By George A. Downey

Financial planning has changed. Advisors can no longer view a client’s financial life only through investment accounts, insurance products, income projections, or tax strategies. A sound fiduciary process requires a broader and more complete review of the client’s relevant circumstances, needs, objectives, and assets.

At its core, fiduciary duty means acting in the client’s best interest. For investment advisers, this includes both a duty of care and a duty of loyalty. In plain language, the advisor must understand the client’s situation, make recommendations that are reasonable, avoid or disclose conflicts, and place the client’s interest ahead of the advisor’s own. CFP professionals are also required to act as fiduciaries when providing financial advice.

That obligation has an important practical meaning: major assets should not be overlooked simply because they fall outside the advisor’s traditional investment management process. For many older homeowners, home equity is one of the largest assets they own. It may equal or exceed the value of retirement accounts. Yet housing wealth is often ignored because it is illiquid, emotionally sensitive, or viewed as separate from financial planning.

Ignoring home equity may be convenient, but it can leave the plan incomplete. A thorough planning process should consider all relevant assets that may affect retirement income, portfolio withdrawals, tax exposure, long-term care needs, survivor protection, cash flow, debt management, and legacy goals. For homeowners, the residence and its equity are part of that picture.

This does not mean home equity should always be used. It also does not mean an advisor should routinely recommend a reverse mortgage, home equity line of credit, refinancing, sale, or downsizing. In many cases, the right conclusion may be to preserve the home equity and take no action. The fiduciary question is more basic: was the asset objectively considered, were the advantages and disadvantages reviewed, and was the conclusion documented?

This issue becomes more important as clients live longer, health care costs rise, markets become volatile, and retirement income plans face stress. If a client later experiences avoidable financial pressure, clients, family members, regulators, or compliance departments may ask whether a major available resource was ever evaluated. The risk may not be that the advisor selected the wrong strategy. The greater concern may be that no meaningful analysis occurred.

Home equity should therefore be treated as a planning asset, not merely as a mortgage product opportunity. The advisor’s role is to help the client make an informed decision using all relevant information. That review should include costs, risks, client preferences, family considerations, tax and estate implications, and available alternatives.

The best fiduciary process is not product driven – it is planning driven. For older homeowners, excluding housing wealth may leave out a material part of the client’s financial security. A simple standard should guide the process: if an asset is relevant to the client’s best outcome, it deserves consideration. For many clients, home equity may be the missing asset that determines whether a plan is merely adequate, or truly in the client’s best interest.

About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney