I was fortunate to participate in a brainstorming conferenceheld in Washington DC with a few dozen other industry thoughtleaders.

Much of the discussion reflected on the evolution of thefiduciary argument.

Indeed, over the years, we’ve seen advocates shift from viewingregulators as their Knight in Shining Armor to seeing a governmentthat has turned to the Dark Side (obligatory Star Warsreference--and I promise it will be the last one).

What caused this realization?

Perhaps things began to unravel when the creators of Dodd-Frankwent soft on the fiduciary standard.

Indeed, as Clark Blackman II explains in a recent interview, auniversal fiduciary standard is not “workable under Dodd-Frank”(see “Exclusive Interview: Clark Blackman Says SECFiduciary Fix ‘Not Tough Stuff’; Proposed DOL Fiduciary Rule a‘Band-Aid’,” FiduciaryNews.com, December 15,2015).

As he points out, “a conflict that causes me to act in my bestinterest, or my firm’s best interest, and not in my client’s solebest interest has to be avoided--it cannot be disclosed away.”

Read: Broker-dealer advisors at historiccrossroads

You would think the “incidental advice” rule in the 40 Act wouldbe enough for the SEC to solve the dilemma of thefiduciary standard, a controversy stemming from the factnon-registered investment advisers are allowed to skirtregistration by calling themselves “advisors.”

This is where Blackman brought up something that not many mayremember.

In a nutshell, during the mid-1980s the CPA industry beganexploring ways to offer financial planning services to its clients.It made sense to do this from a tax planning stand-point, but itwas hard to connect the dots and see where investment advice couldalso become a part of this service.

The CPA firms didn’t want to be required to register under the40 Act. They sought specific exclusion from this by asking the SECto rule that their acting as a financial planner fell under the“incidental advice” rule of the 40 Act, precluding them from thenecessity of registering.

The SEC declined. Its answer, covered in SEC Release IA-1092 inpart says:

Section 202(a)(II) of the Advisers Act defines the term“investment adviser” to mean:

… any person who, for compensation, engages in thebusiness.of advising others, either directly or throughpublications or writings, as to the value of securities or as tothe advisability of investing in, purchasing, or sellingsecurities, or who, for compensation and as part of a regularbusiness, issues or promulgates analyses or reports concerningsecurities…

And with that, any CPA firm that desired to hold itself out asoffering investment advice was required to register as aninvestment adviser with the SEC.

Fast forward several decades to today. The brokerage industryseems to have had the same innovative idea as the CPA industrydid.

Only, for some reason, the SEC hasn’t enforced its own ruleregarding the provision of investment advice.

For want of a single vowel, the broker industry appears to haveto have seized upon the Holy Grail of loopholes.

By referring to themselves as “advisors” rather than “advisers,”they have duped the SEC into believing their bread-and-butterbusiness is merely “incidental” to their business model.

Well, SEC (and DOL if you’re listening), providing investmentadvice isn’t incidental to their business model, it IS theirbusiness model.

If government regulators don’t know the difference betweencompeting business models, how can we expect the investing publicto?