Mary Schapiro's appointment as chair of the Securities and Exchange Commission is already triggering lots of whispering, little of it positive, in the financial advisor community. Some independent RIAs are grousing that despite her posture as a tough enforcer, Schapiro is secretly the broker-dealer's best friend and more interested in expanding her regulatory fiefdom than in reforming a broken regulatory system. Consumer advocates go further, maintaining that while Schapiro is an intelligent and decent person, she is part and parcel of that broken system, having served as Chief Poohbah of every other agency, from the CFTC to the NASD to the recently created FINRA. Now after two decades in DC, she is poised to ascend to the apex of a regulatory bureaucracy that has failed so miserably.

Her critics note that Schapiro served as an SEC Commissioner and became Acting Chairman in 1992-93 at the same time as mega-fraudster Bernard Madoff was serving as chairman of the Nasdaq market while ramping up his colossal Ponzi scheme. In recent years, a Madoff relative was appointed to a FINRA committee.

But as the regulatory landscape is restructured in the next few years, other issues are likely to drown out and supercede the recent carping. Ever since the Financial Planning Association successfully sued the SEC for overstepping its bounds and granting wirehouses an exemption from the rules governing RIAs regarding fee-based accounts, the debate over the fiduciary standards prevailing in the advisor world versus the suitability requirements of the brokerage business have consumed much cocktail-party conversation at industry events.

Get ready for principle-based regulation, otherwise known as TCF or Treating Clients Fairly, the principle the U.K.'s Financial Services Authority (FSA) is now applying to all players in the financial services industry. "It's not a fiduciary standard, but it's very close to it," says one brokerage executive who supports the concept.

TCF differs from traditional U.S.-style, rules-based regulations, which focus on crossing all the T's and dotting all the I's. TCF standards are very comprehensive; indeed, the U.K. has managed to develop mountains of policies, principles, rules and procedures that flow from one simple, basic concept. It will consider issues like conflicts of interest, pricing and what value advisors have added.

What TCF doesn't do is apply rules reactively or even retroactively, a regulatory maneuver that became popular in the aftermath of the tech bubble. "It's a tougher standard with less gotchas," says a brokerage executive.
At FINRA meetings last year, Schapiro has voiced support for it. Whether or not the advisor community embraces it remains to be seen.