it is now. So that was the real beginning of it then.
And how do you feel you've been able to keep that alive?
You know, it’s a lot by luck and a lot by my background, an undergraduate degree in political science and then a graduate degree in business, an MBA, and part of marketing 101 that I recalled was about the importance of starting a venture with a purpose, with a clear purpose, which of course is very much in the air now, but also the significance of having individuals involved whose very stature in position and reputation spoke volumes and sent messages.
And we were very fortunate that very early on, I literally made a cold call to the office of John C. Bogle, the former chair of Vanguard. And I said that we had started this group and I wanted to talk to him about it. And there's no other reason for him to take my call because I wasn't in his Princeton network or his school network, but he said I'm giving a speech in two months in Washington on fiduciary, come up to my office and let's talk. You know, it sounds happenstance and in a sense it was, because that conversation started a relationship that ended until he passed away two years ago, excuse me, three years ago. And he served on our advisory board, but the point is, we were able to attract real luminaries in the world of investing.
And one of our first events was to put on a day-long program in New York City at the museum of finance on the legacy of Jack Bogle. And we had the most respected academic and former regulators there with us, including Paul Volcker, who was a giant in this world. And so the answer to your question, and probably a little bit more words than you wanted, was we were fortunate to get certain people involved that sent hugely important messages about who we are, why we existed, and what we wanted to do. And so that was extremely important. And when you start there, putting the pieces together becomes a whole lot simpler, frankly, because when you've got individuals like that involved, they have an understanding of what you are trying to do without necessarily knowing who you are—getting behind that mission.
So anyway, that was the beginning. And Jack served on our board of advisors for years. He joined us at meetings at the SEC and it's hard to appreciate sort of how much he meant to the world of investors. I mean, there's no one like him in the industry today, frankly, and partly that's understandable because he was a product of his time. But anyway, that was extremely important in terms of getting introduced into the marketplace and people understanding who you were and what you were doing.
Well today, even, you look at your world of advisors and the folks that you have just on your website. The connections you've been able to make—you used the word luminaries earlier, right? These are names that carry weight in the industry, have influential voices. So it's been very impressive how you've been able to pull that group together and how you go about it.
You know, I say it's luck and yes, it was, I mean, Jack Bogle didn't have to take my call 12 years ago. I don't know how things would have gone if he didn’t; things would've been very different, frankly, but he took my call. We met, we had the event, and it turned out by most people that were there as being a very good event. So that was the starting point. Now today, fast forward, of course, you know the field and the world has changed. And we're very fortunate to have individuals like Luis Aguilar, only the third SEC commissioner selected by both parties in this political world, but he genuinely is a fiduciary in terms of his advice.
And so, we have Tamar Frankel. I know most people say, well, who's Tamar Frankel? Well, I call her the godmother of fiduciary law in the Western world. And she frowned at me when I said that, because of who she is, she truly is humble. Tamar Frankel was born in 1924,25 and grew up in Israel. She started out there, which was pretty tumultuous, and came over here, I think in the late ‘60s and started her academic career, her first job, and talk about humility, she was the first woman professor of law at Boston University.
And she was put in the basement of the building because she was a woman. I've only known her for 12 years; I just feel fortunate to have known her for this long, but she's extraordinarily humble and does not have an iota of bad feelings because she was put in the basement. She said, Knut, this made me closer to the books and it made my research easier. She always saw the positive, no matter what. So I just feel so fortunate to have had a little piece of experience with her because she's on our board and she calls me about every other week if we don't speak and asks, Knut, what can I do to help you?
She is the leader of fiduciary law in the Western world. And she's asking me what she can do to help me. And it just makes me feel just unbelievably fortunate. So we have had those individuals. Phyllis Borzi, different category, but the same thing. She was put on this earth to serve investors, after she was an English teacher. I said, Phyllis, that's one of the reasons I love you, because you know how to write plainly and clearly, and so many people in the world of finance don't or can't, or either of the two. So yes, we are very fortunate. And when you have leaders like that associated with you, it makes attracting other individuals, other firms, that much easier, because that's a screen of sorts.
