(Bloomberg) -- Your new financial adviser has a well-decoratedoffice, a firm handshake, and a bright smile. After an hourlongmeeting, you leave with what you think is a state-of-the-artinvestment portfolio. You feel financially secure, taken careof.

It’s also possible you’ve made a huge mistake.

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The White House under President Barack Obama estimated thatAmericans lose $17 billion a year to conflicts of interest amongfinancial advisers.

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Wall Street lobbying groups dispute thatmath—and they’re right to do so. The actual dollar amount isprobably much higher.

A wave of research over the past few years has documentedserious problems with how Americans get financial advice.Susan Shaffer, a 70-year-old retiree in Narberth, Pennsylvania,learned this the hard way as she hired and fired multipleadvisers over two decades. One chose inappropriate investments,including small-cap stocks. Another put her into funds withhuge, back-loaded fees. The third promised to charge just $500 ayear, then stuck her with thousands of dollars in commissioncosts.

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Each time, Shaffer did her own research. She took classes, poredover dense account statements, and generally did the work she waspaying her adviser for. “You have to keep watching everything.You’re very vulnerable,” said Shaffer, who retired three years agoafter a career in the pharmaceutical industry. “Nobody really hadmy interests at heart.”

Consumers like her say that’s the real problem: Many financialadvisers just don’t care what’s best for you. But with an industryawash in misconduct, the bigger issue may be that they aren’trequired to care.

You’d be forgiven for assuming your relationship witha financial adviser carries the same sort of solemnity as,say, attorney and client or doctor and patient. An attorney isbound to zealously represent you; a doctor pledges to do no harm.So why aren’t financial advisers subject to the same duty?

Well, the economics of the industry—fees, commissions,quotas—can end up standing in the way.

The fiduciary rule, finalized under Obama andoriginally set to take effect earlier this year, seeks to cure thisdisconnect. All advisers were to be required to putclients first when handling retirement accounts, where the bulk ofeveryday Americans’ savings reside.

But then Donald Trump won the election, and on his 15th day inoffice, the Republican president ordered the Department of Labor toreconsider the rule. His advisers echoed Wall Street arguments thattying the hands of advisers would limit investor choices, raise thecost of financial advice, and trigger a wave oflitigation.

This Friday, the rule will take partial effect. Its future,though, remains deep in doubt. Many Republicans in Congress opposeit, and Labor Secretary Alexander Acosta has suggested that at thevery least it be revised. Then last week, Trump’s newly appointedchairman of the Securities and Exchange Commission, Wall Streetlawyer Jay Clayton, announced his agency would also seekcomment on the topic, a process that could further threatenthe rule’s survival.

While Washington wrestles with the fate of the Fiduciary rule,the financial advice landscape remains supremely dangerous.Three professors recently analyzed a decade ofdisciplinary data on 1.2 million financial advisers. What theyfound is decidedly unpleasant:

At the average firm, 8 percent of advisers have a record ofserious misconduct. Nearly half of those 8 percent held on totheir jobs after being caught. About half of the rest got jobs atother financial firms.

In other words, a year after serious misconduct, aboutthree-quarters of advisers found to have wronged clients are stillworking. It gets worse: Some 38 percent of those misbehavingadvisers later go on to hurt even more clients.

You might think bigger firms would be more diligent,but you’d be wrong. At some large firms, more than 15 percentof advisers have records of serious misconduct. The highest wasOppenheimer & Co., where 20 percent had such black marks.Oppenheimer responded to the study, first published a year ago, bysaying it replaced managers and made changes to hiring, technology,and compliance procedures.

Predators typically seek out the weak, and financialadvisers are no different: The study shows that those withmisconduct records are concentrated in counties withfewer college graduates and more retirees.

“There’s an ever-present incentive to betray your client’sinterest.”

The unique nature of the investing business makes it easier toexploit client ignorance. Investing is complicated, withsometimes-intentionally impenetrable jargon, and customers musttrust their advisers in the same way they trust their doctors: Ifan expert makes a recommendation, you tend to follow it, whetherthat means getting heart surgery or a variable annuity.

“Some firms ‘specialize’ in misconduct and attractunsophisticated customers,” the researchers write.

More astute investors aren’t entirely at the mercy of advisers.Certain products are so expensive and so typically underperformthat their mere presence in your portfolio cansuggest you’re getting bad advice. Variable annuities,high-fee mutual funds, and non-traded real estate investmenttrusts, or REITs, are good examples. Non-traded REITs charge, onaverage, upfront fees of 13.2 percent, while deliveringreturns about half those of traded REITs, which are also mucheasier to buy and sell.

