(Bloomberg Gadfly) -- For those who think afiduciary-type rule is unnecessary, think again.

The Wall Street Journal reported last week that “advisersat some of the biggest discount brokerage firms make more money if they steerclients toward more-expensive products.”

That includes the big three discount brokers, Fidelity Investments, Charles SchwabCorp. and TD Ameritrade Holding Corp.

According to the Journal, for example, “Fidelity representativesare paid 0.04 percent of the assets clients invest in most types ofmutual funds and exchange-traded funds,” but they earn 0.1 percenton investments that “generate higher annual fees for Fidelity, suchas managed accounts, annuities and referrals to independentfinancial advisers.”

It’s hardly necessary to point out why such a compensationscheme is problematic. It means that representatives ofbroker-dealers 1) are conflicted when giving investment advice toinvestors, and 2) have an incentive to recommend costlierinvestments over cheaper ones.

Sure, discount brokers are entitled like other businesses tosell products that make them the most money, but that’s not whatthey tell investors.

For decades, discount brokers have marketed themselves as analternative to the widespread conflicts on Wall Street.

Schwab fancies its people “champions of investors” and says it“challenges the status quo” by putting “clients first.”

Fidelity prides itself on “acting in good faith” and in its“customers’ best interests.” And TD says it “provides transparencyfor all client interactions.”

Meanwhile, the conflicts are buried in fine print on theirwebsites.

Discount brokers don’t require their representatives to talkabout pay incentives with clients, according to the Journal, andfor good reason. Investors are more likely to buy investmentproducts from “financial consultants” -- as some discount brokerscall their representatives -- who purport to act in their bestinterests than from salespeople who push investments that are mostlucrative for the firm and themselves.

What’s most alarming is that discount brokers insist thatnothing is amiss.

Andrew Tappe, executive vice president at Fidelity, told theJournal that the firm has internal controls in place to monitorimproper conduct.

But that’s hardly the point -- it’s the conduct that Fidelityand other discount brokers deem perfectly proper that’s worrisome.Namely, pretending to act in their clients’ best interests whilegiving conflicted advice.

Which brings us to the Department of Labor’s fiduciary rule. Asthe name implies, the rule requires brokers to act as fiduciaries-- to put their clients’ interests ahead of their own -- whenhandling retirement accounts.

But the rule goes further. Among other things, it prohibitsbrokers from taking money from funds they recommend to retirementsavers unless they disclose the conflict.

The fiduciary rule recognizes that merely holding brokers to afiduciary standard likely isn’t enough because the financialincentives for obfuscating conflicts are too strong. These latestrevelations of conflicts at discount brokers are a useful reminderthat financial firms aren’t likely to come clean unless they’reforced to.

The Labor Department has postponed full implementation of thefiduciary rule until July 1, 2019, and critics of the rule maysucceed in squashing it before then.

Even so, the issue of conflicts isn’t going away. The Securitiesand Exchange Commission is working on a fiduciary-type rule thatwould apply to all brokerage accounts, not just retirementones.

At the very least, the SEC should require financial firms to 1)prohibit compensation structures that pay representatives more forselling pricier investment products, or 2) obtain a writtenacknowledgment from clients that representatives explained theconflict of interest to their satisfaction.

In fairness, the big discount brokers are sprawling and diversecompanies, and these conflicts relate to just a fraction of theiroperations. (My asset-management firm, for example, uses both TDand Schwab to custody assets for investors.)

Still, discount brokers should clean up their conflicts. Theyowe it to their clients to live up to their advertisements.

This column does not necessarily reflect the opinion ofBloomberg LP and its owners.

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