In a recent client meeting, I referred to the fact that we at Freestone serve them as a fiduciary. The client stopped me and said, “You know, I read an article the other day in the Wall Street Journal that used this term…fiduciary…and I didn’t really follow the discussion.” This scenario likely repeats itself for the vast majority of our clients and, for that reason, we propose you ask…
”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.
Important Disclosures: This article contains general information, opinions and market commentary and is only a summary of certain issues and events that we believe might be of interest generally. Nothing in this article is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any security or investment or wealth management strategy, and you should not make any decisions based on the information in this article. While we believe the information in this article is reliable, we do not make any representation or warranty concerning the accuracy of any data in this article and we disclaim any liability arising out of your use of, or reliance on, such information. The information and opinions in this article are subject to change without notice, and we do not undertake any responsibility to update any information herein or advise you of any change in such information in the future. This article speaks only as of the date indicated. Past performance of any investment or wealth management strategy or program is not a reliable indicator of future results. Portions of this article constitute “forward-looking statements” and are subject to a number of significant risks and uncertainties. Any such forward-looking statements should not be relied upon as predictions of future events or results.