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What is an Investment Fiduciary (and why it should matter to you)?

In the fall of 2016, there was a lot of news regarding the question of what an investment fiduciary is based in part on a Department of Labor (DOL) ruling. As with many political decisions, we don’t know the long-term impact or the influence of the new Administration so let’s talk about what we know at the end of 2016.

What is an investment fiduciary?

An investment fiduciary is a financial professional who is legally bound to act in the best interests of their clients.

Don’t all financial professionals act in the best interests of their clients? The answer is no. All too often I meet folks in my industry who give investment recommendations that might fit a portfolio but may not be the best option available. Under the current standard, there is nothing wrong with those recommendations but they may not be done with the client’s best interest in mind.

The current standard is akin to selling someone clothes that fit while the new standard is that the clothes have to fit while also making the customer look good. It’s a subtle yet significant change to the law.

Does Heritage Financial Strategies operate under a fiduciary standard?

Yes, we’ve always operated under what is now referred to as the new standard for all accounts, retirement or otherwise, regardless if we were legally obligated to do so.

It should be noted that the new fiduciary standard is going to be applied only to retirement accounts (IRA, 401K). Non-retirement accounts will have different rules in place but it expected that most companies will uniformly apply standards.

Why does the new standard matter to you?

Some investment companies are restricting their advisors by making them change the relationship with their clients, regardless of what the client desires. That’s not what we’re doing.

Cambridge Investment Research said they’re not going to make us force you into one type relationship if you don’t want that. Instead, we will have you sign a best interest contract if that’s the type of relationship you would prefer.

In the case of a best interest contract, compensation may be changed, types of investments that you hold may be changed, or the company that manages those assets may change. This is an effort to equalize commissions, and make fees and costs more transparent to you as a client.

While the investment fiduciary standard recognized by law may be changing as early as January 2018, we don’t know exactly how it will be applied. Just know that if you have questions about the fiduciary standard or best interest contracts and how it applies to you, Heritage Financial Strategies is here to answer your questions.