A decision on whether all financial advisors should be legally required to act in the best interest of their clients-as mandated by the Investment Advisers Act of 1940-has been postponed. The decision about how to regulate registered investment advisors has been put on hold.

But don't let the quiet fool you.

Decisions on these two issues will redefine the competitive landscape of the financial advice industry. In fact, the looming battles are the biggest things to happen to the independent financial advice industry since it emerged from infancy 35 years ago.

At stake is whether registered investment advisors will come under the scrutiny of Finra. Also, the decades-long struggle between fee-only advisors and commission-compensated registered reps will come to a head. At the core of the debate, the issue of whether financial planning is a true profession, is also going to be influenced-if not decided-by the outcome of the coming battle. And the future of the Financial Planning Association will also be decided.

Here, in a question-and-answer format, is what's happening.

Why is this coming to a head? Because the financial crisis and a slew of headline-grabbing frauds-including the granddaddy of all investment scams, the Madoff scandal-led to enactment in July 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act mandated the U.S. Securities and Exchange Commission to rewrite 65 rules and conduct a dozen research studies about a wide range of regulatory issues as part of sweeping reform to the regulation of the nation's financial system. The act ironically saddled the SEC and other federal agencies with more work, in the form of research studies that must be completed in order to implement the reforms mandated.

Does Dodd-Frank require financial advisors to do what's in the best interest of their clients? No. But a key part of the Dodd-Frank law that affects financial planners, investment advisors and brokers mandates that the SEC impose regulations requiring a "fiduciary duty" by broker-dealers and investment advisors to their customers. "Although the act does not create such a duty immediately, it authorizes the SEC to establish such a standard and requires that the SEC study the standards of care which broker-dealers and investment advisors apply to their customers and report to Congress on the results within six months," according to Wikipedia.

Why is a fiduciary standard of care such a big deal? Because under current regulations, registered representatives affiliated with brokerages don't adhere to a fiduciary standard of care, which requires that an advisor always do what's in the best interest of a client. Registered reps must adhere to a less onerous standard of care, which says an advisor must give advice to a client that is suitable but not necessarily in his best interests. Imposing a legal obligation on advisors to always give clients advice that is in their best interest would impose greater liability on brokerages and hamper sales of financial products that generate profits but are not always in the best interest of clients.

What's all this talk about the Financial Industry Regulatory Authority being named to oversee Registered Investment Advisors? Section 914 of the Dodd-Frank Act mandated that the SEC conduct a study to review and analyze the need for enhanced examination and enforcement resources for investment advisors. Currently, RIAs are regulated under the Investment Advisers Act of 1940. The SEC regulates RIAs with $100 million or more under management; states regulate RIAs with less than $100 million. However, the Madoff Ponzi scheme and subsequent scandals highlighted the fact that regulators are examining RIAs about once every decade. Section 914 required the SEC to review:

the number and frequency of its examinations of investment advisors,
whether Congress should authorize the SEC to designate one or more self-regulatory organizations (SRO) to augment the commission's efforts in overseeing investment advisors, and
approaches to examining the activities of RIAs that are affiliated with a broker-dealer.

What did the SEC study of RIA regulation conclude? Between 2004 and 2010, examinations decreased 29.8%, from 1,543 in 2004 to 1,083 in 2010 and, while 18% of RIAs were examined in 2004, only 9% of them were examined in 2010. The SEC staff says that the agency is unable to examine RIAs often enough without an adequate source of stable funding. The SEC staff concluded that the best idea would be for Congress to authorize funding so the agency can increase staff and resources needed to examine RIAs. However, the SEC staff acknowledged this was not likely to happen in an election year and an era where government is drastically being downsized. Other solutions proffered by the staff were to enable self-funding of the RIA exam program, boosting charges RIA must pay for exam and registration fees to support the effort, or to outsource the RIA exam program to a self regulatory organization.

Is Finra likely to become the SRO for RIAs? Most pragmatists say, yes, Finra is the logical candidate to become the SRO. Examination of RIAs once every ten years at a time when the number of RIAs and the amount of assets they manage is increasing is a prescription for further fraud and abuse. The question is not whether RIAs must be examined more often, but what is the best way to make that happen. Giving Finra responsibility for examining RIAs would result in those examinations being self-funded, so it wouldn't cost taxpayers anything. Moreover, there is no other financial regulatory entity that would provide a self-funded solution and that has the experience in conducting exams of financial advice firms.

What are the positions of different industry groups on making Finra an SRO and applying a fiduciary standard of care? One the one side, are the Financial Planning Association, Certified Financial Planner Board of Standards and the National Association of Personal Financial Advisors. The three coalesced to create the Financial Planning Coalition and speak with one voice. This group wants the same fiduciary standard that has been in effect for RIAs to be applied to registered representatives licensed by Finra to sell securities. Opposing them are Wall Street's biggest brokerages, which have always had far more influence in Washington than fragmented fee-only RIAs. They oppose the current fiduciary proposal and support making Finra the SRO for RIAs, according to positions taken by Securities Industry and Financial Markets Association (Sifma), the leading securities industry trade group representing securities firms, banks, and asset management companies in the U.S.

"Since early 2009, Sifma has consistently advocated for the establishment of a new uniform fiduciary standard, and not application of the Advisers Act fiduciary standard to broker-dealers," says Sifma's position statement on the fiduciary standard. "Most retail RIAs that are not affiliated with a broker-dealer are small independent advisors that, apart from their RIA status, are not otherwise subject to Commission oversight," Sifma General Counsel Ira Hammerman wrote in commenting on the SEC staff study on RIA exams. "Due to the small size of these RIAs, many do not have substantial legal and compliance departments to monitor for compliance with applicable regulatory standards. These RIAs are not regularly examined by the Commission today. An SRO with examination authority over these RIAs would be an effective supplement to the Commission's resources."

