Editor's note: Following the Tiburon CEO Summit XX in New York City in April 2011, six leaders in the wealth advisory profession presented their views in a roundtable discussion on rebuilding trust in the post-Madoff era. The 90-minute conversation was a spirited debate. Financial Advisor magazine Contributing Editor Bruce W. Fraser moderated the discussion. This article presents just a few of the participants' important insights and observations. To read part two of this transcript, click here.

FA: How can the consumer know for sure if their advisor will not be the next Bernie Madoff?

Skip Schweiss, president, TD Ameritrade Trust Company: Here's a good illustration of the trust issue-something in my own family. After my father passed away a few years ago, my mother hired a new financial advisor I had recommended. That January, shortly after Bernie Madoff was outed, she called unexpectedly and asked, "Skip, how do I know this new financial advisor isn't the next Bernie Madoff?"

That caught me off guard. I answered saying the financial advisor doesn't hold the assets. The advisor trusts the assets to a custodian, in this case TD Ameritrade. So he can't touch the assets; he can't withdraw the assets; he just manages the assets. Mom's response was, "Oh, I get it. That's great. How are the grandkids?" She was able to move past it.

To me, the answer is: Are the assets and the asset management [function] separate? The advisor advises, but doesn't actually control the assets.

Scott Hanson, CFP, co-founder, Hanson McClain Advisors: At my firm, we also have a separate custodian, Fidelity [Investments]. That way, clients know their money is never at our firm; it's always at a separate custodian.

The whole financial debacle is really predicated upon lending practices and the exotic products Wall Street built. To the public, we advisors are all the same, just suits in the financial services industry. We're the cause of the problem, and they've got good reason not to trust us. Why should they? Quite frankly, from the general public's point of view, the bailouts all went to us. What's more, bonuses are back on Wall Street. It's business as usual. I don't think they view us all as Bernie Madoffs, but as being self-interested, putting their interests somewhere later down the line.

John Brackett, partner, BAR Financial LLC: This really is our issue to solve. It's not the general public's issue to solve because they don't know. We know. We know every step of the way. And I know if you told a 75-year-old woman where the assets are going to be trusteed, she wouldn't understand what you just said. But we know what you just said.

Bottom line: We need to self-regulate our industry. We have to be up front, and call it what it is, and police this. It's not about losing money in a marketplace where there were limited partnerships or the stock market went down. We're talking about theft. Well, what are we doing about it and how are we policing?
Are there going to be more Bernie Madoffs? Yes.

Randal Langdon, president, Lindner Capital Advisors: What we experienced was the "perfect storm." People suddenly looked at their financial statements and saw 20% or more of their money had disappeared. The next month, another 5% or 10% vanished. So the logical questions came up: What happened to my money? What's going on? At the same time, financial institutions that had stood for trust so many years were all under fire. From week to week, you didn't know if they were going to be in business.

All these things converged at the same time-individual investors were seeing their dreams, their hopes of retirement, their children's educations, suddenly disappear, and everybody got scared. No matter how you trusted the organization or the individual, a prudent person was saying, "What is going on here?"

Michael Kay, CFP, president, Financial Focus LLC: Historically, in recessions or severe down times, scams get uncovered because the scammers can no longer cover their tracks with market returns. Where there's a will to defraud the public, no legislation on the planet will prevent it from happening. That said, we need to fundamentally educate investors. What is and is not appropriate, what does and doesn't work, what's prudent or not? Because people are so poorly educated on financial issues, they are at the mercy of unscrupulous people in this industry. As stewards of this industry, we need to demand some baseline level of financial education for our children and grandchildren. Organizations like the FPA, IAA, NAPFA and others-including us-need to help investors determine what's right and wrong in this marketplace.

Langdon: Over the last generation or so, society has turned more of their personal responsibility over to government. Regarding Madoff and the financial crisis, they said, "My government should have protected me. They should have known this was going on. Why didn't this happen?"

FA: So should there be a uniform fiduciary standard of care applied to all financial advice given to retail investors regardless whether it's an independent financial advisor, a stockbroker or an insurance agent?

