The current financial regulatory apparatus, all agree (at last), is outdated, having been cobbled together over the decades, beginning after the Great Crash of 1929. Setting aside whether a Glass-Steagall-type law might be resurrected in the wake of the over-leveraged universal securities firm fiasco, will the patchwork rules governing the conduct of Series 7 holders and registered investment advisors, a patchwork that confuses the public, finally be sorted out? Not yet: Broker/dealers and registered investment advisors continue to wage their battle over standards of care.

In its testimony before the Senate Committee on Banking Tuesday, the Securities Industry and Financial Markets Association (SIFMA) called for broker-dealers (and their reps) and registered investment advisors (RIAs) to be held to a "universal standard of care" but fell short of advocating that both camps should act as fiduciaries. Today, registered reps have a "suitability" standard of care; registered investment advisors and their reps' investment advisor representatives or IARs "are required to act as fiduciaries. Fiduciaries must always put the client's interest before their own," it is legally the highest standard of care. Suitability means simply that investments must be suitable, but, for example, not necessarily the cheapest.

Kevin Carroll, SIFMA managing director and associate general counsel, says SIFMA's proposal represents a new position for the group. Carroll says that fiduciary is a legal term, but it is not a standard, and he claims that a standard is what SIFMA prefers. Carroll wouldn't provide many details on what this universal standard might look like, as SIFMA is still collecting reactions from key industry players. But he says that, in general terms, it would combine the suitability requirement with the ideas in Conduct Rule 2110 (Standards of Commercial Honor and Principles of Trade), which requires FINRA-registered firms to observe high standards of commercial honor and just and equitable principles of trade. "This is a very high standard we're suggesting. I would be very surprised if brokerage firms aren't already holding their brokers to the standards we are suggesting," Carroll says. He suggests that Conduct Rule 2110 is much more aligned with the fiduciary standard than most RIAs think.

The FPA is not impressed. It is "a little bit of fancy window dressing, but nothing more," says Duane Thompson, FPA managing director, who admits this is just his initial take, as he hasn't seen the proposal in detail yet. To his ear, it sounds like SIFMA is proposing a universal standard that would hold all advisors to a "duty of fair dealing," which is far less stringent than the fiduciary standard. "I don't really see any change in view," says Thompson. During the period when the Rule 202 was in effect, SIFMA supported the suitability standard, which I would say is tantamount to the same kind of standard that they are dealing with now. Thompson went on to say that if SIFMA's proposal were enacted in law, it would essentially, impose "lower standards across the board," would have a negative effect on consumer protection and would only exacerbate the investing public's lack of confidence and trust.

The FPA supports applying the fiduciary standard across the board, as outlined in the testimony of Paul Schott Stevens, president and CEO of the Investment Company Institute, the mutual fund industry lobby. In his testimony, Stevens implored Congress to end the fiduciary debate once and for all, saying, "Congress should enact legislation that imposes a fiduciary duty on any persons who provide individualized investment advice or sell products pursuant to their providing of such individualized investment advice." Steven also took sharp aim at FINRA and the SEC. "For over a decade, the SEC has been unable to muster the backbone to defend fiduciary standards for investment advisors, and the current SEC chairman and one commissioner spent years defending FINRA's self-interested position that a suitability standard is adequate."

The FPA's Thompson worries that Congress is not ready to "get into the weeds" and grapple with regulation of retail financial advice at this point, however, because legislators are dealing with bigger picture issues such as stabilizing financial institutions. But others, such as Louis Harvey, president of Dalbar Inc., a financial services market research firm in Boston, say, this time, regulatory change is coming. "The era of enforcement is here, and I don't think there is any escaping it," he says.

Not too long ago, SIFMA's position was that having different standards was justified, and the group supported SEC Rule 202, the so-called Merrill Rule, which allowed Series 7 holders to offer fee-based brokerage accounts, with certain caveats. SIFMA argued that rule 202 allowed for greater client choice. But the Financial Planning Association (FPA) countered that brokerages were essentially trying to skirt the Investment Advisers Act of 1940 with their exempt fee-based brokerage accounts. The FPA successfully challenged the "Merrill Rule," winning in March 2007, when a U.S. Court of Appeals in Washington, D.C., ruled that brokers could not hold themselves out to be investment advisors without actually acting as fiduciaries.

As a result, Series 7 holders can no longer offer fee-based comprehensive financial planning advice unless they hold a Series 65 license in addition to the 7, or hold one of the designations that the SEC accepts as synonymous with the fiduciary standard (such as CFA and CFP designations). See here for more on conflicts of interest inherent in Series 7 holders. Click here for a manifesto on establishing a single, fiduciary standard for all retail financial adviors.