If the same few companies are behind virtually every major financial scandal and meltdown, why are the regulators talking about tightening up on the rest of us? After reading the new Treasury Department regulatory proposal again, I find myself wondering whether Congress, the Treasury and the SEC are truly interested in fixing the persistent problems in the securities industry. To see what I mean, let's look at the problems we've experienced and see if there's a discernible pattern.

To start, list the firms that dove deep into the limited partnership pool in the late 1980s (Merrill Lynch, Prudential). Then, add the firm that manipulated the Treasury bond trading system in 1991 (Salomon Brothers, now absorbed into Citigroup). Which company was indicted in check-kiting schemes in 1980? E.F. Hutton, also now part of Citigroup.

What firms offered self-interested analyst recommendations during the tech bubble? Bear Stearns, J.P. Morgan Securities, Lehman Brothers, Merrill Lynch, U.S. Bancorp, Piper Jaffray, UBS Securities, Goldman Sachs, Citigroup Global Markets, Credit Suisse First Boston and Morgan Stanley. These 10 firms settled litigation brought by the SEC by collectively paying $1.4 billion and agreeing to give investors independent research along with their own analysts' opinions.

Who reportedly offered IPO shares as bribes? The SEC and NASD investigation included Merrill Lynch, Morgan Stanley, Salomon Smith Barney, Prudential Securities, Credit Suisse and UBS Paine Webber; the issue is still reportedly the subject of many lawsuits.

Which firms allegedly traded against customer orders and may still trade ahead of the orders of their mutual fund clients? The NYSE itself agreed to pay a $25 million fine in 2005 for failing to supervise a myriad market makers, and Goldman Sachs and Spear Leeds and Kellogg were named in federal suits. Who gambled with shareholder money on highly leveraged investments in risky mortgage pools and sold them to corporate and municipal clients, and to gullible consumers, as safe paper? Merrill Lynch, UBS Paine Webber, Goldman Sachs and Morgan Stanley.

SOMETHING IN COMMON

Once you've compiled these lists, some interesting things jump out at you. None of the companies happen to be independent financial planning firms, fiduciary planners, NAPFA members or independent broker-dealers. There are no regional banks on the list either, and I couldn't find any community banks, thrifts or credit unions.

So as a first step, I think the Next Big Regulatory Proposal ought to forget about those organizations that haven't been involved in any of the problems that this new system is trying to fix. Instead, let's focus on the companies that are on the list. Interestingly, they all happen to be major Wall Street firms and big insurance companies. They make the list again and again.

Now let's step back and name the firms that pay enormous bonuses to their executives and key employees during wild periods of astronomical profits, but don't require the return of this money when scandals hit and these companies take huge write-downs. Which firms provide incentives to gather assets, but not to benefit customers? Which firms do not want to be held to fiduciary standards in the marketplace? Does anyone else think it's interesting that the two lists are identical?

From the results of this exercise, you can infer that the best prescription is not more rules per se. Looking at the conflicts built into Wall Street firms' revenue models, and executive and broker incentive systems, are you surprised that no matter what rules these companies are required to follow, some firms engage in risky, predatory and short-term-focused activities?

My proposal for fixing the regulatory system is much simpler than the Treasury proposal: Require firms to reward brokers and executives when consumers earn excellent returns on their investments and on IPOs that launch successful companies.

I'm sure the Wall Street firms would argue that these incentives don't have anything to do with their bad behavior in the past. But if incentives don't guide behavior, why do we need them? They will also argue that it is impossible to make a profit as a fiduciary. But the success of thousands of financial planning firms argues otherwise. Finally, these firms will argue that their primary mission is capital formation in the U.S. economy. In that case, why not require companies that bring IPOs to market to divest their investment advisory services? After all, drug companies can't own doctors' offices, can they?

I remember back in grade school there were two or three boys who disrupted the classroom and never seemed to follow the rules that applied to the rest of us. The school wisely focused its disciplinary attention on those few children rather than calling all of us on the carpet or setting new school rules.