Another example is the “reverse-convertible,” a complicatedproduct in which a bond payment is linked to the performance of astock.

Banks will create two or more versions of the samereverse-convertible. The only difference is one offers a higherpayout—yet investors usually end up choosing the inferior product.University of Minnesota’s Mark Egan calculated that customersbought over 10 times more of a reverse-convertible with a 9percent yield than an otherwise identical convertible with an 11.25percent yield.

Why? Because that’s what their advisers told them to do.The more lucrative version paid advisers a commission of 2.15percent, while the inferior one paid 3.09 percent. In other words,advisers could boost their pay by half if they steered clientsto an obviously worse investment.

Commissions like these are the traditional way advisers hidecosts from investors: Instead of clients paying them directly,companies pay advisers commissions to push their clients towardparticular products.

“There’s an ever-present incentive to betray your client’sinterest,” said Benjamin Edwards, a law professor at the Universityof Nevada, Las Vegas. These conflicts don’t just costinvestors more money. They also skew the U.S. economy bypouring capital into less productive investments merely becausethey offer a better “kickback” to advisers, he said.

A perfect illustration of this phenomenon occurred just beforethe financial collapse of 2008. Researchers conducting a studysent “mystery shoppers” into 284 Boston-area financial advisers.When clients walked in with the kind of low-cost, diversifiedportfolio independent experts recommend, only 2.4 percentof advisers approved of it and some 85 percent recommendedmaking a change. Financial advisers were eight times moresupportive if clients had a less-than-ideal strategy ofchasing returns—one that was more likely to generatecommissions.

Clients very rarely know what’s going on, or what it’s costingthem.

Despite all this, the pretend clients didn’t smell a rat. Infact, they were smitten: Some 70 percentof them said they’d use the adviser to invest their ownmoney.

There’s little reason to think things have changed.FINRA, the private watchdog that oversees non-fiduciaryadvisers, barred or suspended 1,244 individual brokers last year,up from 843 in 2012. Clients still rarely know what’sgoing on, or what it’s costing them, industry experts said.Christine Lazaro, director of the free Securities ArbitrationClinic at St. John’s University in New York, said people who cameto her just assume “the broker was doing what wasappropriate.”

“They are always very surprised,” she said, especially by whatadvice was costing them. “The broker leads them to believe they’renot paying any fees at all.” According to a Cerulli Associatessurvey last year, a majority of investors in their 60s and 70seither aren’t sure what their fees are or believe incorrectly thatthey pay nothing for advice.

But paying they are. Offering financial advice is enormouslyprofitable, with U.S. investment firms achieving operating profitmargins as high as 39 percent, according to the CFA Institute.

And once advisers collect enough client assets, they can gethuge bonuses for switching firms (and bringing their customers withthem).

Until recently, the going rate was a bonus of more thanthree times the annual fees and commissions the adviser brings inthe door; an adviser with $200 million under management couldexpect a bonus of $6.6 million. (The threat of the fiduciary rule,however, caused bonus offers to plunge.)

Meanwhile, the total cost of bad advice to consumers—inhigher fees and lower performance—is probably much higher than the$17 billion estimated by Obama’s Council of Economic Advisers.

The CEA figured investors are losing an extra 1 percent annuallyon $1.7 trillion in individual retirement accounts controlled byconflicted advisers. But IRAs represent just an eighth ofthe $56 trillion in financial wealth Americans control, accordingto Boston Consulting Group.

Various academic studies show conflicts ofinterest costing investors dearly. One found that funds sold bybrokers did 0.77 percentage points per year worse than fundsbought directly by investors—even if you ignore some big brokerfees.

Another study compared investors advised by brokers withinvestors put in a target-date mutual fund. Those who gotadvice underperformed by 3 percentage points per year.

It’s hard to blame consumers for falling into these traps. Therules governing financial advisers could hardly be more confusing.While some are already fiduciaries, required to put their clients’interests first, most advisers must merely recommend products thatare “suitable” to client needs, a term open to wide andprofitable interpretation.

Making the whole thing more baffling, another group of advisersare “dually registered,” meaning they can act as a fiduciary or anon-fiduciary, depending on the situation.

Wealthy people, often pushed to buy faddish products with highfees and mediocre returns, aren’t immune either. Hedgefunds perform poorly on average, while charging typicalfees of 2 percent per year plus 20 percent of any gains.

Then there are those structured products, such as theaforementioned reverse-convertibles. If advisers were required toput clients in the best reverse-convertibles—as a fiduciary rulecould eventually demand—Egan calculates that investors’risk-adjusted returns would rise by over 2 percentage points peryear.

