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Why Some FAs Are Happy the SEC is Targeting Cost Disclosure

By Crucial Clips     February 14, 2018
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Feb. 8, 2018 

RITA RAAGAS DE RAMOS, SPECIAL PROJECTS MANAGER, FA-IQ: Hello, I’m Rita Raagas De Ramos from Financial Advisor IQ and with me is Norm Cook, president and chief marketing officer of Halite Partners.

The SEC has come up with its exam priorities for 2018 and one of the things that came up this year was highlighting investor protection, which I guess is no surprise. But they specifically mention the disclosure of costs. Now, what do you think about the inclusion of that and, as a firm, how are you dealing with this as a compliance issue and a compliance priority?

NORM COOK, PRESIDENT, HALITE PARTNERS: So, Halite, the name of our firm, actually means “transparency.” It’s rock salt and transparency is one of the attributes of rock salt. And so we have always operated in the best interests of our client in fully disclosing fees. Because fees are known. And so we want to make sure that we are always looking at how much it costs to be in any investment vehicle. And our clients should know what that cost is because ultimately it is a deterrent on their performance. And so we are very, very transparent and open about fees.

So we are excited about the fact that these rules are going to be engaged and they’ll be uniform. And we think that it is in the best interest of the clients, for sure.

RITA RAAGAS DE RAMOS: How do you handle choosing the right investments for your clients in terms of this topic, in terms of the disclosure of costs? I mean, do you necessarily veer away from the more active or the more expensive funds or products in order to just go with the lower cost ones?

NORM COOK: Yeah, that’s a great question. We believe that, when an active strategy can produce enough excess return to justify the fees, and we feel that it is consistent and the manager of the fund will be able to do that, we are certainly going to put our clients’ capital to work in that strategy.

But, again, fees are known. So if we don’t believe that an active strategy or more sophisticated investment approach is worth the fees or the risk is too high, then we will go a more passive strategy. So we’re constantly evaluating what is the fee that a client is going to have to pay and what is the expected alpha or excess return for that strategy above and beyond the fees?

So we do not shy away from it at all. We’re constantly evaluating whether or not that strategy or that manager can outperform.

RITA RAAGAS DE RAMOS: Two other items in the SEC exam priorities are the crypto-currencies and the initial coin offerings. What is your take on that? Is that something that you invest in on behalf of your clients?

NORM COOK: We do not invest on behalf of our clients in any crypto-currencies. We certainly are following and monitoring what is going on in that environment, but we do not believe that it is a suitable choice for any of our clients.

RITA RAAGAS DE RAMOS: Cybersecurity is also an exam priority and I know that this is something that you are monitoring in terms of the developments in regulations. Now, for a new company like Halite, how secure do you feel your systems are against any cyberattack?

NORM COOK: Well, one of the advantages of being a new firm is that we have the ability to go out and acquire the best in technology without any of the legacy systems that other people have to deal with. So it’s been a huge advantage for us in starting our firm is that we are able to find out what is the best technology in cybersecurity that make sure that our clients’ data and information is always secure.

RITA RAAGAS DE RAMOS: Thank you, Norm.

NORM COOK: Thank you.