The History of Howe & Rusling Wealth Management
When Howe & Rusling Wealth Management registered with the Securities and Exchange Commission as an investment advisory firm almost 85 years ago, the founders were early adopters in a field called investment counseling.
Today, the Rochester, New York-based RIA is technically the oldest company in the country focused on retail wealth management clients, in terms of its date of registration with the SEC and continuing standalone, independent status.
Founders Winthrop “Wint” Howe and Lee Rusling registered with federal regulators under the recently passed Investment Company Act of 1940 and the Investment Advisers Act because they believed in the “importance of being a fiduciary and putting clients’ interests above their own,” said Craig Cairns, the company’s president and majority owner. They wanted “to validate that by registering,” he said of the RIA’s founders, who were also among the first class of chartered financial analysts in 1963.
At the time those two bills passed unanimously and President Franklin D. Roosevelt signed them into law in 1940, they covered 436 companies with $2 billion in assets across 300,000 accounts. Now, there are 15,870 RIAs with $144.6 trillion in assets, 1 million employees and 68.4 million clients. What would Howe and Rusling think?
“I think they’d be very proud of the fact that they were one of the earliest and wonder what took everyone else so long,” Cairns said.
The Legal Roots of the RIA Movement
With the first SEC registrations becoming effective 85 years ago this month, the combination of fiduciary duty and the technology enabling businesses to offer investment advice at a mass scale has turned RIAs into a huge, growing industry.
But the debate over whether the full spirit of those laws has been put into practice remains a tense and evolving fight. And the question of how to abide with the existing and future guidelines under laws requiring RIAs and their financial advisors to put clients’ best interests first in their advice will determine the next phase of development in the financial planning profession and the wealth management industry.
“No one picks their RIA because they’ve got extra fiduciary liability if they do something bad,” said Michael Kitces, the longtime planner, writer, and entrepreneur. “You pick your advisor because you think they’re going to do something good and work with you effectively in the first place.”
To Kitces, the tipping point came in the ’90s with the rise of personal computers, digital brokerages, and custodial tech systems that gave RIAs the backend programs to manage a wider base of clients. Many of the companies that appear on a list of the 25 longest-enured RIAs have expanded into household names that are vast conglomerates tied into those capabilities.
RIA Stalwarts
The contrast between providing investment advice and the dynamic process of planning would not likely have occurred to the lawmakers when they passed the two laws and others in response to the 1929 market crash and the Great Depression. With its SEC registration date of Jan. 3, 1941, Howe & Rusling came after the handful of firms that received approval a few months earlier. Those earlier firms focus primarily on fund management or employer retirement plans rather than retail wealth services, though. And, unlike the five firms that had officially registered by November 1940, Howe & Rusling offers financial planning, according to their Form ADV disclosures.
Its founders had a “passion” to work with individual clients from the earliest days of the firm, which traces its history as far back as the launch of Howe’s predecessor investment counseling firm in 1930 and his partnership with Rusling a decade later, Cairns noted.
In a 1975 interview with the Rochester Democrat and Chronicle, Howe said he decided to start an investment counseling business shortly after reading an article in the Harvard Business Review that described it as “the coming profession.” As a blind person who had successfully navigated earning a master’s degree from the Harvard School of Business Administration, Howe persisted through some difficult times in the nascent field.
The New Deal Laws That Created the Modern Industry
Decades ago, humans from many professional spheres and both major political parties came together in support of the ’40 Act and the Adviser Act. Investment firms at the time “had a common interest in ridding the industry of wrongdoers who had tarnished the reputation of the entire industry,” former Massachusetts Republican Sen. Henry Cabot Lodge later recalled.
Even at the time he signed them into law in August 1940, though, President Roosevelt and other supporters drew a direct line to the cooperation between an industry and its regulators.
The SEC’s power to enforce the fiduciary duty secured its most significant validation at the Supreme Court 23 years later, when seven justices sided with regulators in the SEC vs. Capital Gains Research Bureau case.
That decision clarified that the “antifraud, antimisrepresentation provisions in the Advisors Act amount to a fiduciary obligation,” Kitces noted. Nevertheless, the few RIAs catering to primarily high net worth individual clients remained “a fairly, sort of, quiet niche side of the industry for a long time,” Kitces said.
Ancient Yet Evolving Laws
The addition of scalable technology to the establishment of the fiduciary duty has led to the vastly successful industry of RIAs that dominate wealth management today. But the principles behind the 1940 laws and, especially, their application to those “regulating financial advisory services and financial brokerage services” still provoke disagreements and calls for reform.
So, despite the roots of fiduciary laws dating to Roman and British law, the exact terms of those rules represent a tough but important debate that’s playing out today.
“Regardless of whether they are enforced by law, by social rules, or by cultural pressures, fiduciary rules are a condition to the long-term well-being of a human society,” wrote Boston University School of Law Professor of Law Emerita Tamar Frankel.
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