SIFMA's position on the issue is supported by Financial Services Institute, which represents about 125 independent B-Ds and 16,000 registered reps who have joined FSI's advisor division. Meanwhile, the FPA, CFP Board, and Napfa say the new fiduciary standard advocated by Wall Street firms and FSI will water down the value of the standard to consumers and end the distinction that exists between IA representatives and registered representatives licensed by Finra to sell securities. Naming Finra as the SRO for RIAs will impose compliance costs on RIAs that will make them less competitive and hamper their ability to serve consumers.

How does all this tie into the debate over an advisor's mode of compensation? Almost since the start of the movement to professionalize the financial advice business began in 1969, a schism erupted separating traditional advisors who sold securities and insurance products from advisors who wanted to be paid for their advice and not based on products they sold, those known as fee-only advisors. The battle over compensation methods that for decades separated the ICFP from the IAFP now separates the FPA from the FSI. It's the same battle line that separates fiduciaries from brokers. Generally, the same advisors who for years have argued that fee-only is the best way to serve clients are today arguing against making Finra an SRO and they are advocating that the fiduciary standard as interpreted in the Investment Advisers Act of 1940 be applied to Finra-regulated registered representatives. The very advisors that have for years argued that fee-only compensation will not allow the middle class to receive affordable professional financial advice are supporting the move to make Finra the SRO for RIAs and changing the fiduciary standard.

How does this affect the FPA? When the IAFP and ICFP merged in 2000 to create the FPA, the ideological divide separating advisors over professional issues was supposed to be bridged. Instead, it's come right back and dividing FPA members more than ever. In 2002, an ideological split over compensation and advocacy issues led the FPA to "spin off" its broker-dealer division. The leadership of the FPA said it could not advocate effectively for the professionalization of financial planners when broker-dealers were still a part of the organization. Essentially, the leaders of FPA concluded back then that the goals of B-Ds ran counter to those of CFPs.

FPA funded the creation of FSI with $2 million. In 2004, the FPA sued the SEC and won in a ruling that ended the exemption of brokers from registering as RIAs. Since then, FPA has taken a number of positions that stand in opposition to many of its members that are registered representatives. On May 11, for example, the FPA joined the CFP Board and Napfa in urging advisors to sign a petition calling on the SEC to extend the fiduciary standard of care to broker-dealers and, thus, registered reps. In January, the FPA joined Napfa and the CFP Board in supporting continued SEC oversight of RIAs.

For Napfa, a group representing about 1,300 advisors, taking these positions makes sense because it is supposed to act as an advocate for fee-only advisors. For the CFP Board, taking these positions makes sense because it is an advocate making the CFP license on par with professional designations for doctors and lawyers. But the FPA is different from Napfa and the CFP Board. Most FPA members are not fee-only and many do not hold a CFP designation. Thus, in taking its advocacy positions alongside Napfa and the CFP Board, FPA has alienated many of its members and it has suffered a 15% membership decline in the last five years while other associations for advisors, such as the CFA Institute and Investment Management Consultants Association and FSI have all grown significantly. The FPA is taking a position that is in opposition to many of its members because it believes that for financial planning to become a profession, financial planners must always put clients' interests first. It's a bold position and it assumes that Sifma, FSI and other groups advocating for a different fiduciary standard and for making Finra the SRO of RIAs will not be in the best interest of consumers.

When will all of this be decided? Probably not for months and maybe not until after the 2012 elections. First, the SEC must complete all of the 12 studies mandated by the Dodd-Frank Act. Kathleen Casey is vacating her SEC seat and a new appointee must be named. Daniel Gallagher, a partner in law firm WilmerHale's securities practice and a former top official in the SEC's division of trading and markets, was nominated June 13 to fill the seat and is expected to be approved, but you never know what Congress will do.

Kurt Schacht, managing director of the CFA Institute's Centre for Financial Market Integrity, says the timeline on deciding the issues of the fiduciary standard and whether to name a new SRO to regulate RIAs is a low priority on the list of decisions that must be made as part of the massive reforms mandated by Dodd Frank. For instance, Schacht says any decision on regulation of over-the-counter derivatives-institutional instruments directly related to the collapse of Lehman Bros, the bailout of AIG, and the death spiral narrowly averted in the 2008 financial crisis-is expected to be delayed for another year. And the issues affecting independent advisors won't come till after that's settled. Complicating matters, Schacht says, the SEC has said it wants legislation from Congress on the matter of creating a new SRO. Though the Investment Advisers Act empowers the SEC to name the self-regulatory organization that would oversee RIAs, the agency does not want to make the decision on its own, according to Schacht. It's just too big an issue for the SEC to do it without getting a clear mandate from Congress.

How will it all end? This is when I pretend to actually have all the answers. It could be that the tiny Financial Planning Coalition will pull off another victory like it did in 2007, when it won the lawsuit against the SEC to end the exemption of brokers from registering as investment advisor representatives. But I would not bet on that happening. Everyone acknowledges that the investing public cannot have confidence in a system in which RIAs are inspected less than once a decade. A self-funded regulator is the only realistic solution. Giving the SEC more responsibility after it failed to regulate derivatives and failed to find the massive Madoff fraud seems extremely unlikely.

So a self-funded SRO seems the most likely choice, especially given the fact that Wall Street's biggest brokerages are major contributors in Congress and have a strong lobby. That is likely to also mean that the fiduciary standard will be changed from its current form to a form that is more aligned with the interests of Wall Street. It will improve disclosures required by brokers but water down the current interpretation of what it means to be a fiduciary, according to the '40 Act. The 40-year struggle to professionalize financial planning will suffer a serious setback. But that's just a guess.