Fiduciary = Clients. First. Always.

|

|

  • Share This Post
Share on facebook
Share on twitter
Share on linkedin

|

New SEC Best Interests Rule Is a Lower Standard

There are a wide variety of people who serve investors by helping them with their investments.  There are large and small firms who either serve as a broker/dealer or as a registered investment advisor (“RIA”).  One of the major distinctions between broker/dealers and RIAs is the standard that their advice must meet.  Traditionally, broker/dealers have been held to a suitability standard.  According to the SEC, your broker must have a reasonable basis for believing that their recommendations are suitable for you.  In contrast, RIAs must meet a fiduciary standard, meaning that they must act in the best interest of their clients and not place their own interests ahead of their clients. 

The SEC recently published new investor-protection rules which are known as “Reg BI.”  The BI stands for “Best Interests”; the new regulations require broker dealers to put their clients’ best interests first, rather than simply satisfying the suitability standard and will become fully effective beginning on June 30, 2020. 

The most important change, in our opinion, is that now, if the brokerage firm has a conflict of interest with a client, it must be disclosed.  This will likely result in requiring their clients to read a large amount of confusing legalese descriptions (in tiny fonts) in order to evaluate the broker’s recommendations.  Once (and if) the client reads the disclosures, it will be up to him or her to ask questions to best understand the implications of any conflicts.   We think it’s unlikely that the new rules will provide investors with the SEC’s intended protections. 

In addition, in a bid to clarify things, the new rules may likely add more confusion.  As it stands today, the title “financial advisor” is being used by both brokers and RIAs.  The new rules will now allow brokers to say that they are acting in their clients’ best interests, while RIAs will continue to be held to a fiduciary standard.  This distinction could easily go unnoticed by investors, making it even more difficult to distinguish between the two different types of advisors. 

The SEC’s definition of “best interests” falls short of the fiduciary standard required of RIAs, which is to be legally bound to act in another person’s best interests.  The new Reg BI does not help in simplifying this requirement, running almost 800 pages.  While these new rules are an improvement on the former “suitability” standard, they don’t provide us with great confidence that the same “suitable” financial products will now be sold as truly being in a client’s “best interest”. 

As mentioned above, Horizon Wealth Advisors is a RIA, which requires us to be registered with the SEC and operate by a fiduciary standard, legally obligating our advisors to place all clients’ interests first, at all times.  With a corporate culture rooted in-part by our affiliation with our partner CPA firm Maddox, Thomson & Associates, P.C., there has never been any question about who we are serving and how we are compensated.  In essence, we’re here to do the right thing for our clients, for the right reason, and solely in the context of meeting their needs.

We demonstrate our fiduciary commitment to our clients in many ways.  For instance, we are members of the National Association of Personal Financial Advisors (NAPFA), a national fee-only organization.  In addition, we have adopted and endorse the fiduciary practices recommended by the Institute for the Fiduciary Standard, an organization that provides information to educate both investors and advisors about what the fiduciary standard really means.  You can learn more about either or both of these organizations by clicking the links above.

If you or someone you know needs a fiduciary advisor, we are always happy to talk.  Please contact us to arrange a free, confidential consultation.


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

Larry Maddox, CFP®, CPA
Larry founded Horizon Advisors, LLC in Houston, Texas in 1999 with fellow business partner Joe Thomson. He collaborates with our wealth management team and other external advisors to provide comprehensive wealth management services.

Read more news articles.

What it means to be a “fiduciary”

Read this ebook for a better understanding.