So anyway, this is at a strategic level in terms of communications. What does it mean to have Frankel and Dorseyi and Aguilar associated with your organization? Well, it means that you are extraordinarily fortunate and that's what I feel. And so that's what has been a huge part in attracting others, our advisor members who have become real fiduciary advisors and the others on the advisory board. And I haven't even mentioned Ron Rhoades. There is no other person today who has written more and understands better as both an academic scholar and as a practitioner, he also is a practicing advisor, than Ron Rhoades, on what fiduciary means and what its background is. Really, no one. And we've been fortunate to have lots of scholars involved in our programs. And so we just feel very, very, very fortunate.
It's a very impressive group. So I think one of the hardest things to do, right, is to build that center of influence, or that gravity, to have a board with talent that can help to challenge the organization and push it forward as it aligns with the mission. And so it's impressive to see what you've been able to build.
Well, actually you hit on something that is probably another side to this. Notwithstanding the luminaries, there is still the basic organizational task, as you were referenced, as you allude to, of building an organization and building out programs and events and what we're going to deliver. Sometimes some people may think that we don't need any help because we've got all these luminaries involved. When in fact, we are representing a view of advice that only a minority of firms frankly adhere to. And so we are a minority and we understand that in this larger world of broker dealers and larger world of dual registrars, our message of fiduciary, I think, strikes some people as being too, shall we say, old fashioned? And in a certain respect, they are correct. Because you, by definition, are avidly paying attention to what is happening in the industry, you know traditional lessons on fiduciary are not the topic de jour. It's Robinhood, and what does Robinhood represent? It's the other end of the spectrum, frankly, but, uh, anyway,
Well, I've seen a little bit of the interaction when you had rolled out the fiduciary standard best practices, that code of conduct and partnering with RIAs, and was able to see, kind of be read into, or see a bit of behind the scenes about that rollout, right. And the messaging, you talked about that earlier, you all have that locked in, right. You have the press releases ready, you've got the communications ready, you've got people teed up. And I'm sure that probably those best practices also just come from knowing communications and messaging, having great people around you, but how do you ensure that messaging is uniform across the board? And that maybe it doesn't have that kind of older feel, but if there is something that's really invigorating and holding people to that higher standard and those best practices, I'd just love to hear a little bit more about how you all think about messaging and communicating as you talk to the broader audiences.
That is a really good question. And, I guess it's easiest for me to think about it in a global perspective, as I have tried to become better at our messaging over time and what I mean by that is I have a much greater respect for sensitivity for what we learn from the plain language experts. And so, this is not per se messaging, but it is such a key piece of it in the world we work in that is dominated by regulatory speak. And which sometimes almost seems to be the opposite from plain language, frankly. And so it's sometimes not stated that our outreach to investors or advisors and regulators, those are our three main audiences, is driven by the idea that the ordinary investor on Main Street can understand what we're saying.
So what that means to us is if you look at our real fiduciary practices, which are on our website, now they are written so that an investor could read them and actually understand what they mean without having to hire an attorney because they legal and this always made sense to me, but it makes more sense to me today than it did five years ago, because I realized how much out there, and you realize this in your role as a marketing expert, how much content out there in the world of investing is not made to be understood by the ordinary person on the street, frankly. I think it's not made for that. And so when we look at our real fiduciary practice, when we look at our common sense, fiduciary common sense on our website, again, we have tried to make it understandable.
And so this may not be exactly what you were looking for, but that sort of drives our messaging all across the board in terms of what is the common denominator and it's making it understandable to the ordinary investor. So the whole issue from a regulatory point of view, and I don't know how much of this you interface with, the whole issue from a regulatory point of view, the big problem with regulation and retail investors is they're confused. That's sort of the operating premise. And I say, no, that's wrong. And we've written extensively on why this is wrong. What is true is that the messages they get are confusing and that's a different take on it. And so the problem is not that per se, investors don't understand, it is per se that the message they're getting is confusing.
You're right. Some of the hardest things to do is make things simple. Your thinking to make things simple can be very challenging. But that is, I think, where you actually get traction, and you can get going with that. So it's exciting. So there are some themes, really, around the essence of building an all star board, right. People that you trust that you can turn to that can help move things forward. And then in doing so, as you're moving forward, there's a unified front on the simplicity of the messaging. So that if someone were to pick a piece of paper off the ground and they were to read it, they would at least understand what was going on. And it wasn't totally out of context.
