Fiduciary vs Suitability – Does your advisor put your needs first?

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As we’ve mentioned in a previous note, the Department of Labor (DOL) released new rules last year requiring all financial advisors to follow a “fiduciary standard” when offering investment advice related to retirement accounts.

Investors continue to be confused about the responsibilities that their advisor may have while guiding them in their investment decisions.  The available options for advice are: (1.) that an advisor be held to a “fiduciary standard” or (2.) that any advice meets a “suitability standard.”  The fiduciary standard is met by an advisor acting as a fiduciary for his or her clients.  A fiduciary is defined as “a person who stands in a special relation of trust, confidence or responsibility in his obligation to others.”  In contrast, the suitability standard is a lower bar, requiring only a “reasonable basis that an investment is suitable under the circumstances.”  This allows for “suitable” (but possibly inappropriate) investments to be recommended to unsuspecting investors.

This new fiduciary requirement is scheduled to take effect in April.  Financial companies have worked quickly, trying to figure out how to move from the old suitability standard for advice and product sales to the new, more rigorous and restrictive fiduciary standard.   However, President Trump has promised to relax regulations in a number of industries, so this rule will likely be reconsidered.  There is intense lobbying to eliminate, delay or otherwise reduce the effectiveness of these new rules.  We will keep an eye on things as they move forward, but whether the rules change (or not) it will not affect Horizon or (more importantly) our clients.

We have always followed a fiduciary standard.  Since Horizon evolved from a CPA firm culture, there has never been any question about who we are serving and how we are compensated.  We are a fiduciary advisor and this means that we put our client’s needs and concerns foremost in our advisory process.  We do not sell products; we use our experience, resources and expertise to provide solutions that solve our clients’ unique needs.

In essence, we’re here to do the right things for our clients, for the right reasons, and solely in the context of their needs. This is the guiding principle of a fiduciary advisory relationship.  If you or someone you know needs a fiduciary advisor we’d be happy to talk.

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Horizon Advisors is a Houston based fee-only wealth management firm. Horizon specializes in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

 

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