Perhaps I'm getting cranky inmy old age, maybe my standards are getting higher or maybe the wisdom I've gained over the years makes the political machinations of interlopers, both broker-dealers and regulators new to this area, more transparent. But this much I know: Independent investment advisors will mark July 21, 2010 as the day the industry was handed an outrageous bill that changed the economics for rendering investment advice forever.

That was the day that the SEC mandated an upgrade to advisor disclosure requirements. On the same day, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, setting in motion the most sweeping regulatory changes for advisors since the Investment Advisers Act of 1940. Let's step back and assess the impact of this day and think about where we go from here.

The changes are aimed at enhancing disclosure to consumers and oversight of advisors, and determining whether there is parity among those giving investment advice, whether they're registered as an investment advisor or a broker- dealer. So really we're addressing the confusion that investors have between broker-dealers and investment advisors and the gaping holes in the SEC's examination of investment advisors, made apparent by that impressive roster of schemes that have been exposed, thanks to the receding markets. Those should be good things. But wait- there's more.

THE F WORD

The Dodd-Frank Act empowers the SEC, after completing a study, to hold broker-dealers providing personalized investment advice to a fiduciary standard of care, just like investment advisors. The issue emanates from the fact that broker-dealers are generally held to a suitability standard, which I'm sure you've all heard about endlessly.

In my discussions, investment advisors are split three ways on this issue: About a third believe that the current suitability standard under which broker-dealers operate is insufficient and want to apply the fiduciary standard to broker-dealers as well. That seems to be the view held by most of the SEC's commissioners. Another third of advisors don't see why the industry is not directing its efforts at distinguishing itself from broker-dealers and leaving the standard of care where it is. The last third simply refuses to engage; they don't care.

In basic terms, the prevailing SEC reasoning smacks of the same logic that my six-year-old son tries to impress upon me when he advocates for going to bed at the same time as my 10-year-old daughter. My grandmother repeatedly told me (and all her grandchildren), "equal is not fair and fair is not equal." Just as my children have varying needs for sleep, investment advisors and broker-dealers should not be placed on equal footing.

Most investment advisors have deep, meaningful relationships with their clients and work with them to construct and manage investment portfolios that address their long-term needs. Broker-dealers, however, are registered to sell securities to their customers and have an obligation to sell them products that are suitable. Incidental to that sale, they are permitted to give personalized investment advice without registering as an investment advisor. This is nothing new. Since broker-dealers were first recognized and the SEC first formed, broker-dealers have been able to avoid registration as investment advisors.

But investor demand has shifted, and investors want more from their financial advisors. They want objective investment advice and, at the very least, transparency. It was in this light that the SEC addressed the fee-based brokerage rule in 1999 (by deferring a decision until 2004).

With this as its backdrop, the SEC let broker-dealers dress up like investment advisors and play their customers for fools, by offering fee-based brokerage accounts. Investors couldn't discern when they were paying transaction fees to their broker, versus getting fee-based investment advice from their investment advisor-two hats worn by the same operator. And confusion ensued.

So the SEC started dialogue around the concept of "harmonization" to describe how it envisioned placing broker-dealers and investment advisors on a level playing field. Well played. No one is going to argue with the creation of harmony, just like no one is going to lobby against independence. But during the debate the SEC quietly expanded the scope of what they were referring to by "harmonization.

The debate evolved into how to make the two groups not harmonious but equal, with the same registration process, disclosure obligations, supervisory responsibilities, recordkeeping requirements-and, by the way, legal standard of care. This isn't harmonization; it is equalization. And if fee-based brokerage threw brokerage customers into a web of confusion over the services they were receiving, how is merging an industry charged with selling securities with one that is dispensing objective advice going to remedy this?