Yes, that is exactly it. And as I say, I didn't appreciate when we started how important that piece is to what we are doing, what we're aiming to do, but it is, it absolutely is. As I said, I didn't appreciate how much I think investors are given a bum wrap in the industry by many people because they're just assumed to be confused about everything. And so almost why bother even to try to communicate with them. And I think that's a bum wrap, but I think more basically, it's a serious problem if our assumption is that our major audience of investors doesn't understand anything.
Yeah. Be able to digest it to make sense for decision-making.
Well, you're doing powerful work. And like I said, being able to see a little bit of behind the scenes of some of the rollout, and then also just publicly what you have on your website and the connections you have been able to build, and the work you're doing. So what is it like on a day to day? And what's next for the institute? What do you see on the horizon as key?
Well, for focus areas, after just talking about how important it is to aim our messaging for the ordinary investor, I'll say that our strong point has not been frankly, to get out and reach the ordinary investor. It's not just because that's a massive audience, and again, this is your bailiwick now, not mine, frankly. There are lots of ways to get to smaller parts of this with the world of social media that are less daunting than they were before social media, frankly. But we think that we've done fairly well aiming and getting our message across to regulators and policymakers, those who are interested in our message. And we think to some degree that we've done the same with advisors. We need to find ways to do the same thing to consumers, because that's where the action is. And, again, this is your bailiwick. So I'll let you finish this point in terms of the importance of getting to the consumer audience.
Well, the masses are always hard, right? But I think you have to sort of start at the core. In those conversations and being aligned there, which is impressive to see the work that you all have been doing. So that's sort of the next path, opening up that channel sort of behind it, the folks that may be more familiar with it, the policymakers, the RIA firms, etc. And then exploring next steps to more of the public information of what it means to be a fiduciary.
Right. We stand back and the way that I frame it is why should an investor or consumer, because my financial planning, friends remind me that in the world of financial planning they think of consumers more than they think of investors because of when you, and again, you know this extremely well, when you look at their array of services, the investment part of it is just one piece of it as opposed to everything else. So getting to the broader audience of consumers is the key challenge. And that's fair.
All in due time, right?
Yes, all in due time, but I don't think I've responded to part of your question. We stand back and say, why should a consumer care? Why should the consumer think it matters that they hire an individual who is a real fiduciary that practices as a fiduciary, as opposed to those that don't. So that's where we start the process from, thinking about how it is that we can inform consumers of that answer, that question, why they should care. And then, what is it that makes a fiduciary advisor different from those that are not fiduciary advisors and that's what it comes down to. And so that sort of is the focal point of our thinking about messaging for consumers generally.
Yep, that's fair. And getting that education out into the world in a digestible way as we were talking about earlier, too, right? Where it's an engaging way and it sticks. So, very good. Well, I appreciate you sharing a little bit about how things got going, being able to build the board, and where they are today and where they're going. Any other thoughts that you would like to share?
Well, I guess in terms of other segments or other places that we'd wanna get more involved in, is the area of students who are studying to become financial planners. We have had contacts with a number of the programs around the country, but we haven't done enough to formalize those relationships and to really see how we can help these programs in their educational process by sharing the content and the expertise and the individuals that we have involved in the institute. So that's another area that we want to pursue.
Mm, interesting. Well, I'm excited to hear a little bit more about it too, and I think you all have done an amazing job. You're talking about the kind of those guidelines that were released from the various RIA firms, but some of that messaging and arming them with the communication so that they can better educate their prospects and consumers in general. And then if you're thinking about the marketing hats on that funnel, they're a little deeper in the funnel, those prospects, because they're already having that conversation with the advisor, but how do you talk to kind of that top with the funnel, your general audience about this and what they should be looking for, if they're looking for an advisor to work with so that that's not off the radar and they can ask those questions or they know to ask those questions when they're finding the right match. So, very good. Well, again, thank you for your time. Really appreciate hearing a little bit more behind the scenes, and we'll make sure to include links to the website and the other resources as well below.
Excellent. Well, listen, thank you, Lauren, for your interest in what we're doing. I really appreciate it. And I look forward to keeping in touch as we go forward.
Absolutely. I'm looking forward to it as well. Have a great night and we'll be in touch soon.