Wall Street argues that strict regulations on financial advicewill make it less affordable for middle-class investors. Thefiduciary rule “will adversely affect the ability of millions ofAmericans to save for retirement, increase the costs of retirementaccounts while limiting access to advice and products,” theSecurities Industry and Financial Markets Association wrote in aletter to the Labor Department.

But if advice as it currently exists is riddled with conflictsand hidden costs, supporters of the rule ask, does it even deserveto be called advice?

“Lots of people are being sold products,” said Jon Stein,founder and CEO of online investment company Betterment LLC. “The‘advice’ is almost nonexistent.”

In TV ads, firms tout their employees as trustedadvisers, so close to their clients that they get invitedto weddings.

In arbitration hearings, the same firms argue they merely havean obligation to sell “suitable” products to these purportedpals. A fiduciary rule would radically change thisbusiness—just the threat of the rule altered industry businessmodels.

But the deeply entrenched culture of financial advisory firmsalso needs an overhaul.

The fiduciary rule will permit advisers to continue gettingcommissions (unlike Australia, the U.K., and other countries thathave banned them). But it requires they charge reasonable fees,clearly disclose them along with other conflicts of interest, andshow clients the best products available.

“Everyone knows we overcharge for what we do. It’s obvious.”

If fees were more transparent, it would be easier to shoparound, and more obvious whether your broker’s advice is worthwhat it costs. Also, with a duty to put client interestsfirst, advisers could get sued for recommending the most egregiousinvestments. That puts pressure on insurance companies and mutualfund companies to come up with better products that appeal toadvisers on their own merits, creating a virtuous circle. “Productissuers are going to be forced to compete on product quality,” Egansaid.

But those hopes smacked into a wall on Nov. 8. “The fiduciaryrule as written may not align with President Trump’s deregulatorygoals,” Acosta, Trump’s labor secretary, wrote in an Op-Ed.“This administration presumes that Americans can be trusted todecide for themselves what is best for them.”

Advocates for investors are worried that the Trumpadministration is getting ready to gut the fiduciary rule. Now thatthe SEC is weighing in, a big concern is that both agencieswill team up to create a new, weaker rule that allows brokersto call themselves fiduciaries with “no meaningful protections toinvestors,” said Barbara Roper, director of investor protection atthe Consumer Federation of America. “That would arguably be worsefor investors than the status quo.”

Though while Wall Street lobbyists fight the fiduciaryrule, some individual advisers say they embrace it. “The image ofthe investment professional who always prospers—whether the clientsinks or swims—has got to change,” said Paul Smith, chiefexecutive of the CFA Institute, which represents 142,000investment professionals worldwide, including an estimated 13,000client-facing financial advisers in the U.S. and Canada.

“A lot of the industry has used the rule to put its house inorder,” Smith said. That includes charging less. “Everyone knows weovercharge for what we do. It’s obvious.”

Even a majority of investment industry executives aroundthe world concede customers are “often sold inappropriateproducts,” a recent CFA Institute survey found.

New, cheaper options have been driving reform as well.Technology makes it possible to provide advice to more people moreefficiently. Betterment and Wealthfront Inc. are two of anumber of startup robo-advisers, offering advice and investmentportfolios over the internet. Established firms such as CharlesSchwab Corp. and Vanguard Group have launched competingproducts.

Shaffer, the Pennsylvania retiree, ended up moving her money toBetterment, where her portfolio costs her 0.25 percent of assetsper year. She’s not the only one turning to cheaper robo-advice.Betterment, founded in 2008, manages $9 billion in assets, up from$6.5 billion at the beginning of this year.

To be sure, the fiduciary rule is no silver bullet. Oneregulation doesn’t automatically make advisers more ethical—thelatest version of the previously mentionedmisconduct study found no significant difference inmisbehavior between fiduciary advisers and traditional advisers.CFA Institute’s Smith wants the SEC to regulate who can callthemselves a financial adviser.

FINRA has stepped up enforcement with a new unit closelywatching “high-risk” advisers, and is advertising to draw moretraffic to BrokerCheck, a database that allows people to look upadvisers’ disciplinary records.

But if the fiduciary rule is weakened or killed, much of thepressure for better financial advice may dissipate. Well-educatedinvestors can usually find ways to get high-quality advice, but themore vulnerable will continue to lose out. And all advisers—eventhe most trustworthy ones—will remain under suspicion of beingsalespeople, not professionals.

Without at least the fiduciary rule, the phrase “trust yourbroker” could continue to be a punchline.

Related: For less consumer-focused, more industry-focusedfiduciary rule coverage, see our DOL Fiduciary Rulepage

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