Fortunately, I was not alone in my beliefs. Late in 1973, as a member of the International Association of Financial Planners (now the Financial Planning Association or FPA), I volunteered to chair the committee that wrote the industry’s first code of ethics. Unfortunately, over the years, we have seen assaults from all sides, culminating in the now infamous Merrill Lynch Rule offensive, which sought to eliminate fiduciary responsibility from the industry.

For those who are unfamiliar with the history of the Merrill Lynch Rule, I offer the following:

• In 1940, the SEC created the Investment Advisors Act, which stated that those who manage money for clients in exchange for an ongoing fee are truly advisors to their clients. It went on to say that advisors should be held to a higher ethical standard than others.

• In 1999, Merrill Lynch announced a "noncommission" program that would charge a percentage of assets for investment advice, along with unlimited trading.

• In late 1999, Merrill Lynch realized it would have to follow the same SEC rules that govern Registered Investment Advisors. It petitioned for a rule allowing brokers to charge ongoing management fees without adhering to the same fiduciary standards outlined in the Investment Advisors Act.

• In 2005, the SEC unanimously approved the rule allowing brokers to offer fee-based accounts without registering as investment advisors. Hence, the Merrill Lynch Rule.

• The FPA subsequently sued the SEC. In March, the U.S. Court of Appeals overturned the Merrill Lynch Rule.

• In May, the SEC asked for a four-month stay on the ruling, allowing brokers time to react.

During the course of the debate, the Certified Financial Planner Board of Standards revisited its ethics policy and took the high road on ethical behavior and fiduciary responsibility. The support for a strong policy that drove us in 1973 still exists. The term "fiduciary" required advisors to act in clients’ best interests—not a responsibility to be taken lightly. To that end, the industry founded the Center for Fiduciary Studies to create the curricula necessary for attaining the Accredited Investment Fiduciary Analyst designation.

Beyond the Noise
Investors are faced with a myriad of choices and aggressive marketing programs to sell increasingly complex products in this industry. Too often, even sophisticated investors get lost in the noise, forgetting to ask their wealth advisor the important questions:

• Does the firm have an accredited fiduciary on staff?

• Does the firm invest in products it sells or promotes?

• Is ethics a core component of the firm’s presentation to the client or simply an add-on later in the process?

• Are there conflicts of interest between the firm and the strategies it promotes?

I am not an advocate of increased regulation, and I think there is a tendency to forget that ethics discussions and codes predate the Enron and WorldCom scandals. For decades, undergraduate and graduate institutions have offered courses in ethics—and classes required for accreditation in the financial planning industry are steeped in ethics discussions.

Starting in 1973, the principles of ethics have presided over the Registered Investment Advisor community, but the increase of complexity of business structures and financial products have made them more opaque. Today’s danger is that clients are forced to make decisions without full knowledge of in whose interests their wealth advisor is acting.

That brings us back to the Merrill Lynch Rule. I understand how it came about: The Merrills of the world spend enormous sums of money to blur the issue, attempting to convince investors that there is no difference between a brokerage relationship and a fiduciary one. But ethics are not optional. A responsible wealth manager can’t avoid the fiduciary role that mitigates any conflicts of interest. An adoption of the Merrill Lynch Rule—removing fiduciary responsibility from brokers—could jeopardize the relationship that true wealth managers have with their clients. Ultimately, the investor would have no protection and the industry, no credibility. That would be disastrous for both.

Richard Stone is founder and CEO of Salient Wealth Management, a Registered Investment Advisor in San Rafael, Calif. He is a Certified Financial Planner and serves on the Golden Gate University Financial Planning Advisory Board.