The buzz of activity in Washington over financial regulatory reform hasn't died since Congress passed the sweeping Dodd-Frank legislation and President Barack Obama signed it into law on July 21; it's merely moved from the halls of Congress to the regulatory agencies. For planners, the legislation kick-started two major initiatives that could transform the way financial advice is regulated and for the first time subject financial planning to explicit regulatory oversight.

The first is a study by the SEC about the obligations of brokers, dealers and investment advisors toward their clients. This study is likely to result in new rules imposing a fiduciary duty on all professionals who provide personalized investment advice, given SEC Chair Mary Schapiro's support for a uniform fiduciary standard. The second is a study by the Government Accountability Office (GAO) on the oversight of financial planning, which will result in recommendations to Congress of any legislation needed to close regulatory gaps and protect investors. Both studies are due in six months.

"It's very significant. Many major policy initiatives grow from government studies," says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board of Standards. "This regulatory reform bill provides a golden opportunity to start important change in the industry."

SEC STUDY

Currently, broker-dealers and insurance agents that provide investment advice must only ensure that they recommend suitable investments for their clients, under the suitability standard imposed by the Financial Industry Regulatory Authority and state insurance regulation, respectively. Financial advisors, on the other hand, must act as fiduciaries, meaning their advice is in the best interests of their clients, under the fiduciary standard created in 1940 and clearly defined through case law and court rulings since then.

It's a hot topic. The fiduciary duty study has generated about 2,700 letters to the SEC in a comment period ending Aug. 30 (see www.sec.gov/comments/4-606/4-606.shtml). Rule-makings typically get fewer than 100 letters.

For the standard. "Would you be comfortable if your mom was working with a financial professional who did not have to act in her best interests?" wrote Will Rogers, CFP, ChFC, a senior financial advisor at Ameriprise Financial. "Requiring everyone who provides personalized investment advice to act in the investors' best interests will help restore the faith and confidence in our markets and financial professionals."

A fiduciary standard would level the playing field, said Robert Glovsky, president of Mintz Levin Financial Advisors in Boston and chairman of the CFP Board. Any other professional with specialized knowledge, like a doctor or attorney, must faithfully represent the client, so why not broker-dealers and insurance agents too?

"When you walk into a doctor's office, it would be disclosed that what they prescribe is earning them a fee," Glovsky said. "How can you go to advisers and expect that they will be looking out for your best interests if they're not under that (fiduciary) standard?"

The pro-fiduciary camp has uneasy allies at the SEC. Since taking the helm as SEC chairman, Schapiro has advocated a uniform fiduciary standard for anyone providing personalized investment advice. "I am pleased the legislation would provide us with the rule-making authority necessary to implement it," she said in a July speech. Through a spokesman, Schapiro declined to comment on the ongoing proceeding. Schapiro's role remains controversial, as many advisors still see her as a stalking horse for the broker-dealer industry.

Against the standard. Generally, opponents of a fiduciary standard maintain that broker-dealers and insurance agents are already subject to such intense regulatory oversight and disclosure requirements that any additional rules would raise costs and make it harder to serve middle-income retail clients. The American Council of Life Insurers commented: "The insurance distribution and sales process is one of the most heavily regulated in the marketplace today."

Thomas D. Currey, president of the National Association of Insurance and Financial Advisors, said the suitability standard "has a long history of catching bad actors at, generally, an early stage of their actions." He also cited the heavy load of compliance on his solo advisory practice. "Consider whether the proposed cure isn't worse than the disease," he wrote.

Dale E. Brown, president and CEO of the Financial Services Institute, urged the SEC to ensure that any rules are workable for the range of business models in the modern financial services industry. "It is likely that in this process the SEC will impose a fiduciary duty," Brown said in an interview. "Our concern is that small investors will not reap the benefit of this higher standard of care. The fiduciary standard is inherently complex and will drive up the cost of compliance. That ultimately translates into increasing the cost of financial advice."