Schweiss: At TD Ameritrade, we believe that if you are selling advice, you should be held to a fiduciary standard. If you are selling products, you should be held to the suitability standard and be identified as a salesperson. The key, however, is whether consumers understand the difference. From surveys, we know anecdotally consumers don't understand the difference. We think there needs to be a bright line there.

Kay: In a perfect world, I couldn't agree more with Skip. Unfortunately, I don't think we live in a perfect world, and by creating that line, we are asking investors to understand the difference. Unless the education is there where they can make an intelligent decision, it's inappropriate to put people in that position. They don't understand the difference.

Hanson: I fully agree with Michael. While there may be a place for some financial product sales, sales professionals certainly shouldn't be allowed to call themselves financial advisors. Right now, an insurance agent can call himself a financial advisor; stockbrokers refer to themselves as financial advisors. Registered investment advisors are not seen as different.

But many people in the industry are not advisors at all; they sell a product. The fiduciary standard ought to apply to anyone advising clients.

Langdon: If you look at company [documents], almost every reputable financial institution would say they put clients' interest first. And 99% of advisors truly believe they put their clients' interests first. What it all boils down to is a discussion among lawyers, what has to be proved to successfully win a lawsuit or win damages against a financial institution or another individual.

Stuart DePina, CEO, Tamarac Inc.: I believe there should be a uniform, fiduciary standard applied to everyone. But lots of mothers, dads, friends and family don't have a Stuart or a Skip around, so how are they going to find a trustworthy advisor? A large part of this population is getting to a certain age where they're going to need to trust someone to help them. How do you find individuals you can trust to be good stewards of your assets?

In a perfect world, the person wearing both hats would be somewhat removed and wouldn't have a bias. I don't think we should mix those two things. We should be clear on what the responsibilities are.

Brackett: I believe in the uniform standard because at BAR Financial we train our 450 representatives to be personal CFOs of their clients' [assets]. They are not just salespeople out to make a buck. True, some come in that way, but we pretty much weed them out.

Back to what I said earlier: It's our responsibility to take care of this industry, and unless we stand up and do that, then the government is going to impose things they don't quite understand. We need to get to the place that if you give advice, you are responsible.

Hanson: It's actually more than just a label for risk reduction. The economics of an organization need to be aligned with the values of the organization; if not, at the end of the day, the economics are going to win. That's the real issue. Product manufacturers with a sales force who call themselves financial advisors, on the one hand, and then when they are trying to advise a client what to do and sell a product their employer manufactured-that's an inherent conflict.

Brackett: We are the problem. Our industry. We've made it an excuse as to why you can sign a client's name, and even have a term for it. I'm not talking about a typical wirehouse where somebody calls in and says, "I want 100 shares of this." That does not happen in the independent channel. In our firm, we frown upon unsolicited trades. Don't tell me you didn't talk to this person about the ABC Fund. Of course you did. So we need to tighten all this up.

Schweiss: I strongly agree and will re-emphasize that if the investor is receiving advice, it should come in a fiduciary package. You talked about an ideal world and a real world. I would like to see this industry get to the level of an identified profession, like doctors, lawyers, accountants. When I go to my doctor, I'm pretty sure I don't have to worry that the doctor is prescribing a medicine for me because he's being paid by the pharmacy company.

Others [laughing]: Really?

Schweiss: OK, I know that goes on.

Hanson: He owns the lab that you got the test from.

Schweiss: I know all that goes on. It shouldn't. That's the point. The good laugh we all had was because it taints the profession. I think I'm going to that doctor and getting objective advice in the best interest of my health. But maybe I'm not because some of these things are going on behind the scenes.

I think the financial advice profession is a long, long way from that world today. So let's get the advice profession on the same level as the medical profession, legal profession or accounting profession.

Kay: I was trained as a CPA and auditor. If the perception is that you're not independent, you're not independent; even if you are in fact. That same idea is totally applicable in our industry. Unless you are independent in fact and appearance to the investor and they are able to see and understand it and how it applies to their needs, then they can't make a good decision.

Click here to read the rest of the conversation, where the panel discusses topics such as whether there should be a self-regulatory agency; the new Department of Labor regulations; the switch from SEC to state registration; scale and profitability; how technology is changing the playing field and much more.