A recent article in the Financial Times reported that the Financial Services Authority in the U.K. will be outlawing commissions independent financial advisors receive for selling investment products. Some predict that half of the industry may leave the business.

While I don't believe that a similar ban is likely to become law in the United States, it is typical for governments to step in and regulate when they perceive that abuses are occurring. In the last week of June, the House Committee on Education and Labor approved the "401(k) Fair Disclosure and Pension Security Act of 2009." In addition to requiring the disclosure of all fees and expenses, the bill would essentially prohibit representatives from earning commissions on 401(k) products they recommend.

Co-sponsor Rob Andrews said, "We think that investment advisers should only have one interest in mind, and that is the individual." We all know that the Obama administration has proposed that all financial advisors be held to a fiduciary standard and FINRA seems to be resigned to that reality. So what is an advisor who earns commissions to do?

We do know that anyone who is a registered investment advisor and/or a CFP must disclose all conflicts of interests to clients and potential clients. If adopted, the new regulations would probably require such disclosure for all advisors.

Yet I believe that advisors shouldn't wait until they are legally required to disclose these conflicts. It is simply the right thing to do and it is information that all clients need to know in order to make informed decisions. What if your doctor received extra compensation for prescribing one drug over another? Wouldn't you want to know? It may very well be in your best interest to take that drug, but the doctor needs to tell you about his additional compensation and why he believes the drug he is recommending is the right one for you.

However, simply disclosing that there is a conflict does not go far enough. We all read and hear about the lack of transparency in the financial services world, and the problems it has caused for so many. So why would those of us on the front line with consumers require anything less than transparency for our own clients?

There is a major difference between disclosure and transparency. The former sounds like this: "If you purchase this insurance policy from me, I will earn a commission." Transparency is: "If you purchase this policy from me, I will earn $5,800." A major difference.

Since our firm earns all of its revenue from fees, this may sound like preaching. And since we have no commissions to disclose, you may think these things are easy for me to say. However, it has not always been that way. I was a general agent for a major life insurance company when I registered as an investment advisor (over 25 years ago) and 100% of my compensation came from commissions. Since I wanted to begin doing financial planning and charge fees for my services, I needed to register.

After my approval, I received the rules for RIAs in my state. Among them was the requirement that I disclose the amount of the commissions I would earn from any products I recommended when I also charged a fee for my services. And it needed to be in writing and signed by the client! When I read that, I thought my budding career as a financial planner was over. For example, who among my clients would ever accept the fact that the major part of the first year's premium on their life insurance would be my commission? But it was the law, and we complied. So we were completely surprised by the clients' reaction: They either simply signed the acknowledgment without comment, or they commended me on my openness. It built trust. My fear was unjustified, and in retrospect, that seems completely logical. When does hiding something build trust?

Over the years, I have heard most of the reasons advisors give for not being transparent and I simply don't understand. Some have told me that disclosing how much they earn is not important as long as the client knows the cost. But even though it is certainly important, it is not the cost that results in the conflict, it is the money the advisor earns. For example, what if the load on a mutual fund were identical to the load on a proprietary product an advisor is recommending, but for one fund the commission is 75% of the load and on the other it is 90%? Shouldn't the client need to know that before making a decision? It may very well be that the investment that pays the larger commission is better suited for the client's needs, but total transparency requires you to show her why.

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