The seemingly endless financial tsunamis washing across our country, from massive banking failures, frozen credit markets and historic market losses to unprecedented financial scams, have served as a wake-up call to Congress, regulators and the Obama administration regarding the need to revisit the regulation of those who sell investment products and provide financial advice to the public.

Toward this goal, on July 10 the Department of the Treasury proposed the "Investor Protection Act of 2009," which covers the "Establishment of a Fiduciary Duty for Brokers, Dealers, and Investment Advisers, and Harmonization of the Regulation of Brokers, Dealers, and Investment Advisers." Unfortunately, interested parties from all sides are using the term "fiduciary" to represent radically different concepts. This muddies the debate over this and related proposals, making it seem akin to building the Tower of Babel.

FIDUCIARY VS. SUITABILITY

In the 1940s, when the laws governing the brokerage business were enacted, the role of the broker was simply to provide transactional services. As a result, the legal obligation to the client was established as a commercial standard, based on the concept of "suitability." Under this standard there is generally no duty to undertake full disclosure of material facts; neither the broker nor the customer has an obligation to take care of the other party. Furthermore, suitability generally does not require the broker to recommend the best product for a client, or even a low-cost product. The principle of caveat emptor generally applies.

For those providing investment advice, Congress passed the Investment Advisers Act of 1940, placing those practitioners under a fiduciary responsibility. Unlike the arm's-length suitability standard, in a fiduciary relationship the responsibility for fair dealing rests solely on the shoulders of the advisor.

After more than 60 years of financial markets' evolution, though, these services have effectively merged. Investors do not distinguish between brokers and advisors. In fact, a 2007 RAND Corp. report commissioned by the SEC found that individual investors generally do not understand, appreciate or care about such legal distinctions. As FINRA CEO Richard Ketchum has stated, "[Maintaining] two different standards is simply untenable in this world."

FIVE ESSENTIAL PRINCIPLES

Although I agree with Mr. Ketchum, the problem is, competing interests invest the term "fiduciary" with different meanings. Some proposals for harmonization and "new" fiduciary standards are designed to protect corporations, not clients.

It is imperative that an honest, universal standard incorporate basic principles designed to protect clients-not brokers, advisors and their employers. To that end, a number of concerned professionals formed the Committee for the Fiduciary Standard. The Committee developed an easily understood five-point statement of principles reflecting a fiduciary concept of "fair dealing" that investors can understand and have a right to expect.

* Put the client's best interest first;

* Act with prudence-that is, with the skill, care, diligence and good judgment of a professional;

* Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;

* Avoid conflicts of interest; and

* Fully disclose and fairly manage unavoidable conflicts in the client's favor.

The public needs financial help and should be able to count on professionals they can trust. Restoring trust in our financial system is vital. Holding all advisors and brokers who provide investment and financial advice, or who hold themselves out as providing financial or investment advice, without exceptions, will go a long way toward reestablishing trust. In doing so, the public and the profession will be well served.

Harold Evensky, CFP, is chair of Evensky & Katz in Coral Gables, Fla. He has served as chair of the TIAA-CREF Institute Advisory Board and the CFP Board.