By the time you read this, the perfunctory confirmation hearings will no doubt be over, and Mary Schapiro, former CEO of the Financial Industry Regulatory Authority (FINRA), will likely have been installed as the new chairperson of the Securities and Exchange Commission (SEC). I think this may be the worst possible news for financial planners who embrace fiduciary standards and put the interests of clients ahead of their own—worse even than the market catastrophes we just lived through.

Why? In her speeches and in her actions at FINRA, Schapiro has been a consistent and outspoken advocate for exactly the sort of regulations that failed the public during the credit crisis, market meltdown and, before that, previous rounds of Wall Street scandals (analyst conflicts of interest, helping Enron hide its liabili- ties, etc.).

I think we can agree that in each incident, top Wall Street executives behaved recklessly and followed a path of self-interest that damaged their customers and ultimately themselves. Yet through it all, they were operating within the boundaries of FINRA's compliance-oriented regulatory framework-the same regulatory system that has resulted in more than 30,000 investor complaints and arbitration filings over the past six years. None of this should be astonishing, since the large financial services firms themselves supervise FINRA's rule-making activities.

Normally, when a particular regulatory system fails in such spectacular fashion, there are calls to replace it with something better. But today, as Congress mulls over how to "modernize" the regulatory protections for consumer investors, its leading proposal is to make FINRA the regulator of all who offer financial advice. And Schapiro, on whose watch the investment banking firms imploded, is now in a position to recommend this transfer to her former organization.

What, No Fiduciary?

As it happens, there is a far simpler way to patch up consumer protection. All it requires is that we—and Congress—notice that the scandal-tainted firms have all strongly resisted being held to fiduciary standards in their dealings with customers. The easiest possible fix has been on the table for years, proposed repeatedly by the National Association of Personal Financial Advisors and the Financial Planning Association. It would require any advisor who recommends investment products or services to the public to put the interests of his or her clients ahead of the advisor's own and accept the legal liabilities associated with the fiduciary standard.

A debate on this simple idea came to a head in 2005 after the SEC proposed rules permitting the largest brokerage firms to offer investment advice, for a fee, without having to register their brokers as registered investment advisors (RIAs). These firms, in their comment letters, made it clear that they preferred to live under compliance-related standards, and they were not happy about having to disclose that their accounts were brokerage-related.

The SEC rule was eventually struck down by the U.S. Court of Appeals, but not before Schapiro had offered her thinking about the RIA profession's fiduciary, consumer-first culture. An April 2005 letter to the SEC that Schapiro co-penned with Elisse Walter—then an NASD executive vice president, and now one of the five SEC commissioners—expressed "continuing concern with the gap that exists between the regulation of broker-dealers under the Securities Exchange Act of 1934 and NASD [FINRA's predecessor] rules and the system of investment regulation under the Investment Advisers Act of 1940." Those of us who are familiar with the thousands of investor complaints, sales of shoddy or mischaracterized investment products, scandals, manifest conflicts of interest (i.e., creating in-house investment products and purporting to offer unbiased advice when recommending them to investors) might think this an admission that RIA (fiduciary) regulation had been generally effective, while the NASD's regulation had not.