”What is a Fiduciary and Why is it Important to Me?”
First let us review two simple definitions:
In the case of Freestone and its clients, the fiduciary duties Freestone owes its clients are the duties of loyalty and care. These duties generally require that we focus on the interests of our clients and that we place the interests of our clients above our own interests.
The standard of suitability requires the advisor to make recommendations that it believes are suitable based on a client’s personal situation.
Many of you have investment experience via a stock broker, bank, insurance company, or other financial advisor that was not a Registered Investment Advisors (RIA). You may have been presented with investment suggestions or ideas that the broker or advisor felt were suitable for you. Let’s be clear, this does not mean that they were necessarily the best solution or most cost-effective strategy. The decision of suitability was based on a number of factors including your income, liquidity needs, and investment experience. What many people fail to realize is that the broker or financial advisor is not necessarily required to do what is in your best interest. Simply put: as long as the investment recommendation was “suitable” for you, they fulfilled their duty. However, this investment could have been primarily selected because it provided a higher commission or other benefit to the salesperson/advisor.
I believe that the low hurdle of “suitability” has resulted in a sizeable increase of investment products being sold that generate higher commissions, undisclosed fees, or back-end charges.
Conversely, RIAs like Freestone owe fiduciary duties to our clients and focus on placing the interests of our clients above our own interests.
There has been a great deal of recent press coverage around a proposal by the U.S. Department of Labor (the DOL) to require stock brokers, banks, insurance companies, or other financial advisors to change the standard by which they operate from a suitability standard to a fiduciary standard. This notion makes sense especially since the rules governing this subject have not been changed since 1975. While we believe the current version of the DOL’s fiduciary rule will likely be changed or modified in some way, we think it is important to implement the primary change – applying a fiduciary standard beyond RIAs. Regardless of what does or does not transpire, the expansion of a fiduciary standard will have no bearing on how we steward your wealth.
Since our founding in 1999, Freestone has embraced its role as your fiduciary and endeavored to put our clients’ interests first. This will not change…EVER.