Working on this month’s cover story with Karen DeMasters about the minefield the CFP Board stepped into trying to define fee-only, I found that it’s hard not to think the situation is a sad commentary on both Washington and the profession. If the SEC was warning advisors about calling themselves fee-only for accepting tiny trail fees in 1999 while the CFP Board was working on compensation disclosure requirements it would finalize in 2003, why is this even a topic of discussion today?

For decades, it appeared that the business of advice was evolving along two parallel tracks. The fast-growing RIA business model relied on a fiduciary standard that placed the client’s interests first. In the event of any potential conflict, the answer was clear that clients’ interests trumped those of advisors and product sponsors and any conflicts had to be disclosed.

In contrast, the well-entrenched brokerage business had long used a suitability standard requiring that brokers could only sell securities and other products deemed suitable for the particular individual. Even if a different or more cost-effective investment vehicle might serve the client better, it didn’t matter for brokers as long as clients were buying an appropriate product.

All that changed after the financial crisis spawned an unprecedented amount of wealth destruction. Congress passed the Dodd-Frank Act, mandating that all advisors and brokers be subject to the fiduciary standard. Many broker-dealers and their associations embraced the new mandate even as they tried to turn the debate’s direction to defining the nebulous minutiae of fiduciary law.

Many Americans had seen their life savings vastly diminished. Wall Street and Washington bore the brunt of the blame for the financial crisis, but the independent advisor business had its share of bad guys.

While the fiasco at the CFP Board is a story all itself, what’s happened in Washington over the last 15 years should be duly noted. The last credible SEC commissioner, Arthur Levitt, who founded a small brokerage firm that would become giant Shearson, permitted the Merrill Lynch rule to slip through, granting wirehouses certain disclosure exemptions.

Levitt was succeeded by Harvey Pitt, who sought to create a kinder, gentler SEC. By 2002, with equities down 50% or more, Pitt became the first casualty of the Bush administration and an object of ridicule as investors raged about accounting scandals and mutual funds granting hedge funds after-hours trading privileges.

In came William Donaldson, founder of the respected Donaldson Lufkin & Jenrette, former New York Stock Exchange chairman and Bush family friend. But within two years, Wall Street banks were complaining to senior White House advisors like Karl Rove about Donaldson, despite the fact that the latter allowed the same banks to leverage themselves 40-to-1 or more. So Donaldson, hardly an Occupy Wall Street-type, was forced out and replaced by an obsequious congressman, Chris Cox.

In the midst of the worst financial crisis in decades, whom did President Obama turn to? Former Finra chair Mary Schapiro, whom Bernard Madoff called a “very dear friend.”

We’ll see what Mary Jo White can do at the SEC. But anyone who doesn’t think financial regulation is a joke is delusional.

Evan Simonoff, Editor-in-Chief
E-mail me at with your opinion.