“As a testament to our commitment, we were recently awarded the registered trademarks for “True Fiduciary” and “A Fiduciary Business” by the U.S. Patent and Trademark Office,” Pagnato says. “We take our fiduciary duty as an RIA further than required, with standards that embrace transparency and the legal obligation to put clients’ interests first.”
The firm’s commitment resonates with entrepreneurs nationally. When New York Times best-selling advice guru and entrepreneur Tony Robbins wrote his book Money: Master the Game, he sought out Karp and quoted him on the important differences between investing with a “suitable” broker and a “fiduciary” advisor.
“A typical broker is someone who sells something,” Karp says. “He only makes money when a client buys an investment. Advisors don’t sell products, they sell advice. If I make a recommendation and a client doesn’t listen, it doesn’t impact my economics one way or another.”
While broker-dealers can charge clients as much as the market will bear, even on inferior products that often pay millions of dollars to get on a firm’s platform, “we would be sued if we tried to use these products as fiduciaries,” Karp says. “As advisors who charge based on client assets, we are incented to preserve and grow assets and to drive costs down.”
Here’s a glimpse of how PagnatoKarp’s True Fiduciary standards work. Recently, the firm’s financial planning department recommended a $50 million insurance policy to offset the estate taxes a client’s heirs would be charged.
Imagine the commissions that could be earned from selling a $50 million life insurance policy. “We worked a year on the estate plan for the client and delivered the work to an insurance agent they chose, but walked away from the commissions,” says Amanda Plonski, PagnatoKarp’s director of financial planning. “That is an example of how seriously we take our fiduciary standards. If we did earn commissions, the client would always wonder if they really needed the insurance,” she adds.
Giving away that kind of business and commissions would be unheard of at a broker-dealer or wirehouse, where product offerings are limited to those manufactured in house or those who pay to be on the B-D’s platform.
It was precisely those types of conflicts and constraints that came to a head during the market meltdown of 2008, lighting the desire in Pagnato and Karp to create an independent, fee-only fiduciary firm they controlled. The desire also led to the offering of the firm’s new trust services.
“The financial crisis of 2008 put us on the path to independence,” Pagnato says. “Our clients’ assets were being custodied at a location where there was a lot of uncertainty and instability. In crisis you get to see a lot of things you don’t normally see. I was exposed to a lot of conflicts and I vowed to fix that. I vowed to create a business where ... we’d be able to strip out most conflicts of interest.”
Five years ago, the firm also introduced its mission statement of “Massive Transformational Purpose (MTP)”—the name of the firm’s goal to impact one million lives through its True Fiduciary standards. “We are doing this one client at a time. It’s extremely fulfilling,” Pagnato says. “MTP impacts every aspect of our business—how we operate with taxes, investments, literally our entire operating philosophy, so we focus on preserving clients’ capital and asset protection. It’s